Investing for Retirement in Uncertain Times

Retirees lost 23% of their 401(k) savings in 2022. What they should do next?

By Deborah Jeanne Sergeant

In recent years, many on the cusp of retirement have begun struggling to maintain their nest egg. Inflation has pushed many to reduce saving for retirement to cover day to day expenses.

Recently, U.S. News and World Reports survey revealed that 41% of those saving for retirement have temporarily stopped allocating money for retirement funds to cope with inflation.

In addition, investments have taken a beating.

According to Fidelity, retirees lost 23% of their 401(k) savings in 2022, the average IRA decreased by 20% by the end of 2022 and half of retirees think that they will likely outlive their savings.

It can be hard to know what to do next to protect current assets and continue to grow the nest egg.

Randy L. Zeigler, certified financial planner and private wealth adviser for Ameriprise Financial Services, LLC in Oswego, advises patience, not panic.

“Clients should develop an investment strategy and allocation that fits their timeframe, risk orientation and their specific goals to be funded,” he said. “I discourage investors from making large changes in their portfolios based upon how markets move around. When people make major changes based upon market volatility, they often make those changes in a way that is diametrically opposed to how their portfolio would be likely to generate recovery.”

He cited high-grade corporate bond market as an example of an investment segment that experienced a “very bad year” with losses ranging between 12% and 15% because of the Federal Reserve’s raising short-term interest rates by 5% within 15 months.

It may seem like a good idea to move funds out of those bonds before suffering further losses, but Zeigler said that would mean those investors would miss the recovery period likely for the bond market when the rates plateau.

“Building a sound, diversified and balanced investment strategy that is consistent with one’s risk tolerance is a much wiser strategy than trying to constantly time the market and move the portfolio around,” Zeigler said. “If investors are unable to determine their own risk tolerance and investment temperament, they should seek professional advisory counsel that can help them understand how to create a balanced portfolio strategy to fit their goals and risk and then can provide guidance to make investment changes that make sense relative to their goals and timeframe and are not based upon emotional responses to market volatility.”

Those yet planning for retirement and still working may want to continue working longer to make up for losses.

“Statistically speaking, especially now, people are working longer into their later years,” said Phil Provenzano, certified Social Security specialist with The Financial Guys in Rochester.

Delaying retirement can offer more time to put away money in investments and obtain a higher Social Security income.

Adjusting investments can also help ensure more retirement income later. But how to tweak investments varies widely.

“Each person has a different tolerance for risk and therefore the level of risk they are willing to accept is something that can be different for each person, even from one spouse versus another,” Provenzano said.

Knowing one’s tolerance for risk begins with reviewing work-related investment such as a 401k, 403b or IRA. Provenzano said most people do not regularly review these but they should.

He encourages people still working to consider contributing more to their workplace investments.

“In 2023, the contribution limits for 401ks are even more generous, because those limits are adjusted for inflation each year,” Provenzano said. “Savers will be able to sock away $22,500 a year in 2023; those 50 and above can contribute an additional $7,500, for a total annual contribution of $30,000.”

Once one reaches 50 to 60 years old, it’s time to reconsider the investment strategy and risk tolerance as well as reevaluate the money accumulated, the fixed income that will be available for retirement like pensions and Social Security, and “how we can harvest the wealth and preserve the wealth that we worked so hard in accumulating,” Provenzano said.

Especially with the tumultuous economy of recent years, “the need for planning and guidance is of utmost importance,” he added. “There are so many ways to accomplish investment objectives, however only one way is right for each person. That is always based on how that person feels.  I always tell my clients, if you feel uneasy about the plan that is in place, even though it may be foolproof, a change may be needed. The human element is taken out of planning nowadays because of all the technology we have.  I always suggest that a good plan that is created is one that all parties feel good about.”