Q. My wife and I, both 60, invested our entire 401(k) plans in Fidelity 2010. We thought this would be a good choice. Recently, my wife could not stand the pain any longer. She called Fidelity and put what was left in Fidelity Retirement Government Money Market Account. Our goal now is to preserve what is left of our own money. Your opinion?
J.L.
A. The Fidelity fund has fallen more than 25 percent in the past 12 months, so your pain is substantial.
The question, though, is what to do now? Assuming your 401(k) plans are invested for your long-term future, you could have at least a couple of decades of life left to finance.
“I feel for them, and I get this from clients on a regular basis,” said Ben Jennings, a financial planner and accountant with Navigator Financial Planning Inc. in Lakewood, Wash. “The last year has brought home the fact that we are not in control of what the markets do.”
But you are in control of how much risk you have in your portfolio. The Fidelity 2010 fund you mentioned has about 47 percent of its assets invested in stocks, according to mutual fund data firm Morningstar, which is a fairly appropriate level for a long-term portfolio for someone your age, experts said.
Obviously, it wasn’t right for you because it made you feel you were forced to sell in a panic.
What to do depends on what other assets you have for retirement. If the 401(k)’s are your only real asset, you need to look at their balance in relation to how much you are going to need in retirement, Jennings said.
If that balance is below your basic needs, you’re going to have to consider working a little longer than you originally planned and locking up that nest egg in something with very little risk, such as an immediate annuity.
But if you still have enough to meet your basic retirement needs, Jennings and financial planner Mark Balasa of Balasa Dinverno & Foltz in Itasca urge you to consider getting back into a diversified portfolio of stocks and bonds in your 401(k).
“There will be several market cycles in the time frame of your retirement, so buying back when assets are so far off will look in the future like it was a great opportunity,” Balasa said.
There may be better options. Morningstar has panned some of Fidelity’s target funds because they focus too heavily on growth stocks, making the funds underperform peers with higher stock allocations.
Check with your employer to see if your plan offers free investing advice. If not, it may be time to hire a fee-only hourly planner to review your plan choices and recommend a strategy. You can find planners at www.garrettplanningnetwork.com.
Q. I would like to know where I would go to find out the rules on taking out money from my IRA. I am 68 and still working, and would like to start taking some of my money out without penalties.
G.W.
A. Because you are beyond age 59 1/2, there shouldn’t be withdrawal penalties, said James Lange, a tax attorney and principal with James Lange & Associates in Pittsburgh. For Roth IRAs, you can withdraw contributions tax-free, though there can be taxes due on the earnings of your contributions if they don’t meet a five-year holding period test (see Publication 590 of the IRS).
Now is a good time to start planning your strategy, though, because at 70 1/2 you’ll be required to take minimum withdrawals from traditional IRAs, Lange said.
Two books that deal with this topic are: “Retire Secure! Pay Taxes Later: The Key to Making Your Money Last as Long as You Do,” by Lange, and “The Retirement Savings Time Bomb … and How to Defuse It: A Five-Step Action Plan for Protecting Your IRAs, 401(k)’s and Other Retirement Plans from Near Annihilation by the Taxman,” by IRA expert Ed Slott.
———-
Have a retirement question? Write to yourmoney@tribune.com, or via mail at Your Money, Chicago Tribune, Room 400, 435 N. Michigan Ave., Chicago, IL 60611. If your letter is selected, we may include you and your question in a future column.
