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Consumer Action by Stacey L. Bradford (Author Archive)
Protecting Your Retirement Savings in Volatile Times
OCTOBER'S VOLATILE LOSING STREAK has wreaked further havoc on people's retirement accounts. Investors have lost a stunning $2 trillion in their retirement savings over the past 15 months, according to Congress's top budget analyst.
With such giant losses accruing on an almost-daily basis, you may want to take whatever money you have left and run. Make every effort to resist that temptation. Panicking and pulling your money out of the market now is the absolute
Here's how to stay rational about your retirement savings during irrational times.
Starting Out
For investors who are just starting to put money away for retirement, the key to savings success is to sock away as much as possible. Time is on a young investor's side. Your money will have decades to enjoy tax-deferred compounded growth. And although this may feel like a risky time to keep contributing to a 401(k) or IRA, it's actually a great buying opportunity, says Losey. With the S&P 500 down some 40% this year, the market is essentially on sale, allowing investors to pick up more shares with the same dollars than they could have just a few weeks ago, he says. Consequently, anyone with a little extra cash should consider
Midcareer
Forty- and fifty-something's who've been saving for retirement for years now, should also increase their retirement contributions. The purpose, however, is not to take advantage of beaten-down stock prices, but rather to counteract losses in your portfolio. Since you don't have as many years to recover as someone in their 20s and 30s, you'll need to add new money to your 401(k).
If you're already maxing out a 401(k), now's also the time to start contributing to an IRA or Roth IRA. Those who've hit 50 should take advantage of the catch-up provision, which allows you to invest an extra $5,000 into a 401(k), and an additional $1,000 into an IRA or Roth IRA.
As for asset allocation, people who are still 10 or 20 years away from retirement should evaluate their current asset allocation and make sure it's invested with about 60% of their portfolio weighted toward equities. (The remaining 40% should go toward bonds). This money needs to potentially last another 50 years and it needs the growth that stocks can offer, says T. Rowe Price's senior financial planner Christine Fahlund. "If there is a silver lining, at least it's costing you less to get the stocks you need," she says.
Read our story for more on investing in your 50s.
About to Retire
Investors in their early 60s should continue to invest aggressively in their 401(k)s and other retirement accounts. New money, however, should go toward rebalancing the portfolio. Chances are the portfolio is now heavily weighted toward bonds because the equity portion has decreased so much in value. Now it's important to work on getting the asset allocation back to about 50% in stocks, says Fahlund.
Unfortunately, the losses sustained on 401(k)s and IRAs are so severe that anyone planning to retire over the next five years should reconsider leaving their job. "It's much better to stay with an employer, maintain your benefits, and have fewer years to support yourself," says Fahlund.
Also, try to hold off on dipping into Social Security. The government allows workers to start receiving Social Security benefits at as young as 62. Wait until the full retirement age (for those born between 1939 and 1942, it falls during your 65th year; for those born between 1943 and 1954, age 66) and the government will award a "delayed retirement credit" that adds 8% to benefits each year until age 70. Use the Social Security Administration's retirement planner here to help you figure out when to start receiving your benefits.
Read our story for more last-minute retirement tips.
Already Retired
The primary goal for current retirees is to make sure they don't outlive their retirement savings. Panicking and shifting all of your assets over to bonds, practically guarantees that you'll run out of money, says T. Rowe Price's Fahlund. A better game plan during a bear market is to decrease the amount of money you withdraw from your nest egg. Of course, that's easier said than done. The least painful way to go about this is to keep distributions at the same level each year until the market recovers, instead of increasing them for inflation.
Most retirees may not want to hear this, but it's a good idea to consider getting a part-time job, as well. Securing a position that pays just $20,000 a year is the functional equivalent to living off the income generated from a $500,000 portfolio, according to T.Rowe Price.
Cramer told you to sell.
Everyone pounded Cramer for telling you to sell.
Surf around the financial blogs and you will find numerous hedge fund managers who claim to be sitting on 50% or more cash.
They weren't sitting on 50% cash when they were making 100% plus annual returns!
Where did that cash come from?
They sold!
Is it too late for you to sell now that you are down 30 - 50%?
Nobody who really knows is going to post here.
Here's my advice:
If you are retired and your savings really aren't going to last as long as you will - start eating all the foods you really love!
Eat all the eggs and sausage you want for breakfast.
Have that bacon cheeseburger for lunch. Go ahead, have the onion rings and the malt.
Eat that baked potato with lots of cheese, sour cream, bacon bits, and lots and lots of butter!
Cheesecake for desert and, what the heck, add a scoop of ice cream to that...(Read more of this comment)
There appears to be panic in most of the comments made here along with some arrogant remarks which can signify anger over the financial predicament some think they are in. There is talk here of GMNA's, gold coins, stocks, bonds, real estate, and the usual investments. Any hope of surviving financially, whether retired or not, in any one of these alone is pure folly. If you are experiencing paper losses in any or all of your investments the good news is that these will remain paper losses...unless you sell. The bad news is that all of this paper is backed by yet more paper in the form of flat currency. We Americans are not alone in our use of a monetary system that is backed only by the faith in those who use it. Most of our big trading partners use the same scheme. Too much of all this has created huge debt burdens in these same countries. Add a whole lot of crookedness fueled by greed and very little policing by our stagnant legislature and one has the makings of a huge financial melt...(Read more of this comment)
My philosophy has changed. I've put the majority of my retirement income in a GNMA bond fund (Vanguard). The fund yields 5% and is fully insured by the government. I don't think it makes sense to take on all of the extra risk of owning stocks for an average 2-3% extra gain. Buffett and Bogle believe that the equity markets will average about 5% over the next century anyway. I would rather keep my principle more protected and take the 5% yield. Also, it seems to me that there is more corruption today on Wall Street than in the past. The new generation of CEO's and board members today seem to put their own interests far above that of shareholders. I personally don't have nearly as much trust in the management teams of our good companies as I did in the past.
The 401K is now completely discredited as a vehicle by which the majority of American workers can build up retirement funds. It amounts to putting all your savings into the Stock Market without any downside protection. The advice of the article bears this out. It says:
1. If in 40's - 50's: PUT IN LOTS MORE MONEY.
2. If about to retire: DON'T
3. If already retired: GO BACK TO WORK.
That's a failure for 401K's by any measure.
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You Are Viewing: SmartMoney.com — Investing, Saving and Personal Finance.
In the depths of a bear market that has carved between $500 billion and $2 trillion from U.S. retirement accounts so far this year, as many as two-thirds of all Americans have stopped contributing to their retirement plans, a new study shows.
And that's precisely the wrong decision to make at the wrong time. No matter how poorly the financial markets are performing, saving for retirement has to remain a top priority.
http://www.contrarianprofits.com/articles/four-ways-to-protect-your-retirement-from-the-ongoing-financial-crisis/7333
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