Six Step Guide to Rebuilding Your Retirement

by David Ning · 8 comments

2008 could be marked as the year that many people change their retirement goals. Reading our 401(k) quarterly statement was once exciting and now it’s just a reoccurring reminder that train wreaks could happen to everyone.

Subsequently, many people asked me whether they should give up on their 401(k) and just stick all their savings into a CD or equivalent and the obvious answer is of course “no”.

While stocks, bonds and pretty much every investable asset has gone down in value this year, the losses will be much worst without the employer match. Furthermore, the market is slowly turning around and once it begins to pick up, the biggest part of the recovery happens very fast and if you aren’t participating, you will miss a big part of the upturn.

So what should you do to revamp your 401(k) plans? Check out the short summary below of Money Magazine’s six step guide to rebuilding your 401(k).

  1. Try As Much As You Can to Increase Your Savings Rate

    The only way to increase the balance of your 401(k) is for the investments to grow or to put more money into it. Since the investments will need time to grow back, we can really only control how much we can put in. I’ve heard the excuse of not being able to save more tons of times, but if we try hard enough, we can always find something to cut back on. Save more, because your retirement goal might still be achievable.

  2. Have Faith in Stocks

    The most common reaction when stocks go down is for us to sell them even though it’s usually the worst time to do it. Most people believe that they can time the market by selling before the problem occurs and then buy them back once it starts to recover. Unfortunately, what usually ends up happening is that people sell when at the bottom when all the losses have already occurred and buy them back after much of the recovery has already played out. Effectively buying high and selling low. At these depressed levels, stocks will for sure outperform the market in the long run. You can bet on it.

  3. Always Check Your Asset Allocation

    The article suggests being cautious about target-date funds and how many funds with the same retirement date have vastly different asset mix. I want to extend the whole idea further and ask everyone to check their portfolios and make sure their asset allocation is right for them. As always, the closer you are to your retirement, the more conservative you should be (ie more bonds and stable value funds).

  4. Company Stock

    If a big percentage of your portfolio is in your own company’s stock, now is the time to transfer some of that elsewhere. Lehman Brothers and Bear Sterns were considered extremely strong companies even a year ago and look what happened to them? Imagine what would happen if your company went under and looking all your savings plus your job. How devastating would that be?

  5. Low Cost is Always Better

    My dad always said it was unwise to pay someone money to do what you can easily do yourself. Some mutual funds charge outrageous fees to invest even in index funds. The easiest way to increase your return is to lower the expense ratio across all the funds you invest in since even small percentages add up over time.

  6. Have a Plan B

    Most calculations of retirement plan withdraws assume you will withdraw more and more each year to account for inflation. If you can hold off a little bit and not give yourself a raise in the first couple years, you will be much better off. According to the article, the chances that a model portfolio having $700k to have enough money to last through retirement rises from 56% to 80% if you just give up that inflation raise.

    You can also work part time or better yet, creating some passive income so you don’t have to withdraw as much out of your 401(k).

Whatever you do, keep investing and contributing to your 401(k).

Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.

They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.

Money Saving Tip: An incredibly effective way to save more is to reduce your monthly Internet and TV costs. Click here for the current AT&T DSL and U-VERSE promotion codes and promos and see if you can save more money every month from now on.

{ 8 comments… read them below or add one }

Bill M December 20, 2008 at 6:23 am

The most important on this list being Item #4. There is just so many horror stories to list. This is the biggest mistake everyone makes. Usually because the company match is in the company stock and they forget to re-allocate every year.


Lance Newton December 20, 2008 at 10:03 am

The majority of Americans are unaware of, or have overlooked their own ability to Self Direct the investments in their retirement accounts through a Self Directed IRA or 401k Plan. While I am not a big fan of the Self Directed IRA LLC because of the high maintenance costs, I think the Self Directed 4o1k is one of the best tools for anyone that is self employed or has a side business to their regular employment.
The principal strengths of these plans include high contribution limits, the ability to invest in asset based, non-traditional investments including real property, Real Estate Notes and Tax Liens and Precious Metals, in addition to traditional Wall Street investments, all under the direct control of the owner of the 401k plan, as trustee for the plan.
Anyone running their own business or who intends to build their own business should look at this option to safely and quickly make up losses or create a nest egg from scratch.


marci December 20, 2008 at 2:46 pm

Well said. And diversify, diversify, diversifey :)

I’ll add to #5… Apply this to every area of your life….
Don’t spend money on something you can easily do yourself.
Instead of spending money on getting your lawn cut, room painted,
landscaping done, car washed, convenience foods,laundry mended,etc, do it yourself,
and tuck the money away where it will actually grow over time.

Spending money on something you can easily do yourself makes no sense to
me at all – except in those rare instances where you are totally overwhelmed and
just have to have the help. And if you are that overwhelmed, maybe you should
be looking at your life and priorities a bit more and decluttering your life :)
My opinion only there :)


TStrump December 20, 2008 at 4:44 pm

#5 is a good point.
Management fees are annoying, especially if your mutual fund isn’t doing that well.
2009 is the year of going self-directed for me.


jim December 22, 2008 at 12:33 pm

In addition to Plan B, have a worst case, best case, and average case projections. Too many times people just pick a number, like 9% stock market appreciation, and run with it. You should be using a range…


Dustin McClure December 23, 2008 at 7:45 pm

I am focusing next year on #1 –

This will be a huge year of investing for me – I am so excited to start – although everyone around me is freaking out.

I guess we all peak at different times – This year is my peak.

Great Post.


Julia December 30, 2008 at 6:19 am

Great advice. I just found your blog from The Digerati Life. I will be back.

Reply December 30, 2008 at 4:07 pm

Take a deep breath and ask…how long do I have to go to retirement?…then remember to MAXIMIZE your ONGOING DEPOSITS…now that we are in a Bear Market, nothing wrong with moving it all to a money market and then dollar cost avarage back in…over a 12 ,24 or 36 month period…this puts you in incrementally, and like a see saw, the weight is moving from one side to the other…


Leave a Comment