Positive economic signs are emerging. Now is a good time for baby boomers to consider moves to repair our retirement nest egg and allow it to recover from the damage it suffered in 2008-2009. Sometimes the simple and back to basics strategies are the best. I like to make lists of strategic and tactical options and review them. So here goes.
Back to Basics Retirement Recovery and Repair Options
1. Earn your employer’s 401(k) plan matching contributions. If your employer is still matching (or has resumed matching), you need to contribute at least what is necessary to earn that match. For many plans, that is a guaranteed 50% return on your money invested. If you have good investment options in your plan, consider going beyond that level to the point of maximizing your contributions to the annual legal limit. 2. Make “catch up” contributions to your 401(k). If you are 50 or older, you can contribute an additional $5,500 in 2009. Why not put this money in a place where it would be hard for you to spend it before you retire? 3. Don’t access your retirement accounts early. Early withdrawals from a 401(k) or IRA or borrowing from your 401(k) will cost you the benefits of compounding. This is in addition to losing as much as 40 percent of your account distributions to taxes and penalties. 4. Work longer. Make a plan to extend your work-life for a few extra years. This will boost your retirement savings and likely increase your Social Security benefit. 5. Cut your spending. Spending less is the same as saving more. Plan a lifestyle – including making a spending plan – for your retirement years. Then implement as much of that spending plan now. Start spending as if you are retired. That should allow you to put more money into your depleted retirement nest egg and shorten your recovery period. Whatever you do, don’t ignore the problem. Spend less time dreaming about your retirement and more time planning how you will afford to create those retirement dreams. To spur you into action, you might be interested in this 401(k) recovery calculator from Principal Financial Group. By entering your account balance at the end of 2008, your annual contributions (including employer match), and anticipated rate of return, the calculator will tell you how long it will take to regain your previous account balance. Act now – get back to basics – and repair that retirement nest egg.