At the beginning of 2009, due to the decline in the market, many people were beginning to wonder if their 401(k) was really a 201(k).  Now that 2009 is over and the market has somewhat recovered from one of the most bearish markets we have seen in decades, our 401(k) statements are a bit more tolerable to look at.  But the question remains, did we learn anything these past years about using our 401(k) plans to save for the ultimate goal of our working life, retirement? 

While there is much debate circling the news and government offices these days about whether or not the 401(k) is the best vehicle for folks to build their retirement nest eggs in, over 56% of individuals who have access to a 401(k) plan still plan to participate.   So until such a time comes when a change is made to our current system, if ever, more than half of working adults feel that the 401(k), if offered by their employer, is still the best way to save for their impending retirement – with some minor adjustments of course.

Saving for retirement in any kind of savings vehicle can be a stumbling block for some people, whether it is a 401(k) or an IRA. It is human nature to procrastinate and in order for your retirement savings to work, you must put money into it – you must save.  Up until the past few years, many Americans spent money instead of saving it. At one point in late 2006 early 2007, we actually hit a negative savings rate, which we had not seen in America since the Great Depression.  Fast forward a couple years, throw in an economic crisis the likes of which a good majority of our working population has not seen before, and now we are back to saving again, at a clip of about 5-6% annually. 

Now that we know we need to save more, how do we use the retirement plans available to us to do so?  Unless you can spend the time watching the markets and analyzing stocks, bonds and mutual funds, and more importantly, you enjoy doing that sort of thing, it can be difficult for the average person to know what to invest in, whether it is your 401(k) or an IRA.  Therefore, it becomes extremely important to use the tools and resources available to you either through your plan’s website, or through the use of an advisor, in order to create the right investment mix that is going to get your hard earned retirement savings to work for you – & that means to grow. 

Diversification among stocks, bonds and money markets is still the key to a successful retirement plan, a balanced portfolio (50% stocks and 50% bonds) has produced 10.4% in annualized returns from 1972 through 2008 – & yes, I did said “through” 2008!  Therefore, creating the diversified portfolio that is appropriate for you and your specific situation and risk tolerance is still important.  Just as important is monitoring and adjusting your portfolio over time, especially as you get closer to your expected retirement years. 

In short, if you do not have access to the retirement assessment tools on your plan’s website, or found within the pages of your enrollment booklet, seek out a professional, you know, those who actually enjoy monitoring the market, for some help in evaluating your current situation.  You also need to make sure that you are reviewing your portfolio’s plan annually to see if you really are saving enough and are properly diversified in order to make those golden years truly golden.
 

To learn more about the retirement process and to get started planning your future, click here.

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