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Peeking at lessening retirement funds amid market volatility worries many

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Jul. 29—JOHNSTOWN, Pa. — Dents in retirement funds amid market volatility has been worrisome for many so far in 2022.

As the Federal Reserve takes on unaffordable inflation by raising interest rates, the economy is in a precarious situation.

A recession is likely in the distance, local financial advisers say.

So far in 2022, the Fed’s aggressive actions against inflation has resulted in a rough year for the stock market, and that means retirement plan assets have gone down.

“And the bottom line, when you are getting into sequence of returns and the longevity of nest egg … what you are crying for is ‘please don’t let my money run out before I die.’ “

Generally, recessions cause stocks to decline.

That would mean different things to people’s retirement plans, depending on where they are in the “life cycle,” said Samuel Carpenter, a financial adviser with Carpenter Financial Services, which offers securities and investment advisory through Avantax investment and advisory services.

Although the stock market is scary at present, Carpenter’s advice for the most part is simple: “This, too, shall pass.”

“If you have a well-thought-out retirement plan; you’ve worked on it, and were confident in the plan last year, and the year before, emotionally right now, you don’t feel quite as good, you don’t feel quite as rich,” he said.

“But this is the key — you still feel secure because you have three lifetime income streams or at least two — 401k/IRA/your personal savings and portion of that that’s also guaranteed for your lifetime, that’s why people feel powerful and more secure.”

Jeffrey Stopko, president and CEO of AmeriServ Financial Inc., said he sees a recession looming.

Following previous increases this year, the Federal Reserve raised the target federal funds rate by another 0.75 percentage points at the end of its two-day meeting Wednesday, in an effort to curb inflation. The Federal Reserve said it is committed to returning inflation to its 2% objective; the most recent inflation reading was 9.1%.

“Typically, when the Fed increases interest rates, that will slow the economy down. As a result, that should help to bring inflation down. But the concern now has shifted — the Federal Reserve is aggressively raising interest rates to address inflation — and as a result, in my opinion and many others — a recession later this year or sometime in 2023 definitely appears more likely.”

For people close to retirement who need all they’ve saved, Stopko said moving some investments from equities to a cash position may be wise to protect their nest egg from further damage in a recession.

“If you are closer to retirement and you had a larger component of your investments tied to stock market equities, we’ve been suggesting people take some of that money and move it to cash — a bank account or money market account which typically, over the long hall, doesn’t return as much as the stock market, but they don’t lose principal. Your money is insured.”

Stopko gave an example of a person who has built up their 401k to $500,000.

“Let’s say the equities market goes down another 10% — your 401k drops down to $450,000 — if you can hold on and believe you can ride that out for some period of time, and the market turns around, you can be just fine,” he said.

“But if you really needed that level of savings to live on, well maybe the fact that your $500,000 could decline further is making you nervous. You might want to do some things to protect the value of your investment. Retirement is always an individual circumstance but broadly speaking, these are things people do in these situations.”

The S&P 500 — a broad measure of the equity market — year to date is down about 17%, but 1st Summit Bank President and CEO Eric Renner said the S&P 500 has a track record of going through down periods but rebounding higher.

“That’s the biggest advice we are giving to our clients — stay the course. If you are close to retirement, that means you may have to think twice about our household expenses and what you plan on doing in your retirement.

Inflation and the economic outlook may even cause people to push off retirement.

“Unfortunately, I think a lot of people are going to be forced to stay in the workforce longer,” Renner said.

“Inflation is at 9% and gas and energy prices are skyrocketing. So when you think back just a short six to nine months ago, if I looked at what I had in my nest egg and asked, ‘Will it last me to my end of days?’ your answer then would have been yes. Well, all of a sudden the markets drop 30% to 35%, so you don’t have as much in retirement savings at this point. That doesn’t mean they won’t come back, but the cost of living has gone up significantly, and you think maybe I can’t retire, maybe I have to hang on for one or two years. I think a lot of people are thinking through that at this point.”