By Dan Keady, TIAA Chief Financial Planning Strategist
While the health and wellbeing of family, friends and neighbors remains top of mind, it’s perfectly normal to think about savings and investments given recent market fluctuations.
It’s important to remember to stay calm and keep your eye on the horizon, as this is the nature of long-term investing – you will inevitably face ups and downs.
As a 100-year-old financial institution, TIAA has helped our participants through many serious events and periods of market volatility, and today is no different. Here are some answers to common questions for managing your finances and retirement plans in response to this environment.
What are some steps I can take right now to ensure my finances are in the best possible place?
Now is a good time to check-in on your finances, to get a clear picture of where you stand, and how that compares to your goals or expectations. Two important aspects of your check-up should revolve around your emergency fund and asset allocation:
- Emergency Fund: Understand how much cash you have on hand in case of emergencies, like healthcare bills or an unexpected pay cut. While our ideal rule of thumb is to have enough savings to cover six months of living expenses, putting aside even a few hundred dollars provides cushion when you need it most. Keep the cash in a place where it is relatively safe and easy to get to quickly, like a savings account at a bank.
- Asset Allocation: Take a fresh look at your portfolio to make sure your asset allocation remains in sync with your goals, the time available to achieve them and your tolerance for risk. If you are just starting out in your career and decades away from retirement, continue to put as much as you can into your retirement. Be conservative about spending — do not overuse on credit cards. And most importantly, don’t get too rattled if your 401(k) or 403(b) investments decrease given your time horizon to retirement. If you’re in or nearing retirement, you have unique concerns, and increasing the proportion of your portfolio in bonds and certain guaranteed assets may help stabilize your investment income. It’s important to work with your advisor on a strategy to ensure you can weather the turbulence and allow you to have income for many years of retirement.
I have a significant amount of debt, and don’t know what to do.
Regardless of the market, managing debt is one of many competing financial priorities that people navigate. It is important for debt holders to stick with their repayment plan or pay down what they can. If the unexpected happens (e.g., unemployment, illness or other events that make it impossible to pay back your loans) contact your loan servicer immediately. They may be able to modify your repayment plan based on your income or other factors. Remember to maintain cash balances where possible and continue to save and invest for the future.
If I was planning to retire this year, should I consider changing my plans?
While working a few extra years is a great way to build up more of a financial cushion for retirement, a market downturn will not necessarily prohibit you from retiring as planned. First, consult with a professional to ensure your drawdown strategy makes sense based on your portfolio. If you have enough sources of guaranteed income in your portfolio to cover essential expenses, you may be able to continue with your retirement plans. Social Security is likely one source, but annuities may be another option that provides guaranteed income and keeps you from having to draw down your investment accounts.
Should I invest right now?
The answer to this really depends on your risk tolerance and financial portfolio, but keep in mind that attempting to time the market — by moving your money in and out of investments to try and avoid the lows and capture the performance highs in the short term — is extremely difficult in a volatile market. Even the most experienced investors get tripped up by market timing. Instead, keep your eyes on the horizon, think about the long-term and remember that past performance is no guarantee of future results. Rebalance so your portfolio remains in line with your risk tolerance, and stick with your savings plan even during volatile times — it will pay off in the long run.
How do I get started?
If you don’t have a financial plan yet, now is a good time to meet with a financial professional who can look at your financial situation, speak with you about your goals, and help create a plan to get there. Your TIAA advisor can evaluate whether your portfolio is built to weather market storms — or if it needs shoring up so it can continue meeting your objectives.