Life always has its own sets of twists and turns, but the last couple of years have been a rollercoaster. It has a lot of people scratching their heads wondering about their future and finances.
When you run into questions or uncertainties about your finances, consulting with an experienced financial advisor, who can provide a knowledgeable perspective, can be more helpful than ever—especially during times like these. Along these lines, we’ve included some Q&As below that may help when considering the future of your finances:
Q: We recently sold all our mutual funds because of the volatile market conditions and previous knowledge about market down-turns. Wasn’t this a great idea? Just look at all the money we saved.
A: In general, declining markets are a better buying opportunity for those with a longer-term time horizon. Selling is unfortunate for those still working due to the fact that they are still in the accumulation phase of becoming financially independent. Most retirees have a longer than expected investment time horizon given life expectancy after normal retirement age. Finally, let your stock allocation speak for your risk tolerance, where 100% stock is the most aggressive and 0% is the least aggressive.
Q: Even though I hope to retire soon, I need $45,000 for home improvement. Should I take the money from my 401K, my IRA, or use my home equity?
A: If possible, delay retirement until normal retirement age and use earnings to pay for home improvement, otherwise your net worth will decline, and the money may not be there for you when you most need it. Normal retirement for those born in 1960 or after 1960 means age 67. If you postpone retirement to age 70, you will receive an increase of 24%. Finally, if possible, delay retirement distributions until your income drops, most likely due to the lack of a paycheck. Tax deferred retirement funds do best when money is added during your highest earning years and when money is taken from it in your lowest earning years, ultimately paying less tax.
RELATED: Read our financial advice during inflation.
Q: I had an annuity worth $750,000, and I made a 100% return on my investment, so I cashed it due to fear of market volatility and rising interest rates. Was that a good idea?
A: Maybe not… It is generally not a good idea to make investment decisions based upon emotions, a feeling if you will. Why? Emotional thought will lead you to buy when the market goes up and sell when it goes down. Not a good recipe for building wealth. Second, market timing is difficult if not impossible to do repeatedly, and most people are not very good at it. Finally, you may have a large tax bill due to the $375,000 gain that will be taxed as ordinary income. Seeking advice prior to making decisions is key to making good ones.
The main takeaway here is to consult with a financial advisor if you are ever unsure about your finances, and especially before making any sudden moves. In addition, we always recommend scheduling regular consultations with your advisor to evaluate your current situation and to ensure you are on track to reach your goals.
Call us today at 412-630-6000. Our experienced financial advisors are ready to help.