How to save your retirement - Nov. 10, 2008

We've witnessed events that up to immediately had been nearly unimaginable: the inventory marketplace fluctuating wildly and governments sorrounding the field beguiling extraordinary steps to unlock frozen credit markets. And it's yet unclear when the economy and the markets testament hit bottom. Obsessed the unprecedented commensurate of despair and uncertainty, it's no surprize that readers of my Faraway Illustration edge in Resources and my Challenge the Professional contour on CNNMoney.com chalk up inundated me with retirement planning questions.

These five public ones involve your biggest concerns. Should I deposit less cabbage into my 401(k)? Q. I am contributing 15% of my pay to my 401(k). With the crisis enchanting a toll on the stock market, would it be a ace conception to abbreviate my contribution to 10% and field the fresh 5% somewhere else? Verona, Savannah, Ga.

A. I can dig why you're tempted to scale back. However reducing your 401(k) contributions straightaway would be a mistake. To commence with, you'd be giving up lucrative toll benefits. You stipend no way excise on your 401(k) contributions, or on your investment gains, until you adjust withdrawals. Plus, whether your partnership matches what you save, you are turning gone for love money. With a match of 50 to the dollar, you'd be giving up an immediate 50% send on your contribution.

That's a terrific deal at any time, on the other hand exclusively today. Catechize yourself if you'll objective up saving the 5% you're planning to divert. Without the convenience of a 401(k)'s payroll deductions, excellent intentions to save can very ofttimes succumb to the temptation to spend. By forgoing the levy breaks, the match and the automatic savings, you will almost certainly confine up with a smaller den ovum when you retire.

That's an salient consideration. The obligation that the authority is captivating on to deal with today's crisis will strain the federal budget in forthcoming years, increasing the opportunity of cutbacks in programs agnate Social Security and Medicare. This is not the age to incision back - with one feasible exception.

With the ranks of the unemployed swelling, it's expressly crucial to keep an emergency cushion of three to six months' living expenses tucked outside in a highly secure stash, such as a bank novel or a money-market fund. Provided you don't include a reserve, inception building one pronto. Ideally, you'd discharge this by tightening spending.

Nevertheless if that's not possible, you may bear to resort to saving less in your 401(k). I can't stress enough, however, that such a procedure should be temporary. Once you annex your emergency fund, knob your 401(k) contributions back to where they were before, if not higher to assemble up for astray ground. Is my pension safe? Q. Does the crisis accept any end product on my defined-benefit pension plan? I ethical turned 55 and was getting ready to flying start delineation from it. Lynn, Hephzibah, Ga.

A. The reality that the stock is reeling doesn't tight-fisted your director can slash your pension or proceeds it out from you. With a traditional defined-benefit pension, the extent of your probation is based on the numeral of elderliness you worked and your salary. Once you're vested, your employer must wages you the pension you've earned.

Of course, thanks to pension managers generally invest approximately 65% of their assets in stocks, plummeting prices obtain assign a strain on the income employers are counting on to earnings retirees. On the contrary that doesn't penny-pinching promised benefits are in peril. Pensions are paid over decades.

There's group of chronology for assets to bounce back. Besides, still if your firm were to push bankrupt, you would credible collect all or most of your pension. The federal Pension Cream Guaranty Gathering would action in and contain your pension, up to firm limits. There's one contrivance that the contemporary crisis could bunged up your pension, however.

If a pension fund's investment losses are fathomless enough, your employer could be required to inject burly sums of cash honest as profits are activity squeezed. If that happens, the society might succeed the case of Equifax, Gannett, IBM and others, which keep frozen or method to freeze their pensions. In that process you would typically no longer collect extra benefits in the plan.

But you would all the more be eligible for whatever benefits you had already earned. Should I much stick with stocks for the extensive term? Q. My 401(k) is invested entirely in stocks and has dropped 30% over the recent two months. Should I proceeding my balance elsewhere of stocks now? Help! Leslie, Fairfield, Conn. A. At times allied these, it's characteristic to wish to conclude something - anything - to stem the bleeding. Good about any change has to be more fitting than staying in stocks, right? Wrong.

Switching your 401(k) into bonds or cash may bring about you ambience more suitable today. But by allowing aversion to dictate your investing strategy, you are undermining your chances for a comfortable retirement. Stifle the compulsion to flee stocks, manner back and assess this direction coolly.