Concerns about inflation, fear of a future recession, and stock market volatility lead many Americans to postpone their retirement plans. According to a Nationwide Retirement Institute poll conducted in August, 40% of workers aged 45 and up had decided to hold off on retirement.
Merit Financial Advisors’ Alex Alba says many of his clients planning for retirement suffer from this. If you’re risk-averse, try reallocating one to five years’ worth of investments in cash assets after estimating your yearly needs throughout retirement. If you take out $250,000 for your first five years of retirement beginning in 2024, Alba recommends initially putting $50,000 in a conventional checking or savings account.
If you’re concerned about a recession that might create large swings in the stock market, you can divide the remaining funds across these three accounts.
CD stands for Certificate of Deposit.
If you’re concerned about market volatility, CDs can put some of your cash to work. Keeping money in a certificate of deposit (CD) pays you a fixed interest rate; the time your money is locked into a CD ranges from a few months to several years. Longer-term CDs often provide greater interest rates.
A CD’s set interest rate may provide more peace of mind to a risk-averse investor, especially because experts expect the stock market to become more volatile in 2024.
Bonds
Try diversifying your cash holdings to obtain the maximum potential income in retirement. With a bond, the issuer owes the holder a debt and must provide a fixed-interest income over time. Bonds often provide lower returns than other types of investments. Currently, the bond market has been terrible, but fixed income from bonds will come back eventually.
One of the most prevalent types of bonds is I bonds, issued by the US Department of Treasury. I bonds had an interest rate of 6.89% as of late January 2024. In one calendar year, you can purchase up to $10,000 in electronic I bond and $5,000 in paper I bonds. You can redeem your I bond after 12 months, but if you do so before five years, you will forfeit the final three months of interest.
An account with a high rate of return
Some high-yield savings accounts provide interest rates over 3%, far higher than conventional ones, generally giving an APY of approximately 0.16%. Instead of placing your money in a retirement account, which may lose value as the stock market fluctuates, put it in a high-yield savings account with a positive interest rate to ensure it increases.
It’s worth noting that interest rates on high-yield savings accounts might fluctuate somewhat from month to month. On the other hand, money stored in high-yield savings accounts will not lose value in the same way that money in the stock market can during turbulent periods.
Another thing to consider is that you should shop around. Typically online banks offer much better rates than your local bank.