Here at Retire Better HQ, we’ve gotten a fair amount of email on the return of stock market volatility. U.S. indexes SPX, +0.74% peaked back in January and have gone on a roller-coaster ride since. Some of the recent volatility stems from President Donald Trump’s announcement that he will hit China with trade tariffs, and Beijing’s response that it may do the same to us. In other words, a trade war appears to be brewing.
This leads to our first question:
I’m 62 and hoping to retire by age 67. I keep hearing how a trade war could hurt the U.S. economy, but what could it mean for an investment portfolio? And what, if anything, should I do?
“It’s hard to say what stocks may do in a trade war,” says Jeffrey Kleintop, chief global investment strategist and senior vice president for Charles SchwabSCHW, +2.05% “The last trade war among major countries was 90 years ago. But it’s probably safe to assume it wouldn’t be good for stocks or bonds. However, rather than make any portfolio changes as if a trade war-driven bear market was imminent, a wiser strategy may be to simply rebalance your portfolio back to your long-term targets. In recent years, stocks have outperformed bonds by a wide margin. If you haven’t rebalanced, the heightened volatility in your portfolio resulting from these trade spats can make you uncomfortable and feel as if you should make major changes or even sell everything. That means what you do next depends more on you, rather than the market or policy makers. If you’ve been underweight stocks and looking for a pullback, this is an opportunity. If you are overweight stocks, it isn’t too late to sell even though stocks are off their highs and back to where they were late last year. Or, do nothing, and allow your long-term perspective and diversified asset allocation do what it is meant to do.”
Kleintop’s advice is on the mark. Stick to your long-term plan. Don’t let emotions about current events derail it. Whatever your asset allocation—stocks, bonds, cash—make sure to rebalance on a regular basis. As usual, in uncertain times—and that’s what we’re in right now—it’s important to keep a clear head—and talk things over with your adviser.
Our second question:
I am retired and wondering if I can still make contributions to a traditional IRA or do I need to be working at a job still? Thanks!
In most cases—there is one exception—you cannot contribute to an IRA or a Roth IRA unless you have earned income. Earned, as in earned from working. That’s why Congress created these retirement vehicles in the first place: to encourage working stiffs like you and me to save for our golden years. So you’ll probably have to go back to work. But here’s the exception: you can contribute to an IRA or Roth IRA if you’re 1) the spouse of an IRA owner and you 2) file a joint return.
So if you don’t work, but your spouse does and contributes to his or her own IRA, he or she can open an IRA for you. You can put in the difference between his or her adjusted gross income and his or her own contribution for the year—whichever is smaller.
If you do go back to work and as long as you’re employed, you should be able to contribute to your employer’s plan regardless of your age. If you’re under age 70½ and meet relevant income limits you can also contribute to a traditional IRA or Roth IRA. Whether the IRA contribution is deductible depends on your income and whether you’re also an active participant in an employer-provided retirement plan. Age limits don’t apply for Roth IRAs, although there are income restrictions.
As usual, talk things over with your financial adviser.
Read: Are you afraid of retirement? We can help
What are the top three destinations you’d like to visit when you’re retired? That’s what we asked last time, and here were your top three answers:
1. America’s national parks. With Yosemite, Yellowstone and the Grand Canyon topping the list. Tip: if you’re over 62, you can visit any of them for free—for the rest of your life—by buying a one-time $80 Lifetime Senior Pass (plus a $10 handling fee). You can get annual passes too, but if you pay a bit more you’re good to go forever. People like to complain about the government, but this is one really great thing it does.
2. Europe. With the usual destinations like London, Paris and Rome frequently mentioned. Some of you plan to get around by rail—you may bump into me one day—while others want to cruise down rivers or steam around the Mediterranean. Seniors get all kinds of deals on European trains, by the way. Check them out here.
3. More exotic locales. Destinations such as Bora Bora, the Galapagos Islands and Cambodia were also mentioned.
Meantime, here’s a different answer, provided by my own mother when she retired many years ago from her job in the Montgomery County, Maryland, school system: “I’m going to visit the library more often,” she said. She and my dad traveled all over America and Europe—but I still think their favorite destination was the “New Releases” section of the library. Books, after all, bring the world to you in a way like no other. Ponder that.
What’s the one piece of advice you’d give someone who’s just starting their career today? I’ll go first: Don’t take a job just because it pays a lot of money. Write to us at [email protected]
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