Retirement accounts were hit as a result of market volatility

Yahoo Finance’s Kerry Hannon details the decline in retirement accounts amid recent market volatility as people looking to retire aim to minimize the impacts on 401(k) returns, as well as how millennials are approaching retirement. retirement and Social Security savings.

Video transcript

DAVE BRIGGS: This recent market sell-off has millions of Americans shielding their eyes, shuddering in fear of what it would mean for their retirement. Yahoo Finance contributor Kerry Hannon here with the bottom line for his 401(k), his IRA. Scary times, Kerry.

KERRY HANNON: No joking. I’m definitely not looking. So I don’t know about you two, but I’m not looking.

DAVE BRIGGS: Not.

SEANA SMITH: No way.

KERRY HANNON: But the fact is that many people have to look. If you’re a retiree, you have to pay attention because if you have to take these minimum required distributions out of your retirement accounts this year, you’re going to be selling, and that’s not going to be a pleasant situation for you. So it’s pretty rocky and pretty scary. But frankly, if you’re young, you have time, right? We’ve been through these cycles. You have time for things to recover. Even if you are approaching retirement, you have time to recover.

But what… it’s pretty scary, these massive drops, however, that really alarmed people, and because we’ve had huge buildups in the past year, to be honest with you. And then it’s almost like giving money– you’re going back to where we were in a way. But it’s surprising that people see their bills drop by 20%.

And what’s happened, really, this is new in the last few years, really, is that more and more people have more equity stakes in their 401(k) plans and in their IRAs. Used to be, you had this equation. You would say 100 minus my age is the percentage I will have in stocks. Not so much anymore. You know, people have, like, 2/3 of their retirement accounts invested in stocks. And they can be people in the 50s, 70s. And it drops a little bit as they get older.

But people are still holding a lot of shares in these accounts. And I have to say, just a caveat to that, it’s not necessarily a bad thing, because with longevity, we’re living longer lives. You need that action to give that momentum, that capital increase where we can get extra growth, but you have to be patient and you have to be willing to take that risk.

SEANA SMITH: Well, Kerry, is there a way to protect your 401(k) from volatility, from losses, as we’ve seen over the last few weeks?

KERRY HANNON: This is a good question. It’s so difficult in today’s world. Yes, you can switch to more conservative investments. You can move like target funds, which is a big thing these days, it kind of gradually shifts you to bonds. But, as we know, this is not necessarily a panacea. Often in today’s world, if you invest in your 401(k) plans, you are likely to be heavy on stocks. And you’re going to have to… I personally like index funds. But those too were hit. But at least you have a little more balance there. And you save — and you can save on costs and fees in many ways.

RACHELLE AKUFFO: Well, and speaking of trying to offset some of those costs, we saw this study from Healthy Services that says that millennials, if you’re, say, a 35-year-old male earning about $100,000 a year, that you’re going to see a lifetime reduction. 20% on Social Security benefits. You would have to save an inflation-adjusted $33 per week over the course of your career to make up for that. What must millennials be thinking right now in terms of what they might have to do to make up this difference?

KERRY HANNON: You know, thanks for bringing this up, because this is actually a very real possibility. I mean, if things don’t change by 2035, we’ll see a 20% drop in what the retiree community can expect from their Social Security benefit as these millennials come into the system. The fact is that it is pure population. We don’t have younger workers coming in to support the growing number of retirees. Something has to happen.

And they’re saying, OK, well, this is one thing where we can raise the retirement age from 67 to 69. But you know what? All it’s really doing is kicking him across the road. Millennials will still have less in terms of Social Security benefits. So, you know, here’s the thing. Pay attention now. Start saving a little more. I think this is the best advice we can give.

RACHELLE AKUFFO: So if you’re someone who maybe isn’t right in retirement but is kind of looking to the future. You are seeing what is happening. And you’re seeing in the future, you might have to have that 20% makeup in there. What should you invest in? What is the best strategy? If you haven’t started thinking about your retirement yet, how should people start? What is the first step?

KERRY HANNON: Yup. Well, that’s good. You know, I still believe in going — you need to have stocks, especially if you’re younger. And then you need to pay attention to that. And the Health View model you mentioned, they’re, you know, saying about an average return of 6% and your employer charges 50% for you to get to that 20% when you give 33 extras a month. What I like to say is just increase. If you can set aside 15% of your income for a retirement account, that’s probably a good number.

And then when you’re younger, it’s hard to say, I can’t live without it if you’re not earning much. But you can automatically adjust this each year. Most employers will allow you to do this. And I really encourage people to do that. And definitely put into your retirement account as much as you need to get your employer correspondence. I mean, employers areā€¦ actually, right now, they’re even increasing their corresponding benefits to attract new workers. So this is getting better. And those are really the best ways to start. But don’t ignore it. Make sure you do something.

RACHELLE AKUFFO: It’s definitely not the time to put your head in the sand. We appreciate you always coming. Kerry Hannon there for us. Thank you very much.

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