R4| Monday, October 7, 2019 THE WALL STREET JOURNAL.
to grips with the inevitable, that you can’t
maintain a big home forever, physically or fi-
nancially. It’s bound to get more difficult.”
iiiMy question involves converting a 401(k)
to a Roth IRA. I am 66 and have been re-
tired for a few years. I understand that I
can convert any or all of my 401(k) to a
Roth regardless of amount. If I convert a
portion of the 401(k) every year for, say,
five years until the 401(k) is completely
converted, can I still access funds even
though there is a five-year gap between
the first in and last in?Yes, for the most part, you will be able to
access your funds. But we need to look at
this from two angles: whether you’re con-
verting to an existing Roth account or a
new Roth.
To start, you are correct: You can convert
your 401(k) funds, all or part, to a Roth IRA.
(Of course, such conversions are subject to
taxes; the amount converted would be in-
cluded on your tax return.) But if you have
had any Roth IRA open for at least five
years, then the funds you convert from your
401(k) to the Roth are all “qualified,” says
Ed Slott, an IRA expert in Rockville Centre,
N.Y. That means the funds can be with-
drawn tax-free at any time, since you have
held the Roth for at least five years.
If this is a new Roth IRA, or a Roth that’s
less than five years old, the converted funds
can still be withdrawn tax-free at any time.
(That’s because you already paid the tax
when you converted these funds.) But...any
earningson those funds would be taxable
until the Roth IRA was held for five years,
Mr. Slott says. But even then, you likely
would benefit from what the Internal Reve-
nue Service calls “ordering rules.”
Under these rules, the first dollars with-
drawn from your Roth IRA would be consid-
ered to come, first, from any Roth contribu-
tions and, second, from any conversions.
Any earnings are deemed to come out last,
so you wouldn’t reach the earnings layer un-
less all the funds were withdrawn within
they had anticipated because of layoffs, ill the five years.
health and family responsibilities, among
other reasons.
In short, working longer can be a smart
strategy to bridge gaps in retirement sav-
ings. But you must have backup plans, as
well. Which leads us to...- Slash debt.Got a costly auto lease? Get
rid of it. Swamped with credit-card bills?
Cut up the cards. Older Americans, improba-
bly, are accumulating debt instead of elimi-
nating it. In August, the Federal Reserve
Bank of New York reported that individuals
in their 60s held $2.16 trillion in debt as of
June 30, an increase of 62% just since 2007
(the beginning of the 2007-09 recession)
and almost five times the amount of debt
($440 billion) held at the close of 2000.
The math is simple: If you’re carrying too
much debt, you likely can’t save enough.
And if you aren’t saving enough, a secure
retirement will remain out of reach. - Get ruthless with expenses.Several
years ago, I spoke with a small-business
owner who admitted that he really had no
idea how much he was spending until his
wife all but demanded they sit down and
discuss their finances and future. As it
turned out, a year earlier the couple had
spent $8,200 on their five dogs and $4,000
on wine. “Now we have a monthly meeting,”
the husband said, “and my wife tells me,
‘This is what we have in savings, this is
what we have in the checkbook.’ ”
The point: Don’t lie to yourself. Yes, lots
of people have a household budget of some
sort, but do you know where the dollars are
actually going? Dining out? Movies? Gifts to
family members? Pets? Hobbies? Gambling?
Travel? Electronics? You might be able to
take an ax to more costs than you realize.
Speaking of which...- Downsize.I know: a tough step. But let’s
look at some numbers.
Even if your mortgage is paid off, taxes
and upkeep on a home can still put a sizable
hole in your wallet each year. Given that an-
nual property taxes nationwide average
about 1% of a home’s value (according to
the Tax Foundation) and annual mainte-
nance and utility bills average from 1% to
3% (a good rule of thumb, according to fi-
nancial advisers), carrying costs alone on a
$500,000 home total about $15,000 a year.
Move to a $350,000 home and the figure
drops to $10,500.
Of course, downsizing isn’t foolproof. De-
pending on where you move, a smaller home
could end up costing almost as much as
your current residence. Even so, you should
begin to see savings in other areas: less
money for heating and cooling, for a new
roof, for yard work. And those savings will
compound over time. Smaller also can be
practical. As one retiree told me: “You come
My wife and I are in our early 60s and, for
various reasons, haven’t saved enough for
retirement. What are your best sugges-
tions for pumping up our nest egg? We al-
ready plan to continue working into our
mid-60s and, if necessary, beyond.
Well, let’s start on a positive note: The fact
that you’re asking this question means, pre-
sumably, that you have sat down and tried
to calculate whether your savings and other
sources of income (e.g., Social Security) will
allow you to meet your expenses in later life.
All of which is more than many people do.
So...the following steps are some of the
best ways to “pump up.” None of these are
easy, but each is doable. And each can help
anyone approaching retirement, including
those who are confident their finances are
in good shape.
