Retirement Planning Through 401(k) Plans And Roth IRAs–Should Investors Diversify Retirement Savings Plans?

Retirement plans that many investors may use in order to save for the future usually come in some form of investment strategy like a 401(k) plan from an employer or a Roth IRA that can offer benefits related to taxes later in life. However, there are some consumers who are finding that they are having to withdraw money from retirement funds early as a result of factors like poor financial planning, medical costs, or other difficulties which have led to an insufficient amount of funding within their personal financial life to meet specific costs.

However, some have asked whether diversifying a retirement savings plan with different options, like using both a 401(k) plan and a Roth IRA, will be more helpful for consumers in that they may find more retirement income instability as a result of this form of investing and, if an emergency situation were to arise and funds from one of these accounts needed, it will not necessarily wipe out the entirety of their retirement investments savings or do a substantial amount of damage.

Obviously, during the recession when numerous downturns were present in various areas of the economy, many investors, even those that had diversified savings plans, saw a decrease in the money that they had saved for retirement and this has led some to question whether diversifying one’s retirement portfolio is helpful or if a consumer may fare better in an economic downturn if they have a sizable sum saved in a one retirement investment account.

However, some argue that diversifying is still a practice that consumers can use and, in the majority of cases where economic downturns are not as severe as we have seen in the past, diversifying retirement portfolios can be helpful to consumers who may be unsure of whether they should simply focus on one form of retirement account or if they are better spreading the money around and seeing growth from different investments.

Yet, once a consumer has looked at their personal financial situation, determined what their retirement goals may be, and have found that diversification may be best for them, there are a number of retirement options that a consumer may be able to use when it comes to achieving the optimal amount of retirement savings. However, options that are quite popular are 401(k)s and Roth IRAs, as a 401(k) can be beneficial for employees, as some employers will match contributions and this can lead to more overall retirement savings, while Roth IRAs allow investors to withdraw earnings tax-free.

When it comes to deciding on whether a consumer should focus on one of these accounts or the other, an article on Bankrate.com asks specific questions to investors in the hopes of making this decision a little easier. Obviously, whether a consumer should invest in one particular account or another, or whether they should diversify at all, will depend on their personal situation and goals, so this aspect of retirement planning must be explored by a consumer individually, but when it comes to funding one of these retirement options, Bankrate suggests looking at factors like will an employer match contribution funds in a 401(k), do consumers have the financial discipline to save in other accounts that may not be offered by an employer, like a Roth IRA, and what might be some of the overall costs associated with contributing to either a 401(k), Roth IRA plan, both, or a combination of other investment vehicles.

Understandably, consumers who are having financial trouble may be in a position where these difficulties could be avoided and funds from their retirement accounts left untouched, but when it comes to properly planning for one’s retirement, factors like diversification must be considered and what options a consumer may have in terms of how they can meet their goals must also be researched as consumers could find that, even if financial trouble arises, they will have enough retirement savings spread out over various investments where they will find that their financial needs after retirement may still be somewhat secure.