Don’t you hate those photos the newspapers run when the stock market tanks? You know, those guys with the bugged out eyes on stock market trading floors.

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I wish, for once, they’d show a photo of some poor working stiff in their late 50s opening up their 401(k) statement. The poor sap probably wasn’t lucky enough to have a traditional pension so their retirement is riding on the bleeding retirement account being sucked on by the vampire that is the stock market.

This from Bloomberg News:

The 50% drop in the Dow Jones Industrial Average since its October 2007 peak has exposed the shortcomings of the 401(k) as the nation’s primary vehicle for retirement savings. The system, which was examined by a congressional panel Tuesday, leaves workers with limited options and makes them overly dependent on financial markets for their security, critics say.

“These plans were always a weak reed to depend on because so much of the risk falls on the individual,” said Alicia Munnell, director of the Center for Retirement Research at Boston College, who testified at the House Education and Labor Committee hearing.

With the stock market free falling yesterday to levels not seen since 1997, I’m sure many of you are wondering why the heck you still contribute to your 401(k). And let’s face it, fewer employers are contributing to the plans.

But just letting the account die on the vine is probably a bad idea because for many of us, the 401(k), for better or worse, will continue to be our only retirement nest egg, even if it’s mangy.

I decided to ask a financial planner what is the best approach to these accounts during market turmoil.

Raxann Chin-Anguin, is an investment and retirement planning expert who most recently worked for Merrill Lynch as an assistant vice president in the firm’s retirement group.

Here are her thoughts on what you should be doing with your 401(k) right now:

No one likes to have something promised to them then taken back.

Unfortunately, that’s the case for many Americans whose companies are no longer matching their 401(k) contributions.

The growing list of companies forced to discontinue matching employee contributions due to the recession includes: Fedex, Sears, General Motors, Motorola, Eastman Kodak, and Starbucks. But, there is a bright side – the fact that benefits are being cut rather than additional layoffs pales in comparison.

Also, it’s happened before. Companies suspended 401 (k) contributions during economic downturns in the 1980s, 1990s and during the economic slump that followed the terrorist attacks in 2001. Nearly all of them resumed payments once economic conditions improved.

Now that you’ve come to accept that this retirement journey is nothing new, should you still be making contributions to your 401(k)? The simple answer is yes. Although your company no longer provides a match to your retirement dollars doesn’t mean your retirement dreams should be shattered.

With the stock market plummeting, the risks of no longer funding your 401(k) can be more of a setback than you think. The greater risk of not contributing is missing out on cheaper values. The term buy low, sell high does make sense. Think about it. Do you want to buy something high and sell it low? I didn’t think so.

Here are a few things to consider during this time:

Revisit your plan: This is a good time to take a good look at your retirement goals, and assess how much the change would set back your plan. This forces you to look at your current financial situation to determine if you need to save more now, or if you can afford to save more.

Contribute more:
If you are able to put away more, then you should. The rule of thumb – the more you put in – the more you get out. Markets are cyclical, meaning you can expect a wave-like trend. Take advantage of the down times. Quite frankly you’ll be getting more for your money because investments are cheaper. What ends up happening is you lower the overall cost on your positions. The market will rebound eventually.

Decide where to invest:
Now is also a good time to decide where to invest future contributions. You cannot roll over your 401(k) into an IRA while you’re still employed at that company, so you have no choice but to keep it there. It’s a good practice to first invest in your 401(k) at least up to the match before investing in an IRA. Why give up free dollars. However, without the match, you can fund an IRA instead if you are not satisfied with the investments choices in your plan. If your 401(k) has good investment choices and low fees, you can continue investing there. You are probably in a better position with your 401(k) anyway – when business picks up, your company may resume its matching contribution.

Invest carefully: Don’t make the mistake of investing heavily in your company’s stock with your 401(k) money. This is dangerous since you’ll lose all those shares if your company does go bankrupt. No more than 10% of your portfolio in company stock is considered a safe amount. Your 401(k) funds are only as safe as the investment they are in so choice wisely and diversify. Also, depending on your risk tolerance, select the right mix of stocks vs. bonds that is suitable for you.
Even though it’s a roller-coaster ride in this turbulent time, there is no reason to stop investing for your retirement. Take advantage of your prime working years, and put in as much as you can afford and recharge your 401(k).

No one said this would be easy but with a plan and a disciplined approach you may see retirement after all with or without your company’s contributions.

If you have any career or money questions just email them to me at telleve@gmail.com.

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