Winnie Sun, Sun Group Wealth Partners financial advisor, joins Yahoo Finance Live to break down the ideal strategies to save for retirement through investing,
AKIKO FUJITA: Nearly half of all Americans have tapped into their retirement accounts during the pandemic. That's coming at a big cost for those taking an early withdrawal. Joining us to discuss is Sun Group Wealth Partners Financial Advisor Winnie Sun. She's joining us as part of our retirement series brought to you by Fidelity Investments.
Winnie, I want to get to that bank rate survey in just a bit. But first, I'd love to get your reaction to the volatility that we saw today. Really, a big route and so many Americans holding their savings in the equity markets. What do you say to those who are looking at this saying, well, what exactly should be my next move?
WINNIE SUN: So, Akiko, great question, and I think that we're all eyes on the market today. Unfortunately, you're looking at and thinking you were going to experience Black Friday. The financial markets are suffering.
I think those of you who haven't maybe maxed out on your retirement savings and you still have a lot of time ahead of you, this could actually fair and give you some really attractive buying opportunities if you're feeling like you're behind on your retirement savings.
AKIKO FUJITA: And, Winnie, what specifically do you mean when you say there are some buying opportunities? I mean, how do you think that investors should be looking at their allocation in the face of this kind of route? Obviously, we don't want to make too much of just one session, but it's certainly on the minds of a lot of people.
WINNIE SUN: Yes, this is certainly on the minds for a lot of people. I think we've seen the market do quite well through most of the pandemic. Now, there's a lot of concerns short term, because there's a lot of unknown.
Are we going to get back to normal, or is the pandemic going to go ahead and cause more havoc on us in the near term again? So if you're looking at retirement savings, I know there's a lot of us who are sitting on record levels of savings in our checking accounts. Maybe it's your savings accounts, and maybe you haven't maxed out on that 401(k) yet or things, such as your college savings for your children.
So I would say those are great avenues for you to consider adding too. Obviously, you want to stick with something diversified, and make sure that portfolio meets your needs, if you're more of a growth investor, if you're more looking at income. There's still going to be opportunities for you.
You don't have to jump in so quickly and put everything in today. I would say have a strategy in place. Maybe add a little bit today. Definitely take a moment to meet with a financial advisor next week, if you're concerned about how you're investing currently, but this is a time to have that communication, reassess how you're investing. And most importantly, if you have too much money or more money than you need from your emergency savings, maybe start to deploy and add some for the long term goals.
- And then, what are some of the big takeaways from the survey that we saw demographically, generationally?
WINNIE SUN: You know, I think what's interesting is we see these surveys often, where Americans are feeling like they haven't done enough for a retirement. Like, what do they need to do? And more importantly, if they don't have enough and things change, what do they need to do to take money from those retirement savings if they're younger than full retirement age of 59.5?
So many of us have money in our 401(k)s, our IRAs, our Ross, and you just want a really smart way of not only saving that money. But also, when you need to use that money, how are you going to use it, so that you can extend the life of it? And you'll have the best strategy in place when you utilize your funds.
AKIKO FUJITA: Well, there's also the fees that come with early withdrawal too. I mean, how do you think people should be thinking about that in the context of the amount of savings they're pulling out versus what they're likely to have to pay?
WINNIE SUN: Right. So, Akiko, I think that's a great question, and that's the thing to remember is, if you're taking from your retirement account, so your 401(k)s, your IRAs, your Roth IRAs, your SEPs, and you're under the age of 59.5, if you haven't reached that threshold, then any withdrawals that you take are subject to taxes and, of course, to early withdrawal penalty of 10%, which is quite high. So I always say, if you're going to take money from your retirement savings prior to age 59.5, that should be your last resort. You should look for other ways to get money to go use for retirement savings if you can.
So through the years, I mean, I've worked with dozens of different employees from major companies who have gone through maybe an early retirement or a downsizing at their company, and they have really no other option but to utilize their retirement savings. So if you're in that situation, it's really important to have a meeting with a financial advisor who's really well versed in retirement planning, retirement savings, and retirement withdrawals. Because if you do this correctly, there are some options that you can take, perhaps, temporarily or long term that can help you sort of avoid that 10% penalty. But, you know, I would say definitely there's a lot of other options out there before getting to that point.
AKIKO FUJITA: And there are differences between the type of withdrawals that you can take out, right? There's a hardship withdrawal, which doesn't cause you to incur that 10% tax. So what are the things that you would, if you were in a pinch, had to withdraw, what are the types of things that you can use it for?
WINNIE SUN: So things that you can use it for, Akiko, would be, like, that would avoid the 10% penalty. It would be certain medical expenses, costs for buying a principal home. We're talking tuition, fees, education expenses for yourself or a family member, costs to prevent getting evicted or foreclosed, or having a funeral, funeral expenses, emergency home repairs for uninsured, [? casualty. ?] There's a lot of things, like that, I would suggest if you have a situation that you think would be under that hardship provision. I would speak with your accountant, because that's going to be important. Because when you do take that withdrawal, you're going to need to also report that to the IRS.
- OK, Winnie Sun, good advice there from the Sun Group Wealth Partners Financial Advisor. Thanks for your time today.