Should We Pull All Our Money Out of Our Retirement Plans?

 In Retirement Plans

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Question:

My husband is 77 and I also will be 77 in five days. What if we pulled all our money out of my husband’s 401(k) (~$200,000) and my IRA (~$30,000) and put the cash into our home safe until we see what this new administration brings in terms of stock market results? We cannot afford a crash as we have not fully recovered from the last one. Our 401k is non-agressively invested.

Response:

While I’m not an investment advisor and can’t say whether leaving the stock market at this time would be prudent, I would not cash out your retirement plans. Doing so would be a taxable event, no doubt meaning that your withdrawals would be taxed at a higher rate than if you were to withdraw the funds out over time. If you’re concerned about what will happen to the market, you can always change your investments within your retirement plans. The possibility that our nation’s financial system will completely fall apart making cash “under the mattress” safer than accounts at financial institutions seems quite small.

Now, getting into the investment world, for which I am not qualified, I am aware that most investment professionals advise against “market timing.” For instance, who would have predicted that in 2020, in the midst of the coronavirus pandemic, the S&P stock market index would have risen 16%? Your non-aggressively invested account no doubt rose about half of that, or about 8%. Having withdrawn everything at the beginning of the pandemic would have, in effect, resulted in an 8% decrease in the value of your portfolio, or even worse if you had done so when the market first dropped almost 30% at the beginning of the pandemic. Given that we cannot predict the market, most investment professionals recommend determining the balance of stock and bonds your comfortable with and adjusting your portfolio to stay more or less at that level. If you are comfortable with a portfolio that is half in stocks and half in bonds or savings and the stock market goes up, then you can sell some stock to bring your investments back to a 50/50 split. If the market declines, that will be an opportunity to buy more stock, again to restore the 50/50 balance.

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