- Keep working.Yes, this idea leads most
lists. It’s fine advice, and I’m glad it’s part of
your thinking. But, as we have noted several
times in this space, planning to work isn’t
necessarily a guarantee of work. A recent
report from the Transamerica Center for
Retirement Studies found that more than
half of retirees (56%) retired sooner than
How to ‘Pump Up’ Retirement
Savings With a Very Late Start
Also: answering a reader’s
question about converting a
401(k)toaRothIRA
ASK ENCORE|GLENN RUFFENACH
JOURNAL REPORT | INVESTING IN FUNDS & ETFS
Mr. Ruffenachis a former reporter and
editor for The Wall Street Journal. His
column looks at financial issues for those
thinking about, planning and living their
retirement. Send questions and comments
[email protected].Retirement Confidence
Workers with retirement plans, asked
whether they are confident about having
enough money to live comfortably in
retirement, said:Very confident
26%Somewhat confident
48%Not too
confident
20%Not all all confident5%Source: Employee Benefit Research Institute and Greenwald &
Associates, '2019 Retirement Confidence Survey'ALEX NABAUMelections,which occur in early No-
vember. But Octobers are actually
slightly more volatile in nonelection
years than during years of midterm
and presidential elections.- Might the culprit be the year-
end transactions undertaken by
those mutual funds whose fiscal
years end on Halloween?No. Even
before the 1970s and 1980s, when
mutual funds became big players in
the stock market, October was the
most volatile month. - October is also the month when
most companies report third-quarter
earnings.Could that be the reason
for its above-average volatility? If
so, you would also expect compara-
ble jumps in volatility for January,
April and July, when the other three
quarters’ earnings are announced.
Butthatisnotthecase,asyoucan
see from the accompanying chart. - Finally, might the broader econ-
omy follow a seasonal cycle in which,
during October, the future is particu-
larly uncertain?This is perhaps the
most theoretically sound explana-
tion, since there is a strong histori-
cal correlation between stock-market
volatility and the Economic Policy
Uncertainty index (EPU) that was in-
troduced in 2016 by Scott Baker of
Northwestern University, Nick Bloom
of Stanford University and Steven
Davis of the University of Chicago.
management firm. One month has to
be at the top of the volatility rank-
ings, he says, and it could be that it
just happened to be October.
Normally, the absence of a plausi-
ble explanation is a compelling rea-
son not to bet on its persistence.
Why might you nevertheless want to
bet on it in this case? Because Octo-
ber’s reputation has become so
widely known that investors have
come to expect it to continue.
An expectation of higher volatil-
ity can be a self-fulfilling prophecy
if enough investors come to believe
it. Their expectation will cause pre-
miums on both call and put options
to increase, for example. That in
turn will lead to a jump in the
Cboe’s Volatility Index, or VIX,
since it is calculated based on those
premiums.
Mr. Marsh points out that there
also may be other reasons to believe
that the rest of this October will be
especially volatile—such as the im-
peachment inquiry in the House of
Representatives and the steady
drumbeat of recession warnings.
There are a number of ways to
profit from an increase in market
volatility, in both the options and fu-
tures markets. But perhaps the easi-
est way for retail investors to do so
is with any of the exchange-traded
products that do the work for you,
according to Stuart Barton, a manag-
ing partner at Invest In Vol, a firm
that devises strategies for profitingfrom volatility. The product with the
most assets under management, cur-
rently more than $1 billion, isVeloc-
ityShares Daily 2x VIX Short Term
ETN(TVIX), which is designed to
produce twice the daily return of the
S&P 500 VIX Short-Term Futures In-
dex. That means this ETN will do
particularly well when volatility
spikes, but also lose an outsize
amount when volatility subsides. A
less-leveraged bet on an increase in
volatility isiPath S&P 500 VIX
Short-Term Futures ETN(VXX); it
is designed to gain less than the
TVIX when volatility rises, but also
lose less when it subsides.
Mr. Barton emphasizes, however,
that these exchange-traded products
make sense only for very short
trades, since they lose a little bit of
value every day even if volatility
stays constant. As a result, he says,
you might want to take some money
off the table each time volatility
spikes for a day or two—as it did,
for example, this past week.
For most investors, the best strat-
egy for dealing with October’s vola-
tility is to ignore it. Chances are
good that it will amount to little
more than a lot of sound and fury
signifying nothing.Mr. Hulbertis a columnist whose
Hulbert Ratings tracks investment
newsletters that pay a flat fee
to be audited. He can be reached
[email protected].OCTOBER MAKES STOCK INVESTORS SWEAT
BYMARKHULBERT
But seasonal fluctuations in the EPU
don’t explain October’s heightened
volatility, since the strong correla-
tion between the EPU and stock-
market volatility traces primarily to
other months. The EPU in October
isn’t higher, on average, than it is in
other months.
Until and unless a more plausible
explanation for October’s volatility is
discovered, the odds are high that it
is a random fluke of the data, ac-
cording to Terry Marsh, an emeritus
finance professor at the University
of California, Berkeley and CEO of
Quantal International, an investmentSpooked
Standard deviation of each month's
daily DJIA changes (since 1896)Source: Hulbert Ratings1.600.20.40.60.81.01.21.4pct. pointsJMAMJJASONDFThere appears to be no fundamental
reason why October should be the
most volatile month of the stock-
market calendar. Yet it often is. The
hard part is trying to explain why.
Let’s start with October’s well-es-
tablished history of volatility as mea-
sured by daily changes in the Dow
Jones Industrial Average since 1896,
the year the index was created. On
average, the standard deviation of
October’s daily gyrations has been
38% higher than it is for the other 11
months. No other month comes close.
The plot thickens as we consider
attempts to explain October’s height-
ened volatility. None so far has suc-
ceeded:
- Some believe October’s height-
ened volatility can be traced to the
crashes of 1929 and 1987,both of
which took place in October. But
even if we ignore those two years,
October still has been significantly
more volatile than any of the other
11 months, on average. - Others cite the uncertainty cre-
ated by midterm and presidential
The odds are high that
the month’s historical
volatility is a fluke.
,