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Retirement Savings: Stay the Course or Bail?

Thursday, 20 Nov 2008 | 4:51 PM ET

Question: I plan on retiring in 15 years (at age 60) and currently have 85% of my money in stocks. I’ve been maxing out my 401(k) since I was 21, and in the last year, I have seen some frightening drops in my funds. Should I be making any kind of changes to prevent more losses? --Livy, GA

Answer: Livy, you’re the poster child for retirement. Congratulations for maxing out your 401(k) since your first started work. Starting early, maxing out your contribution, and having decades for your money to grow tax deferred are key to your ultimate retirement success.

Let me answer your question by putting this economic crisis in perspective with your goals. Although many American’s are panicking and have sold their stocks to cash, I’m glad you haven’t. You will retire in 15 years but could live another 25-35 years beyond that so your actual time horizon for needing these funds is potentially over a 15-50 year time frame. Consequently, with decades of life ahead of you, I do not feel you need to bail on your current investment strategy, especially since we are at six year lows in the stock market.

Another alternative to consider would be to continue investing 85% of your money to stocks since they’re on sale now. If you go this route, you should set a benchmark on your 401k so that every time your equities increase by 5-10%, you sell the profits and rebalance to bonds/fixed income. Again, the goal would be to get you to a more defensive allocation by the time age 60 rolls around.

Bill’s Bottom Line: Start saving money early. If you can, max out your 401(k). Diversify your account and rebalance it at least annually.

Bill Losey, CFP®, CSA, America's Retirement Strategist®, is the resident retirement planning expert on CNBC’s “On the Money”. He has been named one of America’s Top Financial Planners and is the author of Retire in a Weekend! The Baby Boomer’s Guide to Making Work Optional. He also publishes Retirement Intelligence, a free weekly award-winning newsletter. Bill can be reached online at www.MyRetirementSuccess.com.