Worried About My 401(k) Plan to Retire in 3 Years

Overview
The 2008-2009 recession affected everything from the stock market to unemployment to retail sales. Retirement income, including 401(k)s, were no exception, and many people who were sitting comfortably on sizable retirement nest eggs are no longer so comfortable. People preparing to retire in the short-term, in the next three to five years, are particularly worried that the market and their 401(k) funds will not recover in time to go ahead with plans to leave the work force. While it is true that the recession has forced people to rethink their retirement strategies, the good news is that people have options to allow them to keep their dreams alive.
History Spells Relief
While there is no doubt that 401(k) plans have suffered, even if you have plans to retire in the short term you should not panic, according to CBS's "The Early Show" financial guru Ray Martin. According to Martin, during five of the last six episodes where the market fell for periods of five months or longer, the next year followed with significant gains. In some cases the gains were as high as 30 percent.

For those looking to retire in the next three years, the potential good news is that your 401(k) may recover to pre-recession levels by the time you want to stop working.

401K Customization
While it is true that some 401(k) plans have no flexibility when it comes to choosing your investment, more than 60 percent of the plans work through a brokerage or at the very least have a 401(k) call center. This means you have the opportunity to call the broker or call center directly to discuss your options, including the potential benefits of transferring your stocks into areas that have proved more lucrative.
Reverse Mortgages
A reverse mortgage enables those age 62 and older to convert part of their home equity into tax-free income without having to sell it. With a reverse mortgage the flow of things gets turned around, so the lender pays you a monthly sum rather than the reverse. When it comes time to sell the house, the lender subtracts its payments to you from the sale proceeds.

Reverse mortgages may be an option for those preparing to retire but want to wait a bit longer until their 401(k) fund recoups, or perhaps as a way to supplement their 401(k) income.

Continued Savings
The recession has made many rethink the amount of money they will have to retire. If you are planning on retiring in three years, play it safe by planning on the worst case scenario--that your 401(k) will not fully recover. This leaves two options that are not ideal but are at least realistic: save more now or reconsider how much you will need to live on in retirement. The truth is you may have to ratchet down the amount of money you'd like to retire on. To be safe, consider packing away an extra 10 percent to 15 percent of your income for the next three years--this extra sacrifice might help guarantee a more lucrative retirement.
401Ks Outperformed the Market
In March 2009 both the S&P and the Dow closed at their lowest level in 12 years. Midway through 2009, the market was down 37 percent from where it had been just 18 months previously. 401K balances, however, fared much better, according to the calculations of Employee Benefit Research Institute Research Director Jack VenDerhei. In fact, VenDerhei's math shows that the average balance for 401(k) accounts fell 8.75 percent in the 18 months that ended June 30, 2009.
Resources
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CBS News Interactive: Money Saving Tips
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Your 401(k): Getting back what you lost by CNNMoney.com
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Simple Retirement Calculator
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National Reverse Mortgage Lenders Association

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