WASHINGTON You don't need a calculator to tell you the simultaneous crumbling of the stock, bond and real estate markets has dealt a blow to your retirement plans.
Those carefully fed 401(k)s and Individual Retirement Accounts are a shadow of their former selves, and that vision of you on the beach sipping a pina colada has gotten pretty shadowy, too.
But, don't despair. Take action.
Here's how to rebuild your own future while the Feds bail out the big boys. You may even find some opportunities to build a better retirement in the current turmoil.
-- Stick with your plan. If you don't have a plan, get one. This is a great opportunity to organize your retirement strategy; a professional advisor will know how you can capitalize on the current turmoil to rebalance your accounts, adjust your 401(k) contributions and the like. A professional advisor will also give you the willpower to avoid selling during panics, a skill that is crucial. To find an advisor who will do a fee-only review of your retirement plan, check these sources: the National Association of Personal Financial Advisors (napfa.org), the Alliance of Cambridge Advisors (cambridgeadvisors.com), the Garrett Planning Network (garrettplanningnetwork.com).
-- Start shopping for your retirement home now. Some of the most popular retirement spots, like Florida, Las Vegas, Arizona, have seen their real estate prices plunge. Meanwhile, mortgage rates are low. It's a decent time to be shopping for real estate. You can take your time and find what you want, a few years before you actually need it. Use it as a vacation home or rent it out.
-- Use a Roth IRA. If your traditional IRA was beaten down over the last month, it might be a good time to convert it to a Roth IRA. You'll owe taxes on the tax-deferred amount you move into a Roth, but since that amount may be lower than it was a few months ago, your tax burden will be lower, too. Once the money is in a Roth IRA, you can enjoy the stock market recovery and know that the money you earn in it, and pull out of it, won't be taxed.
-- Invest extra. The less your money earns, the more money you need to stash for retirement. That means contributing to the limit in your 401(k) and your IRA. For 2008, you can put $5,000 into an IRA. If you're 50 or older, you can throw in another $1,000. Investing now may seem hard; you've already lost what you invested during the first half of the year. But over the decades you have between now and the end of your retirement, the money you invest now will grow for you.
-- Trim your budget. To get the extra money you'll need to rebuild your retirement kitty, cut out today's extras. Look at your bank and credit card statements and evaluate where that discretionary dollar is going. Be honest with yourself. Do the obvious -- brown bag your lunch, watch cable TV instead of going out to the movies, have pot-luck dinners instead of restaurant meals with friends. But do the less obvious as well: Shop your insurance policies around to see if there are savings there and raise your deductibles to lower your premiums.
-- Expect to work longer. When you delay retirement you do three things: (1) You allow your retirement money to grow longer without taking withdrawals; (2) You increase the size of your monthly Social Security benefit check; and (3) You lengthen the period when you can continue to put money into your retirement plans. Every year of extra work can increase your post-retirement income by 7 percent, according to research by T. Rowe Price.
-- Becalm yourself. The happiest retirees are not the most wealthy or the most idle. Even if you can't afford the Cadillac of retirements, you can be busy, happy and fulfilled. Spend time thinking about the activities you will enjoy in retirement that don't cost a fortune.
(Editing by Gunna Dickson)