6 ways to rebuild your retirement savings

It's time to rebuild, not retreat

Whatever stage of life you’re in, you have the power to rebuild your retirement fund. Here are six steps to help, based on your life stage:

• I'm already retired
• I'm still planning for my retirement

Already retired? Consider these strategies.

If you're already retired, here are some ideas to discuss with your advisor:

1. Limit your withdrawals.
You control the most important aspect of your retirement security: the amount of money you spend each year. Consider limiting your withdrawals, at least for awhile. And this option is especially viable now because there are no required minimum distributions for retirement accounts in 2009.

2. Understand the timing and tax implications of your withdrawals.
Take control of your taxes by reviewing your current withdrawal strategy. You're probably receiving income from a variety of accounts, such as a 401(k), IRA, mutual fund and annuity. How and when you take distributions from those accounts can greatly impact your income and taxes. By knowing the rules, you can more effectively manage your withdrawals and possibly reduce your tax burden.

3. Consider a part-time job.
Stretch your retirement funds by finding other sources of income, such as part-time work.

• If you began taking Social Security before you reached full retirement age, you can work part time and earn up to $14,160 in 2009 before your Social Security payments will be reduced.
• Once you're in the year in which you'll reach full retirement age, you can earn up to $37,680 in the months preceding your birthday without losing benefits.
• After you reach your full retirement age, you can earn as much as you like without having your benefits reduced.

Keep in mind that if you have other sources of income, your Social Security benefits may be taxable. For details, or to confirm your full retirement age, visit www.ssa.gov.

4. Downsize your home.
Under current tax law, you can pocket up to $250,000 in profits ($500,000 for married couples filing jointly) from the sale of your primary residence without paying capital gains tax, as long as you've owned and occupied the home for at least two of the five years prior to the sale.

Even though housing values have dropped and have probably left you with a resale value that's lower than it would have been two years ago, you're in a buyers market, which means you can probably get a smaller home at a bargain price. Plus, by moving to a smaller home, you may be able to reduce your property taxes and other expenses.

5. Refinance, if you still have a mortgage.
If downsizing isn't part of your plans and you intend to stay in your existing home, now may be a great time to refinance — unless you only have a few years left to pay on your existing mortgage, which means you could be paying mostly principal. Otherwise, interest rates are still at historic lows, so you may want to take action now to lock into a lower interest rate. With lower monthly payments, you can free up more money to meet your everyday expenses.

6. Review your investment allocations.
Even though you are drawing income from your investments, it’s important to meet with your financial advisor at least twice a year to make sure your allocations in stocks and bonds make sense for your situation. Your advisor may also recommend changes to your investment strategy that could better position your portfolio. For example, dividend-paying stocks might be right for you.

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Still planning your retirement? Here's what you can do now.

If you're still in the planning phase, or are nearing retirement, discuss these strategies with your financial advisor:

1. Don't give up on the market.
Stock market losses may make you feel like getting out of the market altogether. Resist acting on emotion and keep a portion of your savings invested in the market. Stocks historically have rebounded from market setbacks. And missing just a few of the best days in a market can have a significant impact on your returns.

One option to consider with the help of your advisor is to reallocate toward sectors that typically lead the way out of bear markets, such as large-cap and technology companies.

2. Take advantage of low interest rates.
Mortgage interest rates are still at historic lows. So now may be an ideal time to refinance your home at a low fixed rate. Refinancing will reduce your monthly payments, leaving you with more money to invest for retirement or to shore up cash reserves. Before you make a decision, talk to your advisor, who can help you review your cash flow, closing costs and amortization schedule.

3. Make contributing to your 401(k) a top priority.
Contributing to a 401(k) is one of the easiest ways to build your nest egg. Once you've set up your account, contributions are automatically pulled from your paycheck. Plus, your employer may offer matching contributions up to a certain percentage — free money for the taking if you invest.

Since tax-deferred dollars are automatically deducted from your paycheck with a 401(k), this is a great way to force yourself to cut down on other expenses, such as eating out.

• If you're not already investing, start immediately and contribute at least enough to gain any matching employer contributions.
• If you're already investing, try to increase your investment amount.
• If you're nearing retirement, try to invest the maximum amount allowed. Remember that if you're age 50 or older, you can make catch-up contributions up to an extra $5,500 in 2009 and at least that amount in 2010.

4. Don't leave old 401(k) plans unattended.
Keep a watchful eye on any 401(k) plans you may have left with a former employer. Consider consolidating those accounts into a rollover IRA, where you and your financial advisor can manage them more easily.

If you're concerned about locking in your losses by converting your old 401(k)s into an IRA, remember that the stocks in your new account will be purchased at today's prices, so you're both selling and buying low — a wash. Plus, one of the advantages of an IRA over an employer-sponsored 401(k) plan is that you have nearly unlimited investment choices, giving you more control over your money's destiny.

5. Put retirement ahead of college savings.
Many parents, especially in today's economy, struggle with the need to save for retirement and the desire to invest for a child's higher education. If you're conflicted between the two, remember this: Putting your own long-term financial security at the forefront ultimately will benefit your entire family because your financial self-reliance will limit your need for such assistance from your children later on. Also keep in mind that loans are available for college, but not for retirement.

6. Revisit your asset allocation strategy.
Strong market dislocations can disrupt your asset allocation strategy, leaving your portfolio out of sync with your goals and risk preferences. It's a good idea to meet with your financial advisor at least twice a year to make sure your investment strategy remains aligned with your goals and risk tolerance. Your advisor can also explain how you can leverage additional opportunities, such as rebalancing and dollar-cost averaging, to reduce your portfolio's volatility and potentially grow your assets. These proactive measures could help you find extra dollars to rebuild your retirement savings.

You can rebuild your retirement savings — even in today's market. Talk to your financial advisor about these and other practical steps you can take.

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