Rescue Your 401(k)
A plan to get your tattered retirement-savings plan back on its feet, whether the
bull charges back or the bear continues its rampage BY MEGAN BARNETT
Daniel Prangler
was panicked. As
controller for a
New Jersey–based
developer, he’d
watched his company
navigate the real-
estate bust with
relative success. But then the stock market
crashed and the 41-year-old’s retirement
account got shellacked—down 40 percent in
just a few months. He was glad his company
was surviving, because it looked as though he’d
need to work for a long time to come.
“My stomach was in knots,” he says. Despite
all the advice he had heard about staying the
course, he was itching to dump his stocks.
Prangler says he couldn’t bear to just sit and
watch as his savings was sucked away. He
and his wife enjoy the occasional Caribbean
vacation and live in a 4,000-square-foot house
they had been thinking of selling. Now the
depressed real-estate market has dashed their
dreams of a new home, and economic turmoil
has forced them to rethink their “fun budget.”
But while they are cutting back on the
spending side, Prangler resisted the impulse to
sell. Instead, he boosted his contributions. “I
took the crash as an opportunity,” he says.
Misery had lots of company last year as the
value of stocks in 401(k)s fell by $4 trillion,
according to the Center for Retirement
Research at Boston College. Since the damage
is already done, the only question is what do
you do from here? Those who sold stocks after
the crash locked in their losses and will almost
certainly fail to get back into the market until
they’ve already missed its best days. But if you
continue to contribute with every paycheck,
you’re guaranteed to buy at the market
bottom. “A knee-jerk reaction would be very
destructive to your long-term wealth building,”
says Mark Riepe, senior vice president of the
Schwab Center for Financial Research.
But just because you’re not punting doesn’t
mean you shouldn’t question your game
plan. Examine your investments and come
up with a strategy to protect yourself from
future meltdowns. “Now is a good time to
play Monday-morning quarterback and figure
out what you did wrong,” says Mario Yngerto,
a financial advisor with Genesis Wealth
Management, in Plano, Texas. “If the market
is down 30 percent and you’re down 50 percent,
you did something that wasn’t right.” What
follows is a straightfor ward plan to get your
retirement back on track. Follow these steps to
put the crash of 2008 behind you.
Step 1: Set a Goal
Most people approach retirement planning
from the wrong end: They calculate how
much of their salary they are willing to do
without today, and then contribute that much
to their 401(k). Instead, estimate how much
money you will need at retirement and work
backward. A conventional rule is to assume
you’ll need 70 percent of your working salary,
but reality is more complicated. If you want to
travel extensively, you’ll need big bucks. But if
you plan to sell your East Coast McMansion
and retire to a smaller house in Tennessee,
you may not need to save as much. Financial
planners recommend that retirees not
withdraw more than 5 percent of their savings
annually, which means you’ll need $1 million
for every $50,000 you hope to generate.
BREATHE DEEPLY…
And then whip your
retirement accounts
into shape.
