The combination of stock market losses and company cutbacks may derail your retirement savings unless you take action to get back on track.

Companies of all sizes are slashing expenses to try to keep from laying off workers during the longest recession since the Great Depression.  Benefits seem to be targeted as a way to cut costs, and the long-term implications on your nest egg could be significant.

For example, if your employer discontinues the 50% match of your 401(k) contributions to up to 6% of your $75,000 salary, you'll lose $2,250 in savings in one year. Assuming a 7.2% average annual rate of return that $2,250 yearly contribution would have grown to $100,000 in 20 years from compounded growth.

If you experience a loss or reduction in workplace retirement benefits, consider a combination of moves to reduce the impact:

• Beef up 401(k) savings. Don't let the loss of a company match keep you from building up your retirement account. Research has shown that the average employee could cover the loss caused by a 401(k) match suspension by increasing contributions just three percentage points a year.
• Consider moving your contributions to a lifecycle fund, which automatically adjusts your portfolio to less risky investments as you approach retirement age.
• Look at spending habits to cut unnecessary expenditures  and put the money into your personal savings. If you don't have an emergency savings account, start one now.  The credit union offers an account we call P.A.C.E. Planning Ahead for Cash Emergencies.  Most financial experts suggest that you keep three to six months' living expenses in a liquid, interest-bearing account. You may want a larger amount saved depending on your profession and how hard it will be to find new employment.
• With the P.A.C.E. funded and contributing as much as you can to your 401(k), consider an IRA.  A traditional IRA may give you a tax deduction if you meet income requirements; a Roth IRA is funded with after-tax contributions and allows you to take tax-free distributions in retirement. You can call the credit union to find out the income limits for both.
• Resist the urge to cash out. If you're in the 25% federal tax bracket, a $50,000 withdrawal before age 59 ½ will cost you about $12,500 in federal taxes, Between $1,500 and $3,500 in state taxes (depending on the state tax rate), and $5,000 because of a 10% early withdrawal penalty. Your $50,000 withdrawal from retirement savings shrinks to about $30,000.

The most important part of weathering a financial storm is to be prepared.  Plan ahead and be diligent in making regular contributions through payroll deductions because

It's Only Money,

John