Should I move my 401k into something more conservative?
Changing Your Asset Allocation As You Age
For most people, rolling over a 401(k) (or a 403(b) for those in the public or nonprofit sector) to an IRA is the best choice. That's because a rollover to an IRA offers: More control over your portfolio and more personalized investment choices. Easier to get up-to-date information about changes.
Shifting to a more conservative allocation in the retirement plan could be prudent. Perhaps you have built up more than enough savings to support your retirement and wish to pass on some of your assets to future generations. Multigenerational goals will require a different outlook.
While it can make sense to become more conservative as you're nearing retirement and need to access the money, you can probably afford to add a little more risk to your portfolio in exchange for a potentially higher return if you have at least five years.
One of the best things to do during a stock market crash or a low financial point is to stay the course and not reduce your 401(k) contributions. In fact, some believe a bear market is the right time to increase the percentage of income you funnel into your savings if you can afford it.
Bond funds, money market funds, index funds, stable value funds, and target-date funds are lower-risk options for your 401(k).
Rolling Over Your 401(k) to an IRA. You have the most control and the most choice if you own an IRA. IRAs typically offer a much wider array of investment options than 401(k)s (unless you work for a company with a very high-quality plan such as a Fortune 500 firm).
- Protecting Your 401(k) From a Stock Market Crash.
- Don't Panic and Withdraw Your Money Too Early.
- Diversify Your Portfolio.
- Rebalance Your Portfolio.
- Keep Some Cash on Hand.
- Continue Contributing to Your 401(k) and Other Retirement Accounts.
- How to Respond to a Recession.
As you near retirement, however, you may want to shift to more conservative options, such as dividend stock funds or bond funds, which can provide more stability and protect your accumulated earnings.
Diversification is an important factor, and you'll want to balance having too much in one type of asset. For example, many experts recommend having an allocation to large stocks such as those in an S&P 500 index fund as well as an allocation to medium- and small-cap stocks.
At what age should you invest more conservatively?
Asset Allocation in Your 60s, 70s, and over
As you near retirement, your portfolio will move gradually from more aggressive to more conservative.
Shifting more of a portfolio's allocation to bonds and cash investments may offer a sense of security for investors who are heavily invested in stocks when a period of extended volatility sets in. That can be a key component of trying to protect your 401(k) from a stock market crash.
Many plans require a 6% deferral to get the full match, and many savers stop there. That may be enough for those who expect to have other resources. For most people, though, it probably won't be. If you start early enough, given the time your money has to grow.
The worst thing you can do to your 401(k) is to cash out if the market crashes. Market downturns are generally short and minimal compared to the rebounds that follow. As long as you hold on to your investments during a bear market, you haven't lost anything.
If the dollar collapses, your 401(k) would lose a significant amount of value, possibly even becoming worthless. Inflation would result if the dollar collapsed, decreasing the real value of the dollar when compared to other global currencies, which in effect would reduce the value of your 401(k).
The financial services firm handles more than 45 million retirement accounts total. The average 401(k) balance ended 2023 up 14% from a year earlier to $118,600, Fidelity found. The average individual retirement account balance also gained 12% year over year to $116,600 in the fourth quarter of 2023.
It is possible to lose money in a Roth IRA depending on the investments chosen. Roth IRAs are not 100% safe, but they offer the potential for growth over time. Market fluctuations and early withdrawal penalties can cause a Roth IRA to lose money.
Diversify Plan Investments
Short-term bonds can also be a safer bet when inflation is higher since you're not locked in to lower rates for an extended period. You may also consider funds that hold commodities or real estate, both of which can perform well amid higher inflation.
If you're transitioning to a new job or heading into retirement, rolling over your 401(k) to a Roth IRA can help you continue to save for retirement while letting any earnings grow tax-free. You can roll Roth 401(k) contributions and earnings directly into a Roth IRA tax-free.
- Convert to a Roth 401(k)
- Consider a direct rollover when you change jobs.
- Avoid 401(k) early withdrawal.
- Take your RMD each year ...
- But don't double-dip.
- Keep an eye on your tax bracket.
- Work with a professional to optimize your taxes.
Can I move my 401k to CD without paying taxes?
You can rollover your 401(k) account into a CD without any penalties or taxes. But you need to make sure you're rolling over into an IRA CD, specifically. And always ensure to roll over into a like-kind account, whether a traditional or Roth retirement account, or you might get hit with a surprise tax bill.
Once you reach 59½, you can take distributions from your 401(k) plan without being subject to the 10% penalty. However, that doesn't mean there are no consequences. All withdrawals from your 401(k), even those taken after age 59½, are subject to ordinary income taxes.
In a recession, stock prices are generally depressed because earnings are generally depressed. Stocks tend to correct in a recession by 15% – 35%. Over time, stocks return 8-10% a year. If you still have 10 years or more to go before retirement, you should absolutely continue to max out your 401(k) at the very least.
Investors seeking stability in a recession often turn to investment-grade bonds. These are debt securities issued by financially strong corporations or government entities. They offer regular interest payments and a smaller risk of default, relative to bonds with lower ratings.
Most of our experts agree that one of the safest places to keep your money is in a savings account insured by the Federal Deposit Insurance Corporation (FDIC). “High-yield savings accounts are an excellent option for those looking to keep their retirement savings safe.
