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Rescuing Retirement: Advice For All Ages

As the stock market continues to plummet, it's draining Americans' retirement funds.

New numbers suggest that over the past 15 months, pensions and 401(k)s have lost a total of $2 trillion. So what do workers do now? Contributor Ray Martin offers some specific advice for workers in different generations, as well as suggestions for how their portfolios should be allocated.

For Workers 60+

  • CASH: 10 percent
  • BONDS: 40 percent
  • STOCKS: 50 percent

    Move money you'll use within 5 years out of stock:

    If you're going to be relying on this money, you can't take any risks with it, says Martin. You should put it into bonds and cash. It's still OK to have some of your money in the stock market, even if you plan to retire soon. Hopefully, you're not going to use all of your 401(k) the first year you retire. If you're retired for 10 or 20 years, your money still has some time to recover and grow.

    Figure out when you'll need to tap into your 401(k) savings. Just because you're retiring in a year or two doesn't necessarily mean you'll need the money from your 401(k) right away. Perhaps you also have a pension, maybe you'll be receiving social security, or maybe you plan to downsize your home and live on the sale proceeds for awhile.

    Workers In Their 50s

  • CASH: 5 percent
  • BONDS: 30 percent
  • STOCKS: 65 percent

    Workers in this age group can afford to have a bit more money in the stock market, because their accounts have more time to bounce back from the current meltdown. But if you're in this age group, time alone is not going to heal your 401(k)'s wounds. It's going to require some work from you.

    Increase contributions:

    If you've lost money, you need to regain ground quickly. The good news is that you're allowed to contribute more to retirement accounts once you hit age 50. Take advantage of this. Once you stop working you can't save pre-tax money, and you certainly don't have anyone agreeing to match your savings as your employer does now.


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    Workers In Their 30s and 40s
  • CASH: 5 percent
  • BONDS: 15 percent
  • STOCKS: 80 percent

    Martin says this is the age where it's easy to stop saving for retirement, because you want to buy a home or put money toward your kids' college educations. Or, in the case of many workers now, you're just too scared to keep putting money into the market. He warns interrupting your savings is the worst mistake you can make.

    Diversify your portfolio:

    Since retirement is still a long time away, your retirement savings can be invested mostly in stock funds. But now that your balance is larger, diversification becomes more important.

    If the stock market falls 10 percent, a $100,000 portfolio invested 100 percent in stocks will fall in value by $10,000. On the other hand, if your portfolio was invested 75 percent in stocks, it would only fall $7,500, which would be easier to recover from.

    Also, make sure that you're invested in a wide variety of stocks - small companies, large companies, foreign companies, etc.

    Workers in their 20s:

  • CASH: 5 percent
  • BONDS: 5 percent
  • STOCKS: 90 percent

    Martin says this age group can afford to be invested almost solely in stocks. The market is ugly right now, but retirement is far away and your portfolio will have plenty of time to grow. You can afford to take some risks at this point in your life, and it's almost guaranteed that these risks will pay off down the road. The most important thing of all is to get started now.

    Begin saving 6-10% in 401(k):

    Sign up for your company's retirement plan and start by saving at least 10 percent of your salary. The sooner you get started, the more money you'll have. Even if the markets are down now, the beauty of compound interest will still win out.

    Most experts say that for the average worker, if you are working and saving for retirement over 30 years - and all you will have is your 401(k) and Social Security - you will need to contribute a total of 13 to 15 percent of your pay each and every year into your 401(k) plan account to have a reasonable chance of having enough money to pay for your retirement. So, if your employer contributes three percent, and you contribute 10 percent, the total contribution would be 13 percent.