ISAKOV Planning Group Blog
Monday, September 30 2019
401 (k) Savings Are Not Liquid Savings
In the last couple of years, and especially the last 6 months, the bull market has become increasingly conservative. That has many folks checking their monthly balance statements in their 401(k) accounts, and even in some cases, convinced investors that they have crossed the millionaire threshold.
Not so fast. Their 401(k) account is a retirement savings account. This means that unless you are retired or on the verge of retiring, these savings will only serve you several years down the road. For example, Robert the Businessman can’t easily use his blooming 401(k) cash to take a vacation or remodel a bathroom, or even buy groceries.
I’m guessing that most of these “401(k) millionaires” do not have a millionaire lifestyle. First of all, retirement savings are not liquid savings. Robert cannot use this portfolio practically for everyday needs. The vast majority of people are living off their salary or other regular S-corp earnings. The smart ones are putting reasonable tax-deferred dollars into their 401(k) or other retirement accounts and putting some money aside that can be spent on routine costly items, like vacations or home repairs.
Second, the stock market is due for a correction, based on experts’ predictions and the duration of the current bull market. What happens to the $1 million value of Robert’s 401(k) account if the S&P sinks 20%, even with a balanced portfolio? It may take several years to reclaim those lost assets, and in the meantime, Robert is still working as hard as ever, and shoveling as much of his savings into the 401(k) as he can.
It’s great (and necessary) to have plenty of money packed away for retirement. However, piling as much money as possible exclusively into a 401(k) is not a reasonable approach, unless you are like so many millions of Americans who are well behind on their retirement savings.
That’s why at Isakov Planning Group, we advocate a balanced plan for our clients’ investment accounts. This gives them the liquidity they need to live comfortably today, while planning for their comfort tomorrow.
Being euphoric over today’s retirement portfolio performance is nice for the moment, but it is important to have a balanced savings approach between liquid and nonliquid investment accounts.
Contact Isakov Planning Group for more information.
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