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Don't Panic. Don't Stop Saving.

When the Going Gets Rough, the Nest Egg Looks Especially Fragile

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By Simone Baribeau
Special to The Washington Post
Wednesday, October 15, 2008; Page H01

The stock market isn't cooperating with Glen Harley's retirement plans.

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The executive assistant to a bar council hoped that, by now, she'd be approaching the end of her working days. She has a small pension. She started saving over a decade ago. But the return on her retirement savings accounts -- including Individual Retirement Accounts and the governmental equivalent of a 401(k) -- has been minimal. And she and her husband are still paying off their mortgage.

"We don't see ourselves retiring. Prices are up and of course all the retirement that we've had has just gone south," said Harley, 61. "It just leads you to question whether it's good to keep investing for the future."

Harley isn't alone. As new crises keep roiling the financial markets, people of all ages are wondering what to do about a looming financial crisis of their own: retirement. What's the best way to protect your nest egg as the financial system sorts itself out?

Experts agree: don't panic and don't stop saving. People emotionally involved with their money tend to make bad financial decisions, and people who don't save are guaranteed a distant retirement. What's more, the matching contributions offered by some employers help pump up retirement accounts.

But beyond that, opinions are mixed on what to do with retirement accounts in the current environment. As usual, the downturn has rekindled the age-old debate: are people better off with a "stay the course" strategy, ignoring the market swings and basing their risk on how long they have until retirement, or is this the wake-up call people need to become more involved with their portfolios?

Many financial advisers say that trying to beat the market just doesn't work. Instead, they argue, workers should pick a diversified portfolio with a risk level appropriate to the length of time they have until retirement.

Michael Eisenberg, 28, is following that advice. "I'm not making any changes. I continue to fund my 401(k) through my company plan," he said. And the McLean resident is aggressively saving: he estimates that he puts 17 to 20 percent of his pretax income toward retirement savings. He's not worried about the losses. "Ideally the market is cyclical," he said.

Indeed, a bevy of studies from the 1970s through the 1990s suggest that people tend to do better with low-cost funds that follow the market than they do when actively investing in stocks. And getting help choosing funds doesn't seem to help, either: people don't see many tangible benefits when they buy a mutual fund through a broker or financial advisor, according to a Harvard Business School study of broker-sold and direct-sold funds.

But sitting tight while your savings shrink requires discipline.

"Don't go online and check your 401(k). Don't do it," said Jean Lown, professor in the Family, Consumer, & Human Development Department at Utah State University. "Don't discuss it for more than five minutes. After five minutes, change the subject."

One of the best ways to ignore the market but still adjust your risk levels, she says, is with life stage or target date funds.


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