Now Is the Time Get Retirement Savings Back on Track

If you're worried that significant cracks in your nest egg will scramble your retirement plans, you're not alone. In 2008, more than 40 percent of U.S. workers saw their 401(k) plan balance drop by 30 percent or more in the wake of the biggest market meltdown since the Great Depression.

Now is the ideal time to assess your financial situation to determine whether you need to save more (you probably do); rethink how you invest your money (maybe you're not quite as risk-averse as you thought); and consider delaying retirement by a few years.

The inertia problem. A recent report by Vanguard found that 84 percent of its more than 3 million retirement-plan participants made no trades in their accounts in 2008. That inertia no doubt shielded many investors from overreacting to market volatility, but it also indicates that some are frozen in their tracks.

Because workers have sustained such extraordinary losses, "they'll need to be much more proactive about saving to build their nest egg back to prerecession levels," says Pamela Hess, director of retirement research at Hewitt Associates. That means reviewing your mix of funds, rebalancing periodically and getting advice on how to meet your long-term goals.

Age matters. While mid-career workers are optimistic about making up their investment losses by continuing to work and save for another decade or two, younger workers in their twenties and thirties should positively rejoice. Depressed stock prices following the worst 10-year U.S. market performance in history present an incredible buying opportunity.

Research by mutual fund company T. Rowe Price finds that those who began investing regularly during severe bear markets in the past were significantly better off 30 years later than investors who began during bull markets because they could buy more shares at lower prices. The key is to start early.

Workers in their fifties and sixties, however, are in a precarious position. For many, the only option is to work longer. It's a powerful strategy for several reasons: It allows you more time to save, gives your investments more time to recover, decreases the number of years you need to rely on those savings, and boosts your Social Security benefits, which are worth more the longer you wait to claim them, up to age 70.

Retirement boot camp. You might assume you'll spend less money in retirement, but you could be wrong. The first step is to track how much you're spending now.

Marcia Tillotson and Joy Kenefick, of Wells Fargo Advisors in Charlotte, put their clients through "retirement boot camp" to let them test-drive their retirement budget.

They begin with a detailed cash-flow analysis of their clients' current expenses and estimates of how those expenses will change in retirement. Then they draw up a budget and ask their clients to stick to it for a year or two.

"We ask them to live on less and invest the additional savings," Kenefick says. "The exercise confirms that they are adequately prepared both emotionally and financially for retirement."

Those who flunk have two choices: Stay with their original timetable and learn to live on less, or work longer and save more.