Financial retirement

Money Report

Get your savings plan back in action

This past year will go down in history as the year in which the Wall Street financial crisis became a Main Street nightmare. Real estate values plunged; more than a fifth of all American homeowners now owe more than their home is worth.

Retirement plans for many investors in their 50s and 60s have been thrown into disarray, and a generation of younger investors has lost confidence in the financial markets. Out of necessity, many have lowered or stopped contributions to their retirement and 401(k) plans, and many employers have stopped matching contributions as well.

Yet investors in their 20s, 30s and even 40s still have time on their side. Some proactive strategies and a reassessment of investment and financial goals should be in order.

First, look to pay down debt. As credit card issuers face stricter regulation in 2010 and beyond, many are raising rates and minimum payments on existing customers, and in some cases canceling lines of credit. Since other assets have lost value, it makes sense to save on interest expense and lower these payments now. Money saved on credit card and other interest can go to increase your retirement savings.

Resist the understandable temptation to back of on 401(k) and retirement contributions. If your financial circumstances permit, the most likely to be a successful recovery strategy at this point is to contribute as much as possible to your 401(k)s, IRAs and Roth accounts, (and regular savings as well) and dollar cost average into an appropriate mix of stocks and bonds. Many in this age group have already fed the markets, and placed all their funds in super-safe money markets or fixed accounts. While understandable, this has caused many to miss the partial recovery of stocks since the spring of 2009.

There are good reasons to review your asset allocations and rebalance your portfolio now. Stock markets are still well below their highs of 2007; implementing a responsible asset allocation with an appropriate percentage in stocks or stock mutual funds can help turn these declines into opportunity.

For those in their 50s and 60s, approaching or already in retirement, there are other factors to consider. You may have made your retirement plans with assumptions for asset values and investment returns that are no longer valid. Along with helping to provide support for aging parents, many in this age group are now helping their adult children as well.

You need to have a written asset allocation and income plan to help you see clearly where you are now, regroup, and provide continuity and consistency to future investments.

Review your current allocation, especially the mix of stocks, bonds and cash in all your personal and retirement accounts. Calculate the income, both dividends and interest, that the portfolio provides, work out what your expected rate of withdrawal is, and determine whether those expectations are still realistic. If lowered values have driven your withdrawal rate up to 6 percent or higher, it may be time to reevaluate spending. There are many useful financial calculators available online to help you with this calculation, or you may want to consider working with a knowledgeable advisor or financial planner to review your options.

For many the best plan may be to defer retirement a few more years. Educate yourself about all your Social Security options. Waiting a few years to take Social Security may dramatically increase benefits. Taking Social Security as soon as you are eligible may no longer be the best option.

If you have a more serious shortfall, it may be necessary to make more significant changes. Despite a troubled real estate market, you may need to consider downsizing, or look into the options provided by a reverse mortgage.

A second career, working during retirement or starting a business, can provide rewards of its own, as well as financial benefits.