Retiring Soon? Here’s Everything You Need to Know About Market Volatility
The market volatility that has reared its head this season is enough to make any investor dizzy. However, if you’re planning on retiring in the near future, it’s likely that you have found the recent events somewhat unsettling. It’s imperative that you protect yourself in unpredictable times. Here are some top tips for surviving marketing volatility.
First, you need to ensure that you have an income right up to retirement. Savings are all well and good, but they can run out and are not guaranteed. Short-term money also needs to be secure. If you have a sum of cash that you will need to get your hands on in the very near future, you shouldn’t invest it in the market. However, if you have access to cash reserves that you won’t need for another 5-10 years, you can comfortably ride out any market corrections.
If you do have money in the market and your retirement is rapidly approaching, you should exercise caution. You may be tempted to get your money out at the first opportunity. However, you’re going to find yourself facing a loss that will be incredibly difficult to recoup. You need to react in a measured and analytical way.
One of the most effective ways for people who are on the verge of retirement to deal with market volatility is to walk away as soon as the market exhibit a bounce back. You may find it very difficult to do this when the stocks are on the rise. However, with retirement around the corner, your primary objective should be to lock in any gains and put them safely in your pocket.
As the year starts to move toward a close, there are a few things you can do to make the most of your savings. One promising option is a Roth conversion, which involves transferring your money from a conventional IRA to a Roth IRA. This means that you will pay taxes on the amount as you convert it. Roths can be particularly promising at year-end because the market is declining; as such, the tax rates are lower. This entails you benefit from reduced taxes and have a full understanding of your income and tax obligations.
Once you’ve paid the tax and put the money in a Roth IRA, you can then rest assured that you won’t face any further tax bills on that sum of money. Basically, it is akin to securing a reduced tax rate in the present.
However, it’s important that you understand that Roth conversions and IRA contributions are not one and the same. They have different deadlines. As such, while you can make contributions to an IRA until April, Roth conversions need to have been transacted by December.
Furthermore, if you do opt to transfer your cash from an IRA into a Roth, don’t forget that this conversion is permanent. You will not be able to change your mind at a later date.