Question of the week:It's starting to look like another tough year for the stock market and I'm getting seriously concerned about not being able to retire when I'd planned. Any advice for me? --Jesse H.
Dear Jesse,
You're in good company. A survey conducted last year by financial software provider Intuit found that 13 percent of those surveyed anticipate delaying their retirement because of stock losses. A full quarter of these said that they will have to work an extra five to seven years in order to retire comfortably.
When we asked members of the Armchair Millionaire community about how the market has affected their own retirement plans, we heard a wide range of responses:
"I still plan to retire in my 50s (I am 30 now). I view the current downturn as a buying opportunity and am contributing the maximum I can to my retirement plans." --M. Donald
"Today's situation doesn't bother me that much, because I see the possibility to get 'a lot for a little.' I invest on a monthly basis and have a long-term horizon. This helps a lot to get through rough times. And better days will surely follow ..." --Debbie
"While I lost a good percentage of my 401(k) last year, I'm not worried as I'm only 40 and have definite goals and plans to reach those goals." --Stacy
"The past three double digit negative years have not been pleasant, but with the longer run view of a market up by 10 percent annually over the past fifteen years, I am still in great shape. My retirement plans have not been altered a bit." --Frank S.
What do all these Armchair Millionaires have in common? They're not letting today's market volatility veer them away from a common sense course. So don't despair about your situation and take some concrete steps to ensure a financially secure retirement. My checklist will get you started.
The Armchair Millionaire Guide to Keeping Your Retirement Plans on Track
- Give to your retirement accounts 'til it hurts. Contribute the most you possibly can to your tax-advantaged retirement accounts, such as your 401(k) and/or IRA. Ideally, contribute every single dollar you're allowed.
- If you're over 50, play catch up. People over 50 years old can contribute even more to their retirement accounts. The law currently allows an extra $2,000 contribution to 401(k) accounts, and an extra $500 in IRA accounts. These amounts will go up slightly in the next several years.
- Manage your portfolio wisely. This means:
- Be diversified. It's hard to beat mutual funds for diversification, and it's hard to beat index funds for low costs.
- Have the appropriate mix of investments. As you draw closer to retirement age, you'll want to become more conservative and add more cash and bonds to your stock investments.
- Get professional advice. A portfolio checkup by a financial advisor can be invaluable for folks approaching retirement age.
- Work one more year. Just working a single year longer than you'd planned can make a big difference in your retirement fund. Not only will you delay drawing down your retirement money--giving it another year to grow--you'll add an extra year's worth of savings to it. Also, depending on your age, waiting to start drawing your Social Security could result in a larger benefit.
THE BOTTOM LINE: Market downturns call for you to pay more attention than ever to the time-tested fundamentals. What makes good sense in ordinary times goes double now, so focus on leveraging tax-favored accounts, saving as much as you can, being smart with your investment choices and, above all, staying the course.
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