How to save your retirement - Nov. 10, 2008

We've witnessed events that up to any more had been nearly unimaginable: the inventory marketplace fluctuating wildly and governments environing the existence bewitching extraordinary steps to unlock frozen credit markets. And it's yet unclear when the economy and the markets testament hit bottom.

Inured the unprecedented equivalent of abhorrence and uncertainty, it's no surprize that readers of my Gangling Theory string in Resources and my Grill the Professional path on CNNMoney.com include inundated me with retirement planning questions. These five typical ones include your biggest concerns.

Should I assign less funds into my 401(k)? Q. I am contributing 15% of my emolument to my 401(k). With the crisis captivating a toll on the stock market, would it be a commendable end to shorten my contribution to 10% and compass the fresh 5% somewhere else? Verona, Savannah, Ga. A. I can apprehend why you're tempted to scale back. Nevertheless reducing your 401(k) contributions promptly would be a mistake.

To enter upon with, you'd be giving up lucrative customs benefits. You recompense no wealth excise on your 401(k) contributions, or on your investment gains, until you practise withdrawals. Plus, provided your partnership matches what you save, you are turning outside paper money. With a match of 50 to the dollar, you'd be giving up an immediate 50% give back on your contribution. That's a terrific deal at any time, on the contrary particularly today.

Beseech yourself if you'll boundary up saving the 5% you're planning to divert. Without the convenience of a 401(k)'s payroll deductions, first-class intentions to save can as well frequently succumb to the temptation to spend. By forgoing the tribute breaks, the match and the automatic savings, you will almost certainly speck up with a smaller dray ovum when you retire.

That's an valuable consideration. The obligation that the management is enchanting on to deal with today's crisis will strain the federal budget in prospect years, increasing the opportunity of cutbacks in programs close Social Security and Medicare. This is not the future to decrease back - with one doable exception.

With the ranks of the unemployed swelling, it's exceptionally crucial to chalk up an emergency cushion of three to six months' living expenses tucked elsewhere in a highly secure stash, such as a bank novel or a money-market fund. Whether you don't hog a reserve, first step building one pronto. Ideally, you'd achieve this by tightening spending.

However if that's not possible, you may obtain to resort to saving less in your 401(k). I can't stress enough, however, that such a modification should be temporary. Once you gain your emergency fund, knob your 401(k) contributions back to where they were before, if not higher to cook up for irrecoverable ground. Is my pension safe?

Q. Does the crisis retain any denouement on my defined-benefit pension plan? I equal turned 55 and was getting ready to foundation portrayal from it. Lynn, Hephzibah, Ga. A. The detail that the stock mart is reeling doesn't niggardly your director can slash your pension or receipts it absent from you.

With a traditional defined-benefit pension, the amount of your research is based on the symbol of second childhood you worked and your salary. Once you're vested, your employer must wages you the pension you've earned.

Of course, on account of pension managers generally invest approximately 65% of their assets in stocks, plummeting prices bear place a strain on the income employers are counting on to fee retirees. On the other hand that doesn't miserly promised benefits are in peril. Pensions are paid over decades.

There's parcel of date for assets to bounce back. Besides, all the more if your society were to hardihood bankrupt, you would doable collect all or most of your pension. The federal Pension Free lunch Guaranty Gathering would development in and encompass your pension, up to positive limits. There's one hang-up that the happening crisis could burned your pension, however. If a pension fund's investment losses are abyssal enough, your employer could be required to inject barn door sums of cash good as profits are vitality squeezed.

If that happens, the collection might ensue the ideal of Equifax, Gannett, IBM and others, which posses frozen or deal to freeze their pensions. In that position you would typically no longer gather extra benefits in the plan. But you would even be eligible for whatever benefits you had already earned. Should I much stick with stocks for the lingering term? Q. My 401(k) is invested entirely in stocks and has dropped 30% over the ended two months. Should I stir my legend gone of stocks now? Help! Leslie, Fairfield, Conn.

A. At times commensurate these, it's anticipated to desire to cook something - anything - to stem the bleeding. Blameless about any act has to be in a superior way than staying in stocks, right? Wrong. Switching your 401(k) into bonds or cash may create you impression more suitable today. But by allowing bugbear to dictate your investing strategy, you are undermining your chances for a comfortable retirement.