By Mary Beth Franklin
Kiplinger's Money Power
It may be a hard pill to swallow, but shoveling more money into savings is the best remedy for ailing retirement accounts. And workers who will be 50 and older by the end of 2009 can take advantage of "catch-up contributions," which permit them to kick in an extra $5,500 in retirement-plan contributions, for a total of $22,000 this year.
The financial turbulence of the past year wiped out virtually all of the gains of the past decade. You were probably counting on returns of 7 percent a year or more, but for the past 10 years, Standard & Poor's 500-stock index lost an annualized 1 percent. To make up those losses, you will have to save more or work longer.
Laurie Garrison plans to do both. Despite a well-diversified portfolio, the Edmond, Okla., woman lost about 20 percent of her investments over the past year. After carefully managing the life-insurance payout and retirement funds she received when her husband died five years ago, she had hoped to retire next year at age 55. But with one child still in college and her nest egg considerably smaller than it used to be, she now thinks she'll boost her 401(k) contributions and probably work until 60, when she can collect Social Security survivor benefits. "It's just so irritating," she says. "The big guys on Wall Street gambled with our money and lost, but we're the ones paying the price."
Bruce Davis, also of Edmond, intended to work for at least two more years, but his employer had other plans. After a 30-year career with Chrysler, Davis, now 60, decided to take an early-retirement buyout package in November. "It wasn't my game plan, but it's better to take a reduced benefit now with some income while I can," he says.
Davis hired investment adviser Greg Womack to try to salvage what remains of his 401(k) investments, which fell by 50 percent in just six months, thanks to his very aggressive asset allocation. "I got sick every time I looked at my 401(k) statement," Davis says. "I decided that I'd probably be better off if I got someone who knew what he was doing."
Womack uses a combination of strategies and tactics to help preserve retirement assets. For example, he is using deferred annuities to create a "private pension" that guarantees future income, and defensive stock- and options-trading tactics to help protect Davis's portfolio against significant losses. In the meantime, Davis says he hopes to strike up a consulting arrangement in his area of expertise -- auditing warranty and sales-incentive programs -- with some local car dealerships.
Mary Beth Franklin is a senior editor at Kiplinger's Personal Finance magazine. Send your questions and comments to firstname.lastname@example.org.