Protect Your 401(k) Near Retirement: Safer Options
If you’re approaching retirement, you may be looking at your 401(k) differently than you did 10 or 20 years ago.
When retirement was years away, market fluctuations were often easier to tolerate. You had time to recover from a market downturn and continue contributing to your account.
But as retirement gets closer, a significant market decline can have a much greater impact on your financial security.
That’s why it may be worth asking an important question:
Is your retirement savings strategy still appropriate for where you are today?
Market Risk Can Become More Concerning Near Retirement
Consider someone with $750,000 in a market-based 401(k).
If the market declines 20%, that account could temporarily fall to approximately $600,000.
A 30% decline would reduce it to approximately $525,000.
For someone who is still working and contributing to the 401(k), a market decline may provide time to recover.
For someone who is already retired and withdrawing money, however, the consequences can be much more significant.
You may be taking withdrawals at the same time your account is declining. This can make it more difficult for your retirement savings to recover.
This is one reason retirement planning should include more than simply pursuing investment growth.
It should also consider how much risk you can afford to take with the money you have already accumulated.
A 401(k) Rollover May Provide Another Option
If you’re approaching retirement, one strategy worth considering is rolling eligible 401(k) money into an IRA that offers contractual guarantees, such as a fixed annuity IRA.
When properly structured as a direct rollover, qualified retirement assets can generally move from a 401(k) to an IRA without triggering current federal income taxes.
Once the money is in the IRA, certain guaranteed products may offer features designed to reduce exposure to market losses and provide greater predictability.
Depending on the product, these features may include:
- Protection from market losses on amounts covered by the contract.
- Guaranteed interest rates for specified periods.
- Guaranteed income options for retirement.
- Continued tax-deferred growth within the IRA.
The objective isn’t necessarily to move all of your retirement savings out of the market.
Instead, it may make sense to protect a portion of the money you have already accumulated while keeping other assets positioned for long-term growth.
You Don’t Have to Choose Between Growth and Security
Retirement planning doesn’t have to be an all-or-nothing decision.
Some retirees may benefit from having different types of assets serving different purposes.
For example, your retirement strategy might include:
Market investments for long-term growth and potential inflation protection.
Guaranteed investments for stability and predictable retirement income.
Cash or short-term investments for immediate spending needs.
The appropriate combination depends on your age, retirement income needs, other assets, risk tolerance and overall financial objectives.
What Happens If the Market Drops Right After You Retire?
This is one of the questions every person approaching retirement should consider.
A significant market decline during the early years of retirement can be particularly challenging because you’re no longer simply accumulating assets.
You’re beginning to use them.
If you’re withdrawing money from an account while its value is falling, you may have fewer assets available to participate in the eventual market recovery.
Having a portion of your retirement assets in a strategy with contractual guarantees may help reduce the impact of market volatility on the money you depend upon for retirement income.
You Worked Hard to Build Your Retirement Savings
After decades of working and saving, retirement is the time when your priorities may change.
Earlier in your career, the question may have been:
“How much can my investments grow?”
As retirement approaches, the question may become:
“How much of what I’ve accumulated can I protect?”
That doesn’t mean abandoning growth or avoiding the stock market altogether.
It means taking a closer look at your overall retirement strategy and determining whether you have enough stability, guarantees and predictable income to complement your market-based investments.
Is a 401(k) Rollover to a Guaranteed IRA Right for You?
A rollover isn’t appropriate for everyone, and guarantees, fees, surrender provisions and other contract terms vary by product.
However, if you’re nearing retirement and concerned about market volatility, it may be worth exploring whether a guaranteed IRA could play a role in your retirement plan.
At Frost Insurance Agency, we can help you review your retirement income concerns and determine whether a guaranteed strategy is worth considering.
You spent decades building your retirement savings. As retirement gets closer, it may be time to think not only about growing what you’ve earned—but protecting it, too.
Contact Frost Insurance Agency today to schedule a retirement planning conversation.
This article is for educational purposes only and is not tax or investment advice. IRA rollovers and annuity products involve important tax, investment, liquidity and contractual considerations. Guarantees are subject to the claims-paying ability of the issuing insurance company. Consult your tax or financial professional regarding your individual circumstances.
To learn more about how proactive risk management and personalized advice can protect what matters most, contact Frost Insurance Agency. Call us at 419-592-4476, email frost@frostins.com, or click here to start a conversation about your risks and goals.
Prefer a face-to-face review? Visit one of our four convenient locations in Archbold, Napoleon, Holgate, or Whitehouse — and let’s build a protection plan, not just a policy.