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If you’re in your 40s or 50s, and you’re worried about all the ups and downs in the stock and bond markets, Chris Littlefield, the president of retirement and income solutions at Principal Financial Group, has some advice for you.
“I think obviously with the uncertainty, the market volatility, I think people that have got a financial plan … should stick to their financial plan and not overreact to what’s happening in the market at any particular time,” Littlefield said in a recent episode of Decoding Retirement (see video above or listen below).
And if you don’t have a plan, get one. Best case, you should get professional advice, as everyone would benefit from some “holistic advice” about how to address the needs that they will have in retirement, he said.
“They should be working with somebody,” he added. “They can either speak to their employer and their retirement plan service provider, or they can also speak with an adviser.”
No matter what, especially during times of market volatility, Littlefield cautioned retirement savers to avoid one of the biggest mistakes investors make.
“I think one of the biggest mistakes that I see people make is they try to time the market,” he said.
For example, investors often attempt to adjust their asset allocations — their mix of stocks, bonds, and cash — in response to short-term market swings.
The problem with that approach, Littlefield explained, is that it requires two critical decisions.
“It’s one thing to sell,” he said, “but you also have to figure out when to buy, … and if you’re out of the market in the first couple days after the market rebounds, you missed a very large percentage of the returns.”
His advice: “If you’ve got a good asset allocation, you’ve got a good plan, stay the course. Don’t let the short-term news affect what is a long-term horizon.”
Stuart Beare, Director of Tulleys Farm, inspects some of the half a million tulips that have been grown in Turner’s Hill, southern Britain, on March 28, 2024. REUTERS/Toby Melville ·REUTERS / Reuters
Littlefield also recommended maximizing every opportunity to save on a tax-free basis and, if you can afford it, making catch-up contributions.
“There are still significant opportunities for you when you achieve the age of 50 to save even more than the limits that are provided by the 401(k) plan,” he said.
The standard annual employee contribution limit for 401(k) plans in 2025 is $23,500. For participants ages 50 and older, the standard catch-up contribution limit in 2025 is $7,500.
This means individuals over 50 can contribute up to $31,000 to their 401(k) plan for the year. And starting in 2025, individuals ages 60, 61, 62, or 63 are eligible for a higher catch-up contribution limit under the SECURE 2.0 Act.
According to Littlefield, it’s best practice for individuals to have an investment policy statement to guide their investment strategies, but very few are truly equipped to do it on their own.
And that’s where professional guidance can help. One option is to seek out a managed account, which is an arrangement “where you have somebody who’s advising on the asset allocation and helping you with the rebalancing,” Littlefield said.
However, professional guidance is also often built into products like target-date funds. These funds, he said, provide professional asset allocation, automatic rebalancing over time, and exposure to a wide range of asset classes.
Littlefield suggested using a target-date fund while you’re young, and then moving to a managed account when you’re approaching retirement might be a sound strategy. It’s a more “personalized” approach, he said, adding, “It takes into account your individual circumstance as opposed to just your age.”
That said, “there is a cost for providing that advice,” he said about managed accounts.
Target-date funds typically have an expense ratio, which is an annual fee expressed as a percentage of your total investment in the fund. This fee covers the costs of managing the underlying investments and the rebalancing of the portfolio over time.
Of note, the average expense ratio for target-date funds has been trending downward. Data from Morningstar in 2023 indicated an average asset-weighted fee of just 0.30%. However, fees can range from as low as 0.08% to over 1%.
Managed accounts usually have a fee that is separate from the investment management fees of the underlying funds. Fees for managed accounts can vary considerably but often range from 0.25% to 0.75% of the account’s total balance per year. Some sources indicate a common range of 0.35% to 0.50%, while others note fees can go as high as 0.80%
Littlefield acknowledged that many in their 40s and 50s have competing demands on their money, such as paying down debt, saving for a down payment on a house or children’s education, and saving for retirement.
But, he said, “it’s really important for people to take a balanced approach to their financial wellness and not focus on any one particular goal.”
Littlefield also suggested that the one mistake you ought to avoid is not saving for retirement in your 401(k). He said the ability to save on a tax-deferred basis is extremely valuable.
Even before considering the benefits of maximizing an employer match, Littlefield said it’s important to note that a significant portion of workers — close to 50% across the industry — aren’t participating in their retirement plans at all, and that’s a major concern.
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