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How to Rebuild Your Retirement Nest Egg in 2009

By plrprousers | January 21, 2009

2008 proved to be a tremendous bear market for Wall Street.  With investor confidence at an eight year low and stocks continuing to see loss in value, some 401(k) and IRA accounts have lost upwards of 20% or more of their pre-2008 value.  With these types of losses felt across the board, how can you learn from this experience and work to rebuild your nest egg beginning in 2009?

 

Don’t Cash Out

 

Many people who still had 401(k) accounts from an old employer promptly withdrew funds when they saw the continually falling stock market prices.  Unfortunately, choosing to cash out your 401(k) can have a tremendous financial impact on your future retirement income. 

 

First, withdrawing funds before the agreed retirement age will result in hefty early withdrawal penalties.  Don’t forget that you will owe federal and state taxes at your current tax rate on any increase in value of your fund over the amount you contributed.

 

Secondly, when one considers the powerful investment vehicle of a 401(k) and the final value of the account at retirement age, it is foolish to pass up the chance to build that wealth.  Even a small $5,000 retirement account can grow to near $75,000 in 40 years.

 

Wait for the Rebound

 

If you have retirement income vested in the stock market, it is important to remember that the market always recovers, and in fact, it has demonstrated consistent average growth since 1930.  However, you do need to ask yourself a question about when you plan to retire.  Will it be in 5 years?  20 years?  If have 20 or more years until your retirement age, your 401(k) or IRA will still see the best growth with stock market funds.  However, if you are looking at retirement soon, you may want to consider checking your diversity of investments.

 

Check Your Diversity

 

Your retirement accounts for your future retirement income should be invested in diverse areas, such as stocks, mutual funds, bonds, and no-risk investments, such as money market accounts, and CDs.  Never should an individual put all their proverbial eggs in one basket.  For instance, a younger worker, who is 31 years old, may view retirement as a lifetime away and decide to concentrate his IRA or 401(k) funds into aggressive growth stocks, or more specifically, their own company stock.  However, if a tough economic time arrives, like it did in 2008, that 31 year old may see almost his entire fund deflate.

 

To avoid such massive losses, check to make sure your retirement account has properly diversified investments.  Consult with an asset management company such as iamllc.biz and retirement advice as found on www.kenhimmler.com. Be sure to review your retirement accounts at least once a year and make any necessary changes in order to stay diversified.

 

Don’t Stop Saving

 

And finally, don’t stop saving.  Your 401(k) account is the solid foundation of your retirement plan.  Despite the ups and downs of the market, you should not stop your regular contributions for two reasons.  One, your contributions are pre-tax, and therefore, it lowers the actual income tax you pay now.  And two, if you have an employer with a company 401(k) match, take advantage of that free money.  Every penny you withhold for your 401(k) up to about 3% of your earnings can be matched and donated into your account by your employer.   This is essentially “free” money for your retirement account. 

 

The stock market news can be daunting.  However, remember that the survivors and winners in the long run are those who are mindful and stay in the investment game. 

 

Authored by Kenneth Himmler, Sr.

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