American retirement account balances are plummeting. What’s the best way to save your financial future?
Recent data from Fidelity shows that IRA and 401k balances fell sharply last year. The outlook for these accounts which are overloaded on public stocks has not been great. With plenty more room to go down, and little downside protection it is well more than time for individual investors to take the reins back, and save their finances.
IRA Values Dive 25%
The numbers show that IRA values had fallen by 25% as of November 2022. 401k balances were hit almost as bad, down by more than 22%.
Given the outlook many banks and CEOs have on the economy for 2023, that could just be the tip of the iceberg.
That does not even take into account the impact of real inflation. If real costs are up 30% this year, then each dollar you have left is really only worth 75% compared to last year. We are now going on several years of hyperinflation. That means the real value of most of these accounts is probably already 50% or less of what they were. Especially for those heavy in the public stock market.
So, how do you save your retirement and financial future?
Do Keep Contributing To Accounts With Tax Benefits
Many of the things your money is currently invested in may not be worth holding onto. Having too much cash is equally counterproductive during periods of hyperinflation.
However, if you can invest and achieve real gains, and more important compounding tax deferred and tax free gains, that can add double digits to your financial performance each year.
Tax savings and protection is critical right now, with all of the new taxes and tax hikes happening in many places. Now California has joined New York in trying to chase down the people fleeing for lower taxes with new forms of exit taxes from their states.
So, do max out your contributions to accounts like these every year. Everyone in your household ought to be able to have them.
Save Yourself From Financial Destruction
While the above is true, it also does not make sense to stay vested in a losing asset.
There is a lot of sense in taking a long term view. To hold some things when others are fickle. Even to double down and scale into distressed assets when others are fearful.
The difference here is buying in at a good value position into assets that have down side protection, have hard tangible value, and won’t go to zero. Even better is if they can deliver passive income and cash flow, regardless of short term paper value fluctuations. Real estate is really the only thing that comes to mind that checks all of these boxes.
In contrast, if you stay in a stock that has gone down 25% already, and goes down another 25% this year, you would need it to go back up by 100%, just to get back to where you were before. Even if it does, and doesn’t go bankrupt, it can mean years of lost gains.
So, what do you invest your retirement money in, and how?
Invest In Better Assets
Mortgage debt collateralized by real assets, single family, multifamily, and commercial real estate assets, and a few select funds directly investing in the above can all be great moves.
If you haven’t already, the first move is to switch to self-directed 401k and IRA accounts. They let you retain all the tax advantages, while allowing you to invest in a broader range of assets.
If you are holding mature real estate you can use 1031 exchanges to move up. Or like tax loss harvesting, you can also sell other types of assets and use vehicles like DSTs to roll your money into new types of alternative investments, while protecting yourself from extra taxes.
Find out more about investing in secured debt and real estate, go to NNG Capital Fund.