Retiring in the Terrible Market: Should Americans Be Buying Gold With Their 401(K)?

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With soaring inflation hitting a four-decade high, a shortage in the labor market, and a tight roped supply chain, the cost of living has been spiraling out of control, and Americans are struggling to keep up.

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The current economic conditions have definitely taken a toll on Americans who are now looking to step out of the workforce and into retirement.

It appears as if the pandemic has started to wane, as more countries fully reopen their economies and borders to foreign travelers. But it’s looking as if the last few years of bullish market conditions are starting to cool down.

With consumer prices now sitting at an all-time high of 8.6%, the Federal Reserve has been aggressively raising rates since the start of the year. This weapon is part of their arsenal to combat rising inflation rates and pull back on consumer spending.

As the Feds try to control rampant running inflation numbers, American retirees are now seeing their nest egg shrink; the value of their retirement funds diminishing.

Back in 2021, a report by Natixis Global Retirement Index found that roughly 41% of Americans felt that it would take a “miracle” for them to be financially prepared for retirement. Even more alarming is the 36% that mentioned they’ll never have enough saved up for retirement, while 59% have accepted the fact they will need to keep working longer to survive in current economic conditions.

These figures reveal an alarming condition that has been plaguing Americans for years, and it’s only looking to become more challenging in the years ahead. With domestic and international political tension at an all-time high and market conditions sinking, experts are now suggesting that retirees brace themselves for financial strife.

The conditions have been bubbling at the surface, and economic experts worldwide are worried about the state of the economy if these headaches persist. The dark clouds of a recession hang heavy on the horizon. What does that mean for workers who have been waiting decades to step into retirement?

In the past, investors on the stock market looked towards investments such as precious metals and high-valued growth stocks to recession-proof their portfolios. It’s time for American retirees to look at ways to diversify their retirement fund to increase its value against a declining dollar.

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Time To Recession-proof Retirement Funds

According to figures by the Federal Reserve, current Americans who are either already in retirement or have been for quite some time are less prepared than their predecessors.

The majority of those who expected to retire soon rely on support from employers that contribute to some form of their pension or 401(k) savings plan. in fact, the Federal Reserve found that 54% of respondents currently have a defined pension contribution. These include both personal contributions and employer-based contributions.

Of the same pool of respondents, 33% had an Individual Retirement Account or IRA, which is one of the sources of retirement funding for older Americans who are stepping into their golden years.

Although an IRA has some major tax advantages and several other benefits, not enough Americans are diversifying their IRA accounts to prepare themselves for an economic downturn.

While it’s been quite controversial in the current state of the market, recently more retirees are considering rolling their IRA or a portion thereof into gold or some other investments.

Which begs the question, is it possible to purchase gold or other precious commodities with a 401(k) retirement fund?

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The Golden Opportunity

Gold has been one of the world’s most precious metals for years and is considered a hedge against inflation. And now its starting to look like a financially viable option for some retirees and those soon to be retiring.

While it’s not completely possible to purchase gold or other precious commodities with a 401(k), there is another option. Americans looking to acquire precious metals can open a self-directed Gold IRA. The so-called 401(k) gold option could be the most sensible option for retirees looking to lower their risks but still see a significant return on their investments.

Precious Metals IRA

Perhaps the most chosen avenue for some is to open a self-directed gold or precious metals IRA. This can be done using government-approved gold dealers and brokers, who will be instated as the account trustee.

Once you have opened a self-directed gold IRA, you will then be able to roll over funds from your 401(k), using them to purchase gold.

While a rollover won’t incur a tax bill for the account holder, the contribution limit is lower than the limit on a traditional 401(k). There are also limitations on who will be able to contribute to the account, as there is currently no option for employer-sponsored contributions. Which should be no problem for those already retired.

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For retirees looking to physically own or invest in some form of gold, a self-directed IRA is the easiest and most viable option.

Why Roll Over Your 401(K) Into a Gold IRA

It’s important to consider why this option is best-suited for slowing economic conditions.

Allows to diversify retirement funds: Instead of keeping a majority of your money or investments in the stock market, a gold IRA helps to broaden and diversify your current financial availability.

A valuable hedge against inflation: One of the most prominent arguments for gold is it acts as a strong hedge against inflation. And in recent years, when we look at market performance during an economic downturn, it’s true that when the greater macro economy sinks, gold prices tend to increase.

Having access to tangible assets: A great portion of the modern economy runs on the stock market or investments such as cryptocurrencies or non-fungible tokens (NFTs). While these are also desirable retirement fund options, they come with added risks and volatility. Owning gold gives you physical ownership of something that won’t depreciate or lose value in turbulent market conditions.

Alternative Gold Substitutes

Alternative options are available if it feels too risky to roll over a portion of your 401(k) into a self-regulated gold IRA.

Gold and Gold Mining Stocks: For seasoned professionals, who have some knowledge concerning the stock market, purchasing stocks or shares in mining corporations can be a viable substitute.

This involves purchasing shares in companies that mine and refine gold that has a proven track record on the stock market. Additionally, there are some mutual funds and ETFs that currently own shares in gold-mining companies and refineries.

Even though this could be considered as an alternative, investors should regard business-specific factors that can impact the growth and value of these shares.

Futures and Gold Mutual Funds: The second alternative could be opting to allocate funds to a gold mutual fund or gold futures options.

This avenue entails purchasing and trading future funds which trade on the commodity exchange. The benefit here is that mutual funds and ETFs tend to follow the price of gold, but the correlation can be slightly altered in highly volatile market conditions.

Mutual fund options are considered less risky, as allocated funds are automatically diversified across various companies instead of buying specific stocks or company shares.

Gold ETFs: Another substitute could be purchasing gold ETFs, which can give investors direct exposure to gold prices in the current market. While the physical gold is piled in several depositories, an ETF would buy and sell gold based on the supply and demand of the shares.

While these alternatives allow retirees easier access to gold and precious metals, it can be a tricky road to follow, as several factors can influence the physical ownership of gold. Gold ETFs are considered the safest option when it comes to a 401(k) that has multiple contributors for both an employer and an employee.

On the other hand, for those employees who currently have a self-sponsored 401(k), rolling a portion of the funds over into a self-regulated gold IRA could be a more beneficial option. Not only does this allow physical ownership of precious metals, but the owner of the IRA fund has full ownership and control over the amount allocated.

Time Builds Value

Retirees looking to grow their retirement funds should allocate a designated time or period for these options to mature.

It has been proven that the longer a fund or retirement savings plan matures, the bigger it grows in physical value. What this means for those workers who are willing to roll over some portions of their 401(k) into a self-regulated gold IRA, the longer it appreciates, the more you’ll be able to grow your pension fund.

Building a nest egg over time, without tapping into your savings, is the fastest and best way to increase your pension even though it’s more challenging in current economic conditions.

The Bottom Line

The current economic stance creates various challenges for workers looking to enter retirement during a bear market. With inflationary conditions, a slowing economy, and an aggressive increase in rates coming from the Federal Reserve, soon-to-be-retirees will need to start looking at diversifying their pensions to help them outlive these turbulent conditions.

Rolling over your 401(k) into a self-regulated gold IRA can be risky. Experts suggest that retirees consult a fund manager or brokerage firm before making a final call.

Choose options that fit your financial condition, but more so, to ensure you can grow your retirement fund over time, even if the surrounding economy starts to slow. The bear market seems inevitable, and it’s best to start sooner than later, considering how well precious metals and other commodities perform during periods of recession.

This article was produced by ValueWalk and syndicated by Wealth of Geeks.

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