Creating Retirement Stability in Times of Financial Uncertainty

Siân Killingsworth / 19 May 2022 / Business

Despite a climate of economic uncertainty, it’s still possible to create stability for retirement by maximizing 401(k) plan benefits, diversifying investments, maintaining the right portfolio mix, and resisting the temptation to cash out early.

For many Americans, a “golden retirement” may not feel as certain as it once was. A recent study from the Natixis Global Retirement Index found 59% of Americans accept that they will have to keep working longer, 41% say their ability to secure financial freedom is “going to take a miracle,” and 36% have given up hopes of being able to retire at all.

These days, investors are particularly worried about Social Security running out of funds, low interest rates, and soaring inflation. However, boom and bust cycles are inevitable in the economy, so investors will need a disciplined approach to temper these natural fluctuations.

Get the Full Employer 401(k) Match

Knowing the company 401(k) plan is one of the earliest steps to creating a stable retirement foundation. A company’s matching funds represent “free money” that can be added to a savings plan, tax-free, with compounding growth and interest at very little expense to the employee.

Plans vary, but a company may offer a 100% match on the first 4%, followed by a 50% match on the next 2%, for instance. Contributing at least that amount will ensure not a penny is left on the table.

Consider Working for Enjoyment

Picking up a part-time job after departing a full-time position can present an opportunity to explore hobbies and interests while postponing Social Security and retirement distributions, so the payouts are ultimately larger. This extra time also allows a portfolio the chance to recover after taking a few lumps from a downturned economy.

For instance, a 401(k) plan that dipped from $200,000 to $150,000 in value could be worth $190,000 if an investor socked the money away into a low-risk five-year CD that pays 5% returns. Meanwhile, working 20 hours a week—even if the job only paid a meager $12 per hour—would pay $12,000 per year—equivalent to a $100,000 portfolio earning a 12% annual distribution.

Stay the Course With Disciplined Withdrawals

Even before the pandemic, Boston College’s Center for Retirement Research estimated that 1.5% of assets leak out of 401(k)s and IRAs each year due to pre-retirement withdrawals for hardships after age 59.5, job cash-outs, and loans. While these avenues for emergency funds exist, they also jeopardize one’s financial future—often resulting in a 25% reduction in wealth at retirement.

After years of saving money and sacrificing, the temptation for new retirees to treat themselves with a big year-one withdrawal for a vacation or major purchase is very real. However, most experts suggest withdrawing 3-5% of account funds in the first year and determining how to adjust annual withdrawals to keep pace with inflation.

Make the Biggest 401(k) Contribution You Can Afford

There may be some years when you are not able to make the maximum contribution to your 401(k), especially in an unpredictable economy. However, contributing the maximum amount that you can afford will give you the best chance to stay on track to meet your retirement savings goals.

In 2022, the maximum 401(k) contribution amount is $20,500. To see how 401(k) contributions affect your take-home salary and to find the amount that will work best for you in your current financial situation, use our handy, free 401(k) paycheck calculator.

Are you looking into 401(k) retirement plans for your small business? Ubiquity is a top provider of low-fee, easy-to-manage small business 401(k)s. Reach out today to see how we can help you set aside more money for retirement and meet your savings goals even in financially tumultuous times.