3 Ways to Protect a Retirement Plan Against Recession

IIt can be scary for an investor to watch their 401(k) holdings disappear during a recession, even though experts say the market will eventually come back. To InitiatedJay Zigmont, financial planner and founder of Live Learning Planoffers three steps to proactively protect retirement funds from a recession.

Convert a traditional 401(k) or IRA to a Roth account

While traditional 401(k)s and Individual Retirement Accounts are funded with pre-tax dollars, Roth Accountsare funded with after-tax dollars, meaning the retiree won’t have to pay taxes when they withdraw the funds in retirement (as they would with 401(k)s and traditional IRAs).

“When you convert, you pay the taxes now, but the amounts converted to a Roth IRA grow tax-free and they come out tax-free,” Zigmont said, adding, “Keep in mind that a 401(k) has minimum required distributionsso if you have a Roth 401(k), be sure to roll it over to a Roth IRA after you stop working, because a Roth IRA doesn’t have an RMD.”

Reassess the Social Security system

Zigmont recommends investors visit ssa.gov to download their most recent Social security benefits statement.

“Your Social Security statement will tell you how much you’ll get if you start claiming Social Security now and every year in the future,” he said. will go up.”

He added that Social Security benefits have a built-in cost-of-living adjustment, which is 5.9% in 2022.

And while some people might choose to start taking their Social Security benefits now, Zigmont warned, “If you feel like you need to take your Social Security payment now to make up for the market downturn, remember you’re doing a choice that impacts the rest of your life.”

Live now on a fixed income to prepare for your retirement

The best way to protect a retirement plan from recession is to start adjusting to a lower fixed income as soon as possible.

“If you feel like things are going to be ‘tight,’ you may need to change your retirement date,” Zigmont said. “Start living on a budget now like you have a fixed income and see if you’re okay with it.”

Those who are particularly anxious can use financial software that works Monte Carlo simulationsthat show how a pension plan works based on the economic situation at the time the investor retires.

“These simulations will give you a number that reflects the chances that you will run out of money,” he said.

At national scale offers a variety of actively managed ETFs for advisors that cater to a range of investment exposures and strategies for those seeking retirement income options for their clients as part of their broader retirement planning.

For more news, insights and strategy visit the Retirement income channel.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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