Double Whammy Remedies

By Dian Vujovich

Q: What do the following companies all have in common?
Sprint Nextel Corp, Starbucks, Reader’s Digest, Media General, General Motors, A.H. Belo Corporation, FedEx, Ford, Motorola, Kodak, Resorts International, Goodyear, Frontier Airlines, Cushman & Wakefield, Entercom and Dollar Thrifty Automotive Group.

A: Each have either suspended or reduced the amount of money they contribute to their employee 401(k) plans. Odds are, there will be more doing the same going forward.

And that’s whammy #1.

Number two is the mush the markets have made of the monies in those retirement accounts. To that end, I know a number of people who haven’t had the courage to open their 401(k) account statements because they’re afraid to see how its value has dwindled.

If you’re one of them, buck up. It’s really important to know what the current status of your retirement account is. Without that knowledge, you’re opening yourself up to making some big mistakes.

So if there’s been a change in the company match to your 401(k), here are few things to consider:

First, understand that a company’s decision to change its 401(k) matching contributions policy is nothing new. Firms can decide to up the amount they match or decrease it at any time. In 2001 and 2002, for instance, a number of companies reduced their matching contributions. Then, once their businesses improved, started matching again. So don’t freak out. It’s a business thing.

Second, don’t forget that you’re in business too as it’s your job to save as much as possible for those golden retirement years ahead. (Okay. Some sarcasm here but those of us old enough to know understand that those golden years aren’t always all that golden. Never the less, everyone still needs plenty of moola to live through them.)

Third, if your 401(k) is your only personal savings and retirement source and there are no matching contributions coming your way, what should you do? I’d say that answer depends upon the simple stuff like: what you think; your age; and whether or not you’ve got a sizeable rainy day fund to tap.

Although most money pros advise adding to a 401(k) no matter what, that answer isn’t right for everyone. Better to think, first.

For those who have all of their qualified retirement money invested in equities and think that the stock markets are going to turn around and start shooting upwards in the near future, that could be a plan. But, if you think we’re in for some bear- or flat-market equity times, maybe not. Moving monies into boring fixed-income instruments could be more rewarding.

Also, don’t overlook the costs of doing this saving-for-tomorrow business. Costs include the annual fees taken out for that 401(k)—they impact your return— and the time-is-money consideration. Which brings us to your age.

It could take years for our economy and the equity markets to recover. Those in their 20s and 30s have decades of investing time ahead of them. Hence, plenty of time to recoup equity losses and to add gains. Those in their late 50s and 60s don’t.

Because no one knows what the future will bring, anyone in that latter age group would be wise to consider building a nest egg outside of a qualified retirement one, if they don’t already have one. And one that allows them to get at their money sans rules, regulations and penalties. The same is true for younger investors.

Studies show that payroll deduction retirement plans, like 401(k)s, have made it much easier for people to think long-term and to save for the future. But when the truth is told, it’s you, the ever-changing circumstances of your personal life, along with your saving and spending habits that count the most when funding any retirement plan.