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- A recession looks increasingly likely in 2023, but there are steps you can take to protect yourself.
- According to Alex Alba, millennials in full-time jobs should start by building up their savings.
- If you can afford it, consider investing outside of your company’s 401(k) after you max out your match.
Economists are predicting a recession in 2023, which means layoffs and stock market volatility could be on the horizon.
Financial planner Alex Alba of Merit Financial Advisors said, “I don’t think anyone knows exactly when the recession will be or when the volatility in the stock market will end.”
However, says Alba, the data indicates that the stock market will “return to normal and in the green” by the end of 2023 or the beginning of 2024. Bearing in mind that a recession would be a temporary and natural part of the business cycle, here are four dollar moves Alba recommends for millennials who have full-time jobs.
1. Pay off your emergency fund
An emergency savings fund has three to six months of living expenses typically held in a high-yield savings account. A HYSA gives you easy access to your money if you are laid off from your job, have a car accident or face any other type of emergency. Alba says it’s more important than ever to top up your emergency fund, especially if you fear layoffs.
2. Maximize your company’s 401(k) match
A 401(k) is a company-sponsored retirement plan that lets you invest a percentage of your pre-tax pay in the stock market to grow passively until you retire. The company you work for may offer a 401(k) match, a percentage of your contribution that the company matches dollar-for-dollar and places in your retirement account up to a certain dollar amount.
For example, your company may offer a 3% 401(k) match for up to $3,000 per year. In this case, to maximize your company match, you need to save at least 3% of your salary (or more depending on how much you earn) to get the maximum match from your employer.
Experts say taking advantage of a matched 401(k) is one of the easiest ways to grow your money in the stock market. Alba says if you haven’t reached your company’s 401(k) matching maximum yet, now is a good time to make that change.
3. Start maximizing your 401(k) rollover
Another strategy Alba suggests for millennials in full-time jobs is to maximize your 401(k) deferral. A 401(k) deferral rate is the percentage of wages paid into a 401(k) plan through your employer.
According to tax laws, if you earn an annual salary of $330,000 or less, you can defer up to $22,500 of your annual salary and put it in your 401(k). Each year, the maximum deferral rate changes based on the IRS’ Annual Cost of Living Adjustments (COLAs). This year, the IRS increased the COLA by $2,000, from $20,500 in 2022 to $22,500 in 2023.
For example, if you make $100,000 a year and contribute 3% to your 401(k), by the end of the year you will only put $3,000 in your 401(k) – $19,500 of less than the 2023 401(k) carryover limit.
Alba recommends working with a financial planner to gradually increase your contributions to maximize the 401(k) rollover limit.
4. Invest outside of your 401(k)
Alba says a recession is a great time to start investing outside of your 401(k) in a brokerage account because you’ll get “discounts” on stocks. He adds that market volatility can reveal the level of risk you are willing to tolerate as an investor, which will help you make better long-term financial decisions when investing in the market.
He adds: “Besides stocks, there are also great ETFs and funds. In order to get the right mix of investments, I think having a relationship with the right finance professional is extremely important. “
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