Staying healthy is top of mind around the globe right now. People are taking extra steps to ensure wellness, slowing down to create order out of chaos, and prioritizing what is most important in life.
It’s natural to feel uncertain about the coronavirus and the impacts it’s having on the economy. Most of us are experiencing this life-spiraling shift for the first time. To add to the confusion, those who are looking forward to brighter days in retirement—and those in retirement—are staring at their 401(k) accounts with jaws dropped.
Holistic Review of Finances
The only way to get through this is to do something about it. Take a 360 degree look at your finances. With extra time at home, we have the ability and resiliency to navigate these challenges to find opportunity. Fear and pain are the fuel to transformation. Now is the time to take a look at your individual investments, talk to your mortgage broker about refinancing, ensure tax-savvy decision making, and discuss estate planning strategies with your attorney.
We just got out of the longest bull run in U.S. history with only two pullbacks in 2011 and 2018, where we saw the S&P 500 fall over 19% from previous highs. We were close to a bear market not too long ago, but it recovered. The market will recover again, too. I’ve been investing for over 30 years and know that, for most of you, now is not the time to fold ‘em. But, now is definitely the time to take a hard look at what cards you have in your hand and how you plan to play them.
Retiring Soon
If you have your eyes set on retirement in the next couple of years, you still have time. If you’re not retired, it’s not time to stop investing. It may be time, however, to look at your individual investments to determine if you’re well positioned to weather the storm.
Are you being conservative with your money and progressive with your product strategy? Low cost annuities, for example, allow investors to lock in gains for the year and defer taxes until distributions are made. Annuities are taxed as ordinary income, not as capital gains, so if you are in the top tax bracket, the tax rate to withdrawal the money may be higher depending on your situation and timing.
There are a couple different types of annuities. Many baby boomers in their fifties and sixties are focusing on reasonable-fee variable annuities with guarantees. This strategy comes in handy for those who are looking for an income stream as they fear entering into retirement in a down market and running out of money. Keep in mind variable annuities are suitable for long-term investing, such as retirement investing. Withdrawals prior to age 59 ½ may be subject to tax penalties and surrender charges may apply. Variable annuities are subject to market risk and may lose value. Guarantees are based on the claims paying ability of the issuer.
Even in a down market, however, stocks are still valued pretty high, so should you consider buying in the dip? Should everyone stock up on toilet paper stocks? Kidding aside, it’s tough to say if the sell-off is over. Corporations continue to gobble up stocks that have hit record lows. Does this mean today’s tanked stocks will be tomorrow’s wins? Who knows. It really depends on each individual investment strategy.
If you’re close to retirement, it’s important to diversify your portfolio and make your finances work for you, minimizing the impact caused by a volatile market. All of this can be done virtually and over the phone, so now is the time to pay attention to your investments and financial plan.
Retirement in Down Market
For retirees, your investment strategy most likely anticipated market fluctuations during the golden years and was built to maintain a healthy income stream during retirement. U.S. Treasury bonds most likely take up half of your portfolio, while the other half stays in stocks and cash. If you have Social Security income benefits, you could be well positioned to stay in the game and reap the benefits when the market recovers.
It is, however, tempting for some retirees to want to take everything out of the market before any potential additional losses incur. Before you do that, evaluate how your assets are allocated, weigh your original plan’s objectives and goals, and determine if your risk portfolio can ride out the downturn. You should also consider if you’re ready to pay taxes this year on the sale of your stocks should you choose to withdrawal.
Fortunately, financial and investment planning provides so many good options. If we can get this virus under control sooner than later, there’s a better chance of the market coming back in the third and fourth quarter.
Next Steps
Take advantage of this time to get your portfolio and finances in order. It will benefit you now and in the long run. Many of us are at home or in our private offices, virtually connected, hard at work, and looking at screens to stay on top of the latest news. Contact me to help you get started. Call our office line at (978) 864-9581, or email me at stu@eaglerockwealth.net.
Stuart Steinberg, CFP, CPA, MBA has been working closely with families and their money situations since 1988. He can be reached at 61 Water Street, #2, Newburyport, MA 01950 and at (978)864-9581 and stu@eaglerockwealth.net
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. This information is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax advisor.
Securities and Financial planning offered through LPL Financial, a registered investment advisor. Member FINRA www.finra.org / SIPC www.sipc.org.
