Managing Your Retirement Plan Post-2008

Steps You Should Take

If you’re like most Americans, your retirement savings have suffered a set-back in 2008 and early 2009. The closer to retirement you are, the more painful the set-back may have been.

It’s time for a fresh start! It’s time to regain your confidence and perspective, but most importantly, take back some control over your retirement savings. The following actions will help you get started.

Add it up.

Remember those pesky statements that you’ve been afraid to open up and look at? Well, it’s time to round them up (401(k)s, IRAs, mutual funds, credit union accounts, etc); add up the totals to see where you stand. It may be better or worse than you thought. Knowing the current value of your retirement savings will help you determine how much you need to save going forward.

Rerun the numbers.

Once you know the value of your retirement savings and you also know how much you’re saving each month, go to an on-line retirement calculator to estimate how much you should be saving to meet your goals. The results shouldn’t be a big surprise.  You may have to save even more now.  Remember that most calculators allow you to adjust several factors, such as your savings rate, your retirement date or your retirement income. You may be surprised at how extending your retirement age or slightly decreasing your retirement income goals can impact your savings needs.

Revisit your risk tolerance.

When the stock market is stable or rising, many people over-estimate their ability to withstand a fall in account values. It’s easier to stomach the “concept” of a market decline rather than the reality of one. Now that we’ve gone through the biggest stock market losses since 1931 (that’s the Great Depression), people are finding out they’re not as bold as they thought.
 
If safety and capital preservation is a top concern, you may want to consider building in some guarantees with stable value options. Stable value accounts are not subject to market fluctuation and may be appropriate for the dollars that you absolutely cannot afford to lose.

Double check your asset allocation.

Having the right blend of investments is the key to successful long term investing. Even though you may feel that diversification let you down in 2008, remember, just about everything went down last year; some assets simply dropped more than others. Diversification, using a proper asset allocation strategy, is a long-term strategy and pays off over an extended period of years (not just a few months or a couple of years).
The losses of last year were painful and the urge to get out of stocks altogether is understandable. The other extreme involves getting overly aggressive in an effort to “roll the dice” hoping to recoup your losses. Neither approach is a healthy one.

Establishing a long-term asset allocation strategy that is consistent with your risk tolerance and investing time horizon (the number of years until retirement) is a better way to go. It’s good to re-visit your asset allocation “mix” every 2-3 years just to make sure it’s still the right one for you.

If your plan offers asset allocation accounts, you may want to consider these and let the investment professionals handle the asset allocation decisions. A target date option involves selecting the account that falls closest to the year you want to retire. The professional investment manager automatically adjusts the allocation to a more conservative mix as you approach retirement. Another option is called target allocation or “target risk” and generally includes conservative, moderate or aggressive choices. If you choose this route, be sure to evaluate your risk tolerance every few years to make sure your strategy matches your lifestyle (i.e. someone within one year of retirement probably shouldn’t be in the aggressive choice).

Be honest with yourself.

Take a good hard look at how much you have saved and how many years are left before retirement. Are you really saving enough? If you know you’re not saving as much as you need to save to meet your retirement income goals, admit it and either adjust your retirement vision or increase the amount you save. Don’t fall into the irrational trap of feeling that everything will be OK. Except for the lucky few, money doesn’t just magically appear when you need it. The amount you have at retirement is a direct result of the actions you take during your working years.
 
Following the 5 steps above are valuable to everyone at this time. Completing the steps will help you regain control of your retirement savings again.   Your credit union may have resources and retirement planning tools available to help you through the steps.

For additional information on retirement plans, such as 401(k) plans, from CUNA Mutual Group call 877.345.GROW, option 3.

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