The markets have been volatile over the past few years.
And while that may have resulted in significant gains in U.S. stocks, it may have your retirement plan out of whack.
So how do you know when the right time to rebalance your 401(k) or Thrift Savings Plan is?
Financial contributor Barry Glassman, president of Glassman Wealth Services, joined WTOP anchors Shawn Anderson and Anne Kramer to explain how the volatile market is affecting retirement plans.
Read the full conversation, which has been lightly edited for clarity, below:
Shawn Anderson: How has the shift in the markets in the past five years affected how people make decisions for their retirement?
Barry Glassman: Over the past few years, we’ve seen a lot of ups and downs in the financial markets and your balanced portfolio and your retirement account is likely out of balance.
Let’s say five years ago, you put your 401(k) or TSP into a perfectly designed, balanced portfolio of 60% U.S. stocks and 40% bonds. Well you’ve done well, but mostly because of U.S. stocks, which are up about 80% during that time. Bonds are up just slightly less than 4%.
If you haven’t rebalanced your 60/40 portfolio, it could be 75-85% or more in stocks. And today, while you’re five years older and taking greater risk closer to retirement, don’t let the markets decide or dictate your overall allocation. If 60/40 was right for you, or whatever was right for you, go in and look to rebalance.
Shawn Anderson: Well, if you are going to rebalance your portfolio, is it easy to do?
Barry Glassman Yeah, it just takes a few minutes. The harder thing, Shawn, is actually probably finding your old password.
There are two ways to rebalance. Your 401(k) might have a box you can check that says automatically rebalance — like, quarterly — back to my original allocation. Or do the set-it-and-forget-it technique of choosing a target-date fund. Just a little secret: You don’t have to choose your exact retirement date for the target-date fund. Just know the longer the date period, the more aggressive that initial plan is.
Anne Kramer: What else should we be looking at as we head towards the close of 2023? Are there other things in our financial house that we should get in order?
Barry Glassman: Sure, I’m a big fan of limiting tax surprises … If you’re going to owe taxes in April … because you underpaid, you may owe a penalty or interest — (here’s a) little secret: if you withhold it from your W-2 paycheck, which means that you may adjust it higher in December, it’s a way to get money in December to the government and you’ll potentially avoid penalty and interest.