Facing Retirement Setbacks? You’re Not Alone

Facing Retirement Setbacks? You're Not Alone

Most Americans planning for retirement share a similar vision of their path to the finish line: systematic deposits to a 401K, IRA, or other tax-favored plan; income that increases steadily up until retirement; financial markets that are generally kind; reasonably good health and stable personal circumstances. Unfortunately, reality has a nasty habit of forcing shifts in our expectations. Market downturns (like the current one), divorces or bereavement, unexpected health challenges—such as those that accompany a pandemic—and job loss or downsizing can all wreak havoc on the most carefully laid plans.

For example, a 2021 survey by the Natixis Global Retirement organization found that 40% of respondents thought it would take “a miracle” for them to have sufficient assets for their desired retirement lifestyle. Fifty-nine percent of Americans say they will have to work longer than planned, and 36% believe they will never have enough money to retire.

In other words, if you feel as if your path to retirement has recently gotten steeper and rockier, you are far from alone. Many Americans are feeling a similar pinch. But that doesn’t mean you should throw in the towel. Here are some ideas for reassessing and retooling your plan for retirement so that you can start working around the setbacks that are all too common.

Take a closer look at your portfolio allocations

Depending on your age, it could make sense to allocate more funds to assets with higher long-term growth potential. According to a 2021 survey of investor attitudes by consulting firm Cerulli Associates, nearly half of investors are more focused on avoiding losses than they are on long-term growth, up markedly from just over 30% of investors the previous year. The current market downturn, driven by concerns about rising inflation and its effects on the economy, has continued the trend of keeping many on the sidelines. But the fact is that accepting a certain amount of risk is the admission ticket to better returns over time. In other words, if your investment approach is dominated by loss aversion bias, that’s not a recipe for long-term success for your retirement accounts. Remember, it is certainly appropriate, as one nears retirement, to reallocate toward more conservative assets. But too many investors with decades before retirement are failing to reach for an appropriate level of growth in order to outpace inflation for the long term. Better growth could help you make up some lost time.

Increase your savings

As you age toward retirement, you should look for opportunities to boost your savings, especially your allocations to your retirement accounts. One of the best ways to do this, for those who qualify, is to take advantage of catchup contributions. For persons age 50 and older, the IRS permits additional annual contributions to retirement plans. In 2022, you can stash an extra $6,500 in your 401K or 403B plan and an extra $1,000 in your IRA. Even if only maintained for a few years, those extra savings can go a long way toward making up lost ground for your retirement planning.

Get help

A qualified, fiduciary financial advisor can be an invaluable asset and team member as you plan and execute your recovery from bumps along the road to retirement. At JFS Wealth Advisors, we can work with you to look for ways to cut expenses, help your retirement accounts work harder for you, and make tax-efficient decisions with your investments. To learn more, read our recent article, “The ‘Next Crisis’ and Your Portfolio.”

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