How to Optimize Your Retirement Account During Volatile Times

Ahead of Halloween, investors in the stock market have been subjected to a double dose of terror, with equities exhibiting wild and unpredictable swings while remaining in negative territory. Consider the meeting held on October 13, 2022. According to Markets Insider, the S&P 500 touched a 52-week low during intraday trading, fluctuated by more than 5% during the session, and concluded with a gain of 2.6%.

This type of uncertainty makes saving for retirement very difficult. Additionally, it coincides with a significant adjustment in contribution limitations for retirement savings accounts. The IRS stated on October 21 that the contribution ceiling for 401(k), 403(b), 457 plans, and the Thrift Savings Plan will increase to $22,500 in 2024 from $20,500 in 2022. In 2024, the maximum yearly contribution to an IRA will increase from $6,000 to $6,500.

Catch-up contribution limitations for employees aged 50 and older will also rise from $6,500 in 2022 to $7,500 in 2024. The combination of a volatile stock market and new contribution rules means you must pay extra attention to establishing the optimal retirement savings approach.

First and foremost, you must take a deep breath and refrain from panicking. According to the AARP, the typical bear market rebounds in three and a half years. Younger investors can often invest and yet have the time to recoup. There is also a chance to purchase low-priced equities and profit from their appreciation when the markets return to bull territory.

Even if you’re 50 years old and expect to retire in 15 years, “your best chance may be to continue saving the same amount of money in your 401(k) or IRA,” financial columnist John Waggoner said in an AARP blog.

Certified financial advisor Sefa Mawuli of Pavlov Financial Planning in Arlington, Virginia, concurs.

Mawuli told CNN that continuous and continued contributions are the key to 401(k) success. Continued contributions during market declines enable investors to purchase assets at lower prices, which may help your account recover more quickly following a market decline.

During a down market, you can even consider increasing your donations if you haven’t already reached the maximum. This allows you to purchase equities at a discount and take a positive move even if your retirement account decreases in the short term.

You should also evaluate your asset portfolio and make any necessary adjustments. Depending on your age, you may need a temporary rebalancing of your assets in favor of lower-risk investments like bonds and value stocks.

Mark Phelps, a CFA and the Director of Manager Research at Ameriprise Financial, noted in a blog post when the market swings, your portfolio may deviate from your initial asset allocation plans and the risk profile that supports your financial objectives. By analyzing your portfolio, you may determine that rebalancing is necessary or that no adjustments are necessary.

The increased contribution limits taking effect next year will allow you to optimize your retirement savings, Allianz Life’s vice president of consumer insights, Kelly LaVigne, says. While the recent market decline may have hurt retirement plan balances, the lower current price per share – paired with the bigger contribution limits – might significantly benefit people who need to save more for retirement, LaVigne told GOBankingRates via email. The increase in catch-up payments for qualifying plans might help those aged 50 and beyond.

Lastly, keep the long perspective in mind rather than the quick one. Fidelity advises having ten times your yearly salary saved for retirement by age 67, as reported by SmartAsset. The strategy provides you with a retirement savings objective regardless of your age.