Ask an advisor: Are my retirement savings safe from the SVB crisis?

March 16, 2023 6:52 PM

Silicon Valley Bank failed on March 10, 2023.

Welcome back to "Ask an Advisor," the advice column where real financial professionals answer questions from real people. The topic can be anything in the world of finance, from retirement to taxes to wealth management — or even advice on advising.

Last week, three U.S. banks collapsed in rapid succession, alarming customers and investors, sparking fears of contagion and roiling global markets. The headline implosion, Silicon Valley Bank in California, was the 16th-largest U.S.bank, with $209 billion in assets and $175 billion in deposits.

The timing of its collapse — two days after crypto-friendly commercial Silvergate Bank bellied up and 48 hours before retail Signature Bank of New York went into receivership — sparked fears of a domino effect. For some investors who lived through the financial crisis of 2007-2008, which began with a sequence of bankruptcies and near-deaths at major Wall Street financial institutions, the pattern seemed scarily familiar.

All the turmoil has left some retirement investors with a simple question: Are their savings safe? Today's query for advisors comes from one such jittery investor. A public school teacher in New York City, she has substantial savings in multiple accounts, but is worried that a new financial crisis could bring her savings down. Here's what she wrote:

Dear advisors,

I am a 47-year-old teacher at a public school in New York City. Like lots of people, I'm concerned about the crisis set off by the collapse of Silicon Valley Bank. Should I be worried for my retirement savings?

Right now I have a 401(k) from my last job, a Roth IRA and a tax-deferred annuity. I have about $58,000 in the 401(k) and $59,000 in the IRA. I also have $286,000 in the annuity, which has a fixed annual rate of return of 7%.

Are these investments safe? The panic over SVB seems to be hurting other banks and the stock market in general. Should I be doing anything to reduce my exposure? Also, my annuity is offered by the New York City Department of Education. If there's a larger economic crisis, could the city take my annuity away, or change it somehow? How worried should I be, and what should I do?

Thank you!

Sincerely,

Not Panicking in New York

And here's what financial advisors wrote back:

Keep some perspective

Noah Damsky, a chartered financial analyst and principal at

Marina Wealth Advisors

in Los Angeles

I expect your assets to be safe since they're generally below the limits for Securities Investor Protection Corporation coverage. Of course, your underlying holdings could expose you to specific risks (such as owning too much of a certain stock).

It's easy to feel overwhelmed by headlines until we realize it happens every few years. Remember when the Arab Spring, the European debt crisis and COVID felt like the end of the financial world as we knew it?

Betting on a collapse is tricky. If you're right, you probably can't spend the money you didn't lose! And, more likely than not, you're going to get it wrong. Put a few guardrails in place — like trading only when you rebalance your account each year, or hiring a financial advisor to do it for you — so you're not your own worst enemy.

Don't worry, but check

Nicholas Bunio, a certified financial planner at

Retirement Wealth Advisors

in Downingtown, Pennsylvania

Hi there! I work with teachers, so I understand the panic and worry. While "don't panic" is easier said than done, here are some of my thoughts.

While I feel the SVB situation is overblown, the losses you experience in the markets are really based on what you have. So I can't say for sure if your investments are appropriate for you or not.

As for your annuity via New York, the city probably will be changing your interest rate in the future, as interest rates decline during a long crisis. Also, while it's offered via the city government, it's backed by an insurance company. It's important to know how well-funded this company is. A well-funded company is great! But a poorly funded company could lead to problems with the safety of your annuity.

Since you're 47, it's appropriate to have a mix of stocks and bonds. But you still have at least about 10 years before many teachers retire (which is a good thing). So losses in the short term will be made up years later. But if you are very concerned, best to speak with a financial planner.

When in doubt, call an advisor

Jay Zigmont, a certified financial planner and the founder of

Childfree Wealth

in Water Valley, Mississippi

All investing comes with risks. The key is making sure that the risks you take provide the return you are looking for.

What is going on at SVB is unlikely to have a direct impact on you. Deposits in banks are insured for up to $250,000 a person (per deposit, per account, per bank), and the Federal Deposit Insurance Corporation has said it will cover amounts over $250,000 for SVB and Signature Bank. There may be other banks that are in trouble, but the new steps by the Fed should shore them up. It is a good reminder to keep your bank accounts below the FDIC limit.

As far as your 401(k) and IRA go, you may see them go up or down depending on what they are invested in. Banking and brokerage accounts are treated differently. Securities held in a brokerage account like this are insured by the Securities Investor Protection Corporation in case of fraud. The SIPC protects up to $500,000 of securities and cash, with cash being no more than $250,000.

When it comes to annuities, they are relatively safe, but the underlying insurance company matters. Insurance companies do go under, and then it would be dependent on the state insurance guarantees. Each state has their own plans on what to do when insurance companies fail.

All of this is to say, what you are invested in is likely to have more of an impact than who holds the assets. If you are not comfortable with your investments, this is a great time to reach out to a certified financial planner.