Our daily roundup of retirement news your clients may be thinking about.
Hold tight or splurge? Booming retirement accounts prompt tough questions
401(k) investors continue making significant returns amid a soaring stock market, prompting many of them to consider withdrawing from their accounts, according to this article from the Washington Post. A feeling of optimism could spread as more Americans receive their year-end retirement account statements this month that show newfound paper wealth, according to the article. Indeed, some are taking money out—despite the taxes and penalties involved—assuming it will be replaced as markets continue to surge upward. “There are a lot of people who are feeling comfortable spending their retirement money right now,” one advisor said. However, Alicia Munnell of the Boston College Center for Retirement Research believes that the current level of 401(k) balances may not still be enough to secure retirement. “Balances in these accounts are woefully inadequate.”
Is now the right time to rebalance your retirement investments?
Investors usually rebalance their retirement portfolio at the start of the year, but the decision is actually a complex one to make, writes an expert on MarketWatch. Although the goal of rebalancing is to reduce risk, it could also lead to greater risk exposure, writes the expert. "Rebalancing is the opposite of momentum investing, whose mantra is letting your profits run and cutting your losses. Rebalancing improves returns during periods when momentum doesn’t work, and not otherwise."
A conservative retirement saver portfolio for ETF investors…
Morningstar's Christine Benz recommends a portfolio for conservative investors particularly those who are approaching retirement. The portfolio "includes an equity stake of more than 50%, in recognition of the fact that the typical American who's 65 today has a life expectancy of roughly 20 more years and needs the growth potential that stocks afford," writes the expert. "I'm assuming this portfolio will be held in a tax-sheltered account. But if that's not the case, investors will want to be careful with categories like TIPs, which tend to have high tax costs."
…A moderate retirement saver portfolio
Christine Benz also offers an investment portfolio for middle-aged retirement savers who adopt a moderate investing strategy. "Mid-career individuals can use the Moderate portfolio to help assess their portfolios' positioning," writes the expert. "Investors who intend to hold their portfolios inside of a taxable account would want to put a greater emphasis on tax efficiency, emphasizing index funds and ETFs on the equity side, for example."
Too much in retirement savings? Not possible
Clients who think that they have saved too much in retirement accounts without holding any assets in non-retirement accounts have the option to transfer some funds when they turn 59 1/2, according to this Q&A article from USA Today. When they reach this age, they can make tax-free withdrawals from their 401(k) plans and transfer the funds to a non-retirement account. Another option is to move some assets in their traditional IRA to a Roth using a Roth ladder conversion strategy.