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When I retire in September 2022, my 401(k) is actively invested (90/10 split between stocks and bonds) and has lost about 30%. I invested my 401(k) in mutual funds hoping it would recoup some of my losses. A year later, it was back up about 20%. I don’t need to take the RMD for another five years. My question is, should I move the 401(k) funds into my traditional IRA account (which is 100% invested in stocks) and have an advisor manage the account? Or should I leave it in a mutual fund and rebalance the stock/bond percentages to be less aggressive, like 80/20 or 70/30?
– Bev
Congratulations on your recent retirement and what sounds like a stable financial situation. Your question is simple but a bit heavy. The answer depends largely on what you want from your retirement account and what you want from your advisor. I encourage you not to focus on returns, but to consider how your investments fit into the broader context of your goals, attitudes, and lifestyle preferences. (If you need help making important retirement decisions, consider working with a financial advisor.)
A recently retired woman looked out the window and thought about her retirement plans.
The reason I say your financial situation sounds good is because you are not withdrawing money from your account. I think this means you have enough other income or savings to sustain you until required minimum distributions (RMDs) begin. If so, it would be great if you were able to do this.
That being said, let’s talk about your asset allocation—the mix of different investments you hold. On the one hand, it’s very positive for retirees to have 90% of their investments in stocks. For most retirees, this is too radical. Typically, the money needs to be more stable so that you can withdraw it regularly. Since you imply that you won’t start taking withdrawals within the next five years, that may not be the case in your case.
Your investment horizon may be longer, and you may not need to withdraw the required funds once you reach the RMD age. If that’s the case, you may be able to afford to actively invest in stocks, although I can’t say for sure based on the information you’ve shared. (If you need help choosing an appropriate asset allocation, consider speaking with a financial advisor.)
Of course, your attitude towards risk also comes into play. You made the right choice to wait it out instead of panic selling after your account dropped in value. This suggests you may have a high enough risk tolerance to withstand an aggressive asset allocation. However, consider how stressed you are.
But your asset allocation and risk tolerance shouldn’t be the only deciding factors. You seem to be focusing a lot on the investment side, but I think it’s important that you ask yourself what you want to get out of the money. (A financial advisor can help you answer this very important question.)
Do you have any goals for saving this money? Does it need to support your income? Do you want to leave it to your heirs? Your goals should drive your investment decisions. Don’t invest in a vacuum.
Financial advisor discusses retirement investments with client.
I’m curious about the way you rolled your 401(k) into an IRA, invested it 100% in stocks, and had an advisor co-manage it. These are independent decisions, not intrinsically linked.
Again, be sure to think carefully about your goals and what you want to achieve with the money. An advisor who is also a financial planner can assist you in this regard. A financial planner can also help you understand how your investments should be based on your goals and risk tolerance. I think this is key. A financial planner can also manage your investments according to a plan the two of you create. (If you’re ready to work with a financial advisor, this tool can help match you with one.)
Don’t make investment allocation decisions in a vacuum. Consider your personal circumstances, attitudes and goals. Then, choose the allocation that works best for you. This approach should be taken whether you choose to do it on your own or with the help of a consultant.
Finding a financial advisor isn’t difficult. SmartAsset’s free tool pairs you with up to three vetted financial advisors serving your area, and you can have a free introductory call with your advisor to decide which one you think is the best fit for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started today.
Before choosing an advisor, consider several advisors. It’s important to make sure you find someone you trust to manage your money. As you consider your options, you should ask your advisor the following questions to ensure you make the right choice.
Keep an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – kept in an account that is not at risk of large swings like the stock market. The trade-off is that the value of liquid cash may be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts at these banks.
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Brandon Renfro, CFP®, is a SmartAsset financial planning columnist who answers reader questions on personal finance and tax topics. Have a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Brandon is not a participant in the SmartAsset AMP platform, nor an employee of SmartAsset, and he has been compensated for this article.Some reader-submitted questions have been edited for clarity or brevity.
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