The stock market’s recent volatility has many Americans worried about their retirement savings. Michael Montgomery, a 66-year-old professor from Michigan, used to check his retirement account balance weekly with a smile. Now, he avoids it, fearing the potential losses.
Montgomery and his wife moved more money into bonds after the recent elections to mitigate their concerns. However, he remains apprehensive about further moves given the global economic uncertainty. “I hope like hell I don’t lose all my retirement savings,” Montgomery says.
Jeanne Oats Estridge, a 71-year-old retiree from Ohio, also felt the impact on her retirement account. She recently called her financial planner, asking, “How about we put it all in cash?” Her planner advised against it. Economists have suggested that U.S. stocks were overpriced and due for a correction.
The added uncertainty from new tariff policies has heightened the anxiety. The S&P 500 is down 10% from its February high, with sharper declines in the Nasdaq and small-cap stocks. Many economists now warn of a possible recession.
As financial uncertainties unfold, many grapple with how to best protect their savings without jeopardizing their future plans. Retirement savers are flocking to safer corners of their 401(k) plans.
Experts’ advice on saving strategies
In March, large-cap U.S. equity funds in retirement plans saw $548 million in outflows, with $329 million withdrawn from target date funds. Plan participants redirected $367 million to stable value funds, $245 million to bond funds, and $178 million to money market funds. Rob Austin, head of thought leadership at Alight, notes that March was the busiest month for trading activity since October 2020.
Money market funds have garnered attention for their attractive yields as the Federal Reserve keeps interest rates high. The Crane 100 Money Fund Index has an annualized seven-day yield of 4.14%. Stable value funds, offered only in retirement plans, consist of short- and intermediate-term bonds with an insurance “wrapper” protecting investors’ principal and accumulated interest.
While stable value offers protection, savers risk missing the recovery by bailing from stocks at the worst time. Jania Stout, president of Prime Capital Retirement & Wellness, warns that people are quicker to move out of the market than to move back in. Financial analysts suggest strategies to secure your financial future amid the volatility.
Greg McBride, chief financial analyst for Bankrate, advises riding out market dips if retirement is decades away. For those closer to retirement, he suggests gradually reducing risk by adjusting the proportion of stocks and bonds. Experts recommend considering your financial goals and consulting with a financial advisor.
If you’ve made good progress, it may make sense to take on less risk. The first five years of withdrawals in retirement should be placed in safe-haven investments to protect your retirement date.
Image Credits: Photo by micheile henderson on Unsplash
