November 2009 e-Wealth Coach
Saving for Retirement in a Bad Economy
Dear Saver,
The years 2008 and 2009 were nerve-wrenching years for saving for retirement. 2008 saw most individual retirement accounts losing 20 percent of what had been saved. While 2009 saw most retirement savers gaining value in their accounts, this see saw, up-down gain-loss is enough to make even experienced investors sweat.
What can you do?
(1) Set up a savings goal. Saving for your retirement is a long-term goal. Your first step is to determine how much you will need for your retirement. Determine how much money you'll need to save to retire comfortably with The American Savings Education Council's Ballpark E$timate.
(2) Assess your risk tolerance. Knowing what types of risks you might face will help you understand how to build and balance your portfolio to offset potential problems. Make smart decisions by Managing Investment Risk.
(3) Assess your options. Once you have determined how much investment risk you are comfortable with, work with a financial professional to determine the investment options to best fit your risk tolerance. Do not be afraid to ask questions or let anyone talk you into an investment option you do not understand.
(4) Pay attention. Once you have made your investment selections, make sure to monitor your account's performance and your assets are within your investment risk tolerance. These may change as you age, as your job situation changes, and for other reasons.
(5) If you change jobs, preserve your retirement savings. If you change jobs, leave your retirement savings where they are until you can roll over your account balance to your new employer's plan or into an IRA account. Do not withdraw it and spend it unless it is essential (doing so will require the payment of taxes). If you need to take money out of your retirement account, make the pledge to yourself to replace the amount withdrawn when times are better.
Your retirement goals can be within your reach by setting your savings goal and making big enough consistent contributions to your retirement savings account. Taking on added "investment risk" may provide a higher rate of return, but it also brings with it a risk of loss, so it may or may not allow you to save less. The long term can be a long time. So save now, pay attention, and adjust your plans at least once each year.
Sincerely,
Ken McDonnell
Program Director, American Savings Education Council