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Don't Let Economic Troubles Threaten Your
Retirement Plans
As the economy has worsened, not only have retirement funds
dropped in value with the market, but also many people have been
tempted to tap savings as a way to cut debt or otherwise shore
up their finances after a job loss. Still more have found that
employers have dropped matching contributions to shore up their
own finances.
Worry about retirement seems to be widespread. A January
survey by the National Institute on Retirement Security noted
that 83 percent of Americans are concerned about their ability
to retire.
Yet the worst thing you can do is tap or give up on your
retirement funds. No one can know with any certainty when the
investment markets will rebound, but even if you can contribute
something, you stand to gain once markets start to rebound. Even
more important, you risk penalties and the lost potential for
the earnings if you turn your back.
Before you make a move, seek out some advice. It's a good
idea to check in with an expert such as a Certified Financial
Planner™ professional to see where your retirement funds stand
in light of all your finances before you do anything.
In the meantime, here are things you can do to put your
retirement funds in better shape.
Don't stop funding your 401(k) under any circumstances:
In March, the Spectrem Group, a Chicago-based consulting firm,
reported that 34 percent of U.S. employers have reduced or
eliminated matching contributions to their defined contribution
retirement plans — which include 401(k)s and 403(b)s — since
January 2008. The Pension Rights Center reports that besides the
Big Three automakers, dozens of major companies have cut back
their match, including Motorola, Starbucks, and JPMorgan Chase
& Co. It's a significant impact. US News & World
Report recently reported that a worker who earns $50,000
annually and receives a full employer match of 50 cents to the
dollar on six percent of his or her pay, the match cut means
$16,000 less for retirement. An employer dropping its
contribution is bad news, but you should make every effort to
keep up with your contribution because if you don't, you'll miss
valuable tax deductions and the chance to build your funds more
effectively for the long term.
Stay invested: Because no one precisely knows when the
market is headed up or down it's best to stay invested at a time
when everyone is waiting for a rebound. Keep in mind that the
market's top performing days typically come at the start of a
recovery, so leave your money in your 401(k) and IRAs.
Keep in mind that withdrawing or borrowing your funds can
be costly: If you have an emergency situation, be careful.
Workplace 401(k) plans do allow for hardship withdrawals, but
you might have an option to take a loan, which would save you
the taxes and the 10 percent penalty that accompany hardship
withdrawals for account holders under the age of 59. The
majority of 401(k) plans allow you to borrow up to 50 percent of
your vested account balance or $50,000, whichever is less.
Adjust your spending so you can save more: If you have
an existing Roth or traditional IRA or other means of saving for
retirement, do whatever you can to get more money into these
accounts. It may not come close to meeting the shortfall from
losing an employer's contribution or the chance to add to a
401(k) after you've lost your job, but it's critical to keep
some savings going.
June 2009 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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