Where Your Retirement Fund and the Stock Market Come Together


Retirement. It’s something we all look forward to. An oasis in the distance beckoning us to enjoy a well-deserved rest after a lifetime of work. But before you get there, you need to make sure you’ve put enough money aside to support yourself in this relaxing stage of life.

In order to save for retirement, most people will contribute to a retirement fund on a regular basis. This often happens without much thought, as employers can make automatic deductions from your pay checks that go directly to that fund. But where does that money go exactly? And how does it grow?

It all comes down to investments and the stock market. Retirement funds are often structured so that your contributions are invested into the stock market through low-risk avenues. This means that your money is put into public companies and indices that are expected to grow in the long term.

On the one hand, this is how your nest egg can grow consistently over time; but on the other, it also means your retirement savings can be at risk in the case of a potential recession. Because of this, it’s important that you understand how your retirement fund works, and what you can do to protect your savings in the long run.

How Retirement Funds Work

Depending on your type of employment and the plan your employer selects, there are different types of retirement plans. For instance, if you work for a big company, you might be on a 401(k). This is a company account where you can select investment options based on the plans your employer makes available. A 401(k) account will allow you to directly deposit into the fund from your paycheck before tax, but you can opt for it to be automatically withdrawn before you’re paid. If you work for a smaller business of up to 100 people, you might have a SIMPLE IRA account instead—however, this has stricter limitations when it comes to making withdrawals on your account.

Another positive about the 401(k) is that many employers will match your contribution up to a certain amount—doubling the amount of money you put into your retirement. This money will then get invested and grow slowly through safe and low-risk investments. In this plan, you choose from a few options selected by your employer to invest in.

Depending on the employer, you may be able to choose how much involvement you have with your retirement fund and what it’s invested in. For example, the government of Pennsylvania has developed four different plans. Each plan allows you to choose how much of your fund is managed by professional brokers, and how much you can invest yourself.

Meanwhile, if you’re self-employed and have no employees, you might opt for a SEP Individual Retirement Account (IRA), which would help you deduct from your taxable income while contributing to your retirement account. In a SEP IRA, you can choose where to invest your retirement, which gives you more flexibility and agency over your own savings.

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Retirement Stocks: Are they Vulnerable to the Markets?

Retirement stocks are traditionally meant to be safe, long term, and stable—but they can still be impacted by the ebbs and flows of the market. That said, the market is infamously difficult to predict and pinpoint at any given time. There’s no saying when it could suddenly crash.

For example, the scale of the 2008 recession was entirely unexpected, and—because of their relationship with the stock market—many retirement funds plunged when it happened. Whether you’re investing your retirement savings directly into the market via a mutual fund or indirectly through your 401(k) plan, it’s important to account for that risk.

How to Protect Your Retirement

Large scale recessions are hard to predict accurately, but that doesn’t mean you shouldn’t prepare for the eventuality. After all, you want to make sure that you can enjoy your retirement by spending on things you enjoy, be it travel, a hobby, or spoiling your grandchildren. So, what can you do to protect your hard earned savings?

  • Diversify your investments. If you’re invested in a specific retirement plan, make sure you don’t have all your funds in one proverbial basket. And if not, consider investing in a variety of funds.
  • Choose additional investment avenues. For the short-term, for instance, contribute regularly to a low-risk, high-yield savings account that will grow steadily as you work towards retirement.
  • Don’t panic. Your retirement fund is a long-term investment. If you experience a market downturn, leave your money where it is. The markets work in a cycle, and before you know it, your funds will be back to where they were.

At Citadel, we want to help you get the retirement you deserve. Explore our High Yield Savings account and our retirement planning services, and Contact us with all your questions and concerns.

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