The actions you can take to rebuild your portfolio in a down market depend largely on how close you are to retiring. While young investors have more time, those closer to and in retirement need a more immediate plan to regain their savings. Here are some retirement planning strategies for every stage of life. Young investors Young investors in their thirties and forties have time on their side. They have more time to save and more time to recover any losses they may incur. But reaching their retirement goal depends on how quickly they get started and on how much they save in the years to come. The following are some tips for young investors. Develop a long-term financial plan. Having more time to save and being less affected by daily market turbulence are benefits of being a young investor. To best take advantage of your early years, meet with a financial advisor soon to develop a long-term financial plan. Take advantage of savings vehicles. Building your nest egg is top priority. If your company has a 401(k) program, contribute as much as you can. The 2001 tax law allows employees to put as much as $12,000 in their 401(k), 403(b) and 457 plans, up from $10,500 in 2001 and $11,000 in 2002. In addition, consider opening an individual retirement account. Contribution limits to both traditional and Roth IRAs have increased from $2,000 to $3,000 per year in 2002 and 2003. Reassess your needs. If you’ve already charted your financial goals, you may need to reassess them as a result of market losses. Retirement tools such as the one available at www.americanexpress.com, can help you recalculate figures to determine whether any adjustments are necessary. Pre-retired investors For individuals in their fifties and nearing retirement, it is important to strike a balance between investing aggressively to make up for possible recent losses and for longer life expectancies and more years in retirement and preserve your accumulated wealth conservatively. however, because of ongoing market losses, this balancing act has become more and more challenging. Pre-retired investors should take the following advice. Don’t ignore inflation. Remember how much $20 used to buy? By the time you retire, it will be worth even less. Inflation is the rate at which your money depreciates. To outpace inflation, be sure your portfolio contains the appropriate allocation of higher-yielding investments such as stocks and stock mutual funds. If accounts are down, catch up. The “catch-up” provision in the 2001 tax law can help pre-retirees save more money for retirement. Employees 50 and older can save an additional $1,000 in their 401(k), 403(b) or 457 plans in 2002 and 2003, on top of the new $12,000 contribution limit for all workers. That catch-up amount increases by $1,000 per year until 2006, when these employees can stash $20,000 in their workplace plan. Older workers can and should also make much more generous IRA investments. The maximum 2002 contribution to all types of IRAs went from $2,000 to $3,000 (an additional catch-up contribution of $500 is allowed for those age 50 and older). Hold assets in many segments of the market. Investors approaching retirement should have an investment mix that will give them the ability to keep the purchasing power of their assets ahead of inflation while providing protection from future market setbacks. Review your portfolio and make sure it is properly balanced. Retired investors As a retiree, the most common retirement concern is outliving your money. With today’s bear market, the money you were counting on to compound and sustain your standard of living may have been reduced. Many retired individuals are now faced with smaller returns and finding ways to stretch their cash flow. There are still tips that can be utilized by retirees to improve their investments. Consider tax implications of withdrawals. To minimize your taxes, take most of your money from tax-free sources. Taking money from Roth IRAs, U.S. treasuries and sometimes life insurance may be tax-free. However, withdrawals from pensions and retirement plans are taxed at the ordinary income rate, which is typically 30 percent. Earnings on withdrawals from non-qualified assets, such as mutual funds and stocks, are taxed at a capital gains rate, which is usually 20 percent. Invest for income versus appreciation. For retirees, investing in something stable that will produce a steady income stream such as a corporate mutual fund, can be a good strategy. However, if the investment is designed for appreciation (such as stock), be mindful of the liquidation time in case you need to access that money relatively quickly. No matter what stage of life you’re in, having adequate money for retirement requires careful planning and regular adjustments. A qualified financial advisor can offer advice on retirement strategies and help chart the path to meet your goals.
