The Fault Lies in the Market, Not in Ourselves

We (that is, Americans) seem to have hit a snag in retirement readiness — that measure of the wealth accumulated to get us through our non-working years.

One problem (and it’s a pretty big one) lies in the stock market, which for the past year has been very uncooperative in helping investors to build wealth. In fact, 2022 was the worst year for the market since 2008, and most people lost quite a lot of money in retirement savings held in 401(k) plans.

As in any downturn, retirees responded in various ways. Some people cope with a volatile stock market by not looking at their accounts. Others see it as a buying opportunity. Still others panic, and rush to sell stock and to take their money out of the market, at least for a time.

This last response is invariably a bad move in the long run. Selling stock to raise some cash when prices are falling only locks in your loss, since your portfolio won’t have a chance to begin recovering as soon as the market picks up again. And, as an advisor once told me, you’ll not only fail to benefit from the initial recovery but you’ll face the difficult decision of when exactly to re-enter the market.

Before you panic, remember that the stock market always bounces back… eventually. And historically, those rebounds have come more quickly than panickers might imagine. Check out how long it took the market to recover after 11 famous crashes (including 2000 and 2008). In most of the drops, the S&P 500 recovered in just one year to its previous all-time high price.

Still, that knowledge may be little comfort if you were thinking of retiring in the next five to 10 years, say, and worry that your losses in 2022 may take longer than the norm to be restored. The solution might be to check your retirement readiness.

There are several methods for doing this. For instance, use your age and how much you’ve accumulated to help you see if you’re on target or need to readjust your savings goals. According to Fidelity, at age 30 you should have the equivalent of one year’s salary saved up in a retirement account. At later ages you’ll want various multiples of your salary to make sure you’re adequately covered for expenses in retirement.

A general lack of retirement preparedness is nothing new. In 2015, nearly a third of working-age adults in a Federal Reserve report said they had no retirement savings or pensions. For more, see our reporter Mary Ellen Cagnassola’s story on retirement readiness.

— Jill Cornfield, deputy editor

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9 To Know: Reasons to consider a Roth IRA

Want to help lower your taxes in retirement and increase your retirement savings?

A Roth IRA, with tax-free growth potential and tax-free  withdrawals, may be able to do just that (as long as certain  requirements are met). Contributions to a Roth IRA are made on an after-tax basis and can give you tax flexibility in retirement.

A Roth IRA may improve your tax picture—no matter how old you are. Take the time to see whether you would benefit from one by reading the full list of reasons to consider a Roth IRA.

READ MORE

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• The French are up in arms over retiring at 64. How do other countries compare?

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