Retirement Planning
Date: February 9, 2022

Protecting Your Retirement Plan During Troubled Times in AZ

A robo advisor won’t cut it – troubled times call for strategic measures, especially to protect your retirement. Inflation is at 7%, the highest rate since the 1980s, and far above what it has been over several decades. The stock market is in turmoil; you have likely seen the value in your accounts drop over the past several weeks. 

Not only that, but the U.S. Federal Reserve has signaled the intent to raise interest rates — a move that can cause further churn in markets, making money more expensive. Investment management firms in Arizona are planning long-term wealth despite the economic downturn. 


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How Trouble Times Affect Your Retirement Plan

The U.S. stock markets dropped in January, entering correction territory. This lowers the value of any money in stocks, including those held in your retirement accounts. If you have fewer savings now, it will take longer to reach your retirement goals. Concentrated stock strategies could help.

Current events can harm your retirement plans. High inflation erodes the value of your savings. It raises the income requirements for retirement because everything costs more when retirement rolls around.

How To Protect Your Retirement Plan

How can you protect your retirement plan? The steps vary according to the other elements in your comprehensive financial plan. Many require expert help. Talk to financial planners in AZ about the following.

1. Don’t panic – stick to your plan

You’ll never help yourself financially by panicking. First, you need a clear and calm head to get through this. Second, don’t make any moves that are panic-driven. Selling stocks that have declined in price deprives you of the ability to make money back when the stock rises again. You also lose out on dividend payments. 

The key is to create a sound plan for your goals and stick to them.  If you are in or close to retirement, consider the Watts Gwilliam Bucket strategy.  This can help give you peace of mind during volatile times.

2. Consider delaying retirement or working at a new job

If your retirement savings have fallen and/or you’re concerned about inflation and planned to retire in the short term, consider delaying your retirement until stocks rise again or the economy is on a better footing. 

The fewer years you withdraw from your retirement savings, the less you’ll need. Alternatively, consider working at a new job, perhaps part-time in retirement, to stretch out the time you need to withdraw from retirement funds.

3. Don’t take Social Security before you’re 70

If you take Social Security before you’re 70, you’re losing out on money you could have had if you waited. Why? Because the amount you’ll receive rises roughly 8% every year between the age of full retirement and 70.  Taking funds early might make sense for your particular situation but always review your options with an advisor prior to taking action.

 (Your full retirement age is determined by your birth date and is 67 for everyone born in 1960 and later.) In other words, if you wait until 70, you’ll get 24% more than if you retire at 67.

4. Increase your contributions

Remember, the more you contribute to your retirement funds, the more you’ll have in them. In 2022, you can contribute $20,500 to a 401(k) and $6,000 to an Individual Retirement Account (IRA) every year. If you’re 50 and over, you can contribute an additional $6,500 to 401(k)s and $1,000 to IRAs every year.

5. Discuss a back door Roth with our advisor

Roth retirement accounts can help in trying times because retirees are not required to pay taxes on withdrawals from Roth accounts (if held for five years), while necessary to on traditional retirement accounts. 

A back door Roth account refers to converting traditional 401(k) or IRA assets to Roths. Be aware that you will need to pay taxes in the year of conversion. This is a complicated strategy, so be sure to speak to our advisors about it.

6. Diversify and review your asset allocation

While you shouldn’t sell stocks in a panic, that’s not to say you shouldn’t review your portfolios to see if diversification wouldn’t help. Diversification can cushion the impact of stock market swings and maximize your returns.

It’s prudent to review your asset allocation every year. Increases in interest rates can make asset classes like cash (CDs) and bonds more attractive than they have been.

7. Rebalance your portfolio

Portfolios should also be rebalanced every year. Why? Because the performance of the asset classes can change the asset allocation into something else. Despite the January turmoil, stocks did very well in 2021. 

Increases in stock prices can make stocks overweighted in your portfolio, and rebalancing restores the ideal weighting.

Similarly, a period of underperformance can lead to asset classes being underweighted, which rebalancing can rectify.

8. Consider alternate investments like gold, silver, and real estate

Many portfolios are divided into three primary asset classes: cash, bonds, and stocks. However, don’t overlook alternative investments like precious metals (gold and silver) and real estate. Many investors buy gold when inflation flares up, which can raise the price of gold. 

Real estate has done very well over the past year and is expected to keep rising in many areas. Real estate can also hedge against inflation, as real estate holders benefit from rising real estate prices.

9. Don’t forget to factor in taxes

Taxes factor into your retirement in several ways. First, anyway, you can reduce taxes in your retirement or now effectively put money back into your pocket. That makes it a good idea to discuss your tax strategies with a Certified Financial Planner in Utah.

Second, taxes may be going up in the coming years. Discuss ways to get ahead of expected changes in the tax code.

10. Review your plan with a trusted advisor

You should periodically review your retirement plan with a trusted investment advisor, especially in troubled times. We are the best financial planners in Utah. Let’s start a valuable conversation!

“We’re often told that working with us feels more like having family in the business, which we love to hear.”          – Dave Watts, Co-Founder

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David Watts

Dave is one of the firm’s founders. He helps business owners, professional athletes, and other high-net worth clients develop and implement financial plans and strategies. He also specializes in helping those with single-stock positions to diversify and manage their financial lives. Other areas of specialty are wealth transfer plans for concentrated stockholders and business owners; tax minimization strategies for those with employee stock options; cash flow management; and risk management planning.