What If I'm Not 59 and 1/2 Years Old?

The sky is falling! ......Okay maybe not, but the Coronavirus is looking like the sort of unexpected, black swan event that scrambles all existing expectations for months, possibly years.

If you’re still working and saving for retirement, maybe can take these market drops in stride because your investments have time to recover. But if you’re within a few years of retirement, or recently retired, this volatility is a reminder to adjust your strategy. Big losses, especially in the early years of retirement, could derail your finances if you haven’t planned for them.

Economist Mohamed El-Erian told CNBC on Tuesday that investors should hold off on buying equities that were hit hard in the latest coronavirus-driven plunge.

“I stress, this is different,” the Allianz chief economic advisor said in a “Squawk Box” interview, a day after the Dow Jones Industrial Average plunged over 1,000 points or 3.5%, in its worst single-session in more than two years.

Just because buying market dips has worked in the past does not mean it’s going to work this time, he said. “I would continue to resist, as hard as it is, to simply buy the dip.”

Disruptions to corporate earnings and economic growth from “shock” events such as the coronavirus tend to stick around longer than more fundamental downturns, said El-Erian.

“We’re going to have a lot of risk-aversion on the part of economic factors. It’s going to take time,” he said, before the stock market open. “Economic sudden stops are hard to restart.”

So what do you do if you are still working and under the age of 59 and 1/2?

The Internal Revenue Service implements certain rules for when you can and must take early, qualified, or required distributions from a 401(k) retirement plan or an IRA. You can face tax penalties of 10% to 50% if you don't understand and follow these 401(k) withdrawal rules.

Understanding Qualified Distributions

Qualified distributions are made tax-free and penalty-free from a qualified retirement plan. This typically means that they're taken after age 59½ or under some extenuating circumstances.

There's no penalty for withdrawing your money after age 59½, but you'll pay ordinary income tax on the distributions if you've invested in a traditional pre-tax 401(k) or a traditional IRA.

Roth IRAs and Roth 401(k) contributions are made with taxed dollars, so this rule doesn't apply to them.

You Have Options

You can roll over your IRA, 401(k), 403(b), or lump sum pension payment into an annuity tax-free. Annuities funded with an IRA or 401(k) rollover are "qualified" plans, enabling an insurance company to create an "IRA annuity", into which you can deposit your retirement funds directly. The SECURE Act allows you to shield up to $135,000 or 25% into a Qualified Longevity Annuity Contract (QLAC). When you buy a QLAC, you subtract the amount you contribute from your total retirement assets that are used to calculate your RMDs, so you’ll defer taxes on the amount you invest in the QLAC until you start taking payouts.

Meanwhile you’re guaranteeing a pension-like income stream later in life, reducing the risk you’ll have to withdraw money during a bear market and the bigger risk you’ll run out of money entirely.

Need Help with Your Planning?

If you need help finding the right annuity policy or another guaranteed insurance strategy for your financial needs, JenniferLangFinancialServices.com can assist you. You can connect directly with a financial professional who understands these vehicles and how they can fit into an overall retirement planning strategy. Contact us today!