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Now’s the time to get back on track for retirement

By Neil H. Alexander and Rachel M. Hawili

opefully, you were one of the many people who breathed a sigh of relief when you opened your most recent 401(k) statement and saw actual gains in your retirement account. Although we’re certainly not back to where we were, it seems the freefall may be over as the stock market has surged over 50 percent since its March 9 lows.

What’s made this particular market downturn even worse, however, is the media’s constant coverage of how it has devastated many people’s retirement savings. While nobody has survived this period unscathed, the reality is that most Americans can re-build their retirement savings with a little time and effort.

Here are a few steps that can help you construct a personal recovery plan for your retirement savings, allowing you to get yourself back on track for retirement:

• Get back in the game: If you were one of the many investors who panicked and cashed in your investments, now is the time to get back in the market. You’ve already made one mistake which prevented you from enjoying the recent market run-up. Don’t compound your mistake by staying on the sidelines any longer.
• Re-evaluate your goals and assumptions: It’s easy to think of yourself as an aggressive investor when the market’s doing well. The real test of nerves (and the strength of your investments) comes when the market plummets 20 to 30 percent. If your declining 401(k) account balance has kept you up at night, it may be time to reconsider the amount of risk you’re taking. Also, take a look at your long-term savings goals. Assuming your retirement account will earn a 10 or 12 percent annual return in the future may not be realistic.
• Change your perspective: Many people have come to realize they won’t be able to retire when they had originally hoped. But delaying retirement may not be a bad thing. Studies have found that, as our life expectancy increases, spending 20 or more years as if it were Sunday afternoon can be both boring and unhealthy. Many retirees report they feel depressed and disoriented because they are not productive or socially connected. The current trend is that many baby boomers will cycle in and out of work, trying new things and earning a paycheck while doing it. By delaying retirement, you give yourself more time to save, decrease the number of years you need to fund with retirement savings, increase your Social Security benefits and possibly even improve the quality of life during your golden years.
• Spend less, save more: The conspicuous consumption of the last several years, punctuated by the recent market downturn, has reminded us what our grandparents knew all too well – living within your means and saving for your future is a good idea. Reducing monthly consumption so you can contribute more money to your 401(k) plan not only provides you with additional retirement savings, it allows you to invest at values that are still significantly lower than recent market highs. Although spending less and saving more isn’t easy, many are viewing it as a return to the tried and true values of the past.
• Find a financial adviser you can trust: The bottom line is that you may not be able to do this yourself. A financial adviser can help you set goals, select appropriate investments, allocate your assets among those investments and keep you on track the next time the market heads south. Ask a trusted friend or family member for a referral or interview advisers from financial firms that have a strong reputation in your community. After all, you don’t cut your own hair. Why try to do this yourself?
• Have a good memory: This is going to happen again, so don’t forget what you’ve learned over the last two years. In spite of recent media coverage, this was not the end of the world. By the same token, when the market becomes bullish again, don’t become overly aggressive. After the tech bubble burst in 2001, many investors’ initial cautiousness was replaced with heady optimism as the market resumed its upward climb. Surprisingly, many investors were once again caught off-guard when the market reversed itself. The lesson here is to have a good memory, make a plan and don’t get thrown off by all the market noise.

Although the market appears to be recovering, the road back will be long and bumpy. Now is the time to shake off the last two years and get back on track for retirement. Take charge by drafting a plan that takes into account these basic steps and review it as your circumstances change. The good news for most people is that it’s still possible to retire with enough assets to lead an enjoyable and rewarding retirement.

Neil H. Alexander is the director of HT Corporate Services, the retirement plan consulting division of Hefren-Tillotson Inc., a Pittsburgh investment advisory firm; he can be reached at (412) 258-1069 or nalexander@hefre.com. Rachel M. Hawili is a retirement plan coordinator who can be reached at the same telephone number.

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