Our daily roundup of retirement news your clients may be thinking about.
Financial advisors use either financial planning software or "Monte Carlo" analyses to show to retirement savers the impact of a market correction on their portfolio, according to this article on MarketWatch. Clients can retire smoothly even during a downturn if they diversify and rebalance their portfolios properly, pay off debts and create a claiming strategy that will maximize their Social Security benefits. They may also defer retirement and continue working so they can rely on wage income instead of their passive investments to cover their expenses.
Even worse, those at the bottom of the pack averaged higher expense ratios.
Replacing actively managed funds with index funds, opting for broad all-market equity funds and using a target-date or balanced fund to achieve asset allocation are some of the tax-efficient strategies for investors to simplify their portfolio next year, according to this article on Morningstar. "Clutter in your financial life — like clutter on your desktop — has the potential to distract you from the main jobs at hand," says Morningstar's Christine Benz. "You may not bother reviewing and maintaining your portfolio if it has too many moving parts."
A market correction should not prompt investors to make decisions, as volatility is a normal occurrence in the stock market, according to this article on CNBC. They should revisit their investing goals and evaluate the risks in their portfolios. A downturn can also be a good time to buy shares, although 401(k) participants are already dollar-cost averaging, meaning they are investing their contributions in more shares when markets slow down.
A Roth IRA provides tax-free distributions in retirement, a great option for clients who want to reduce the tax bite on income in the golden years, according to this article on Kiplinger. It is not impossible to save $1 million in a Roth IRA, but not everybody qualifies to contribute to the account because of income limits. However, those who cannot make direct contributions have the option of moving some of their traditional IRA assets into a Roth, a strategy called a backdoor Roth conversion.
