Oct. 8, 2008 -- What happened to the stock market -- and what has happened to your retirement plan?
As the stock market continues to tumble to historic lows, many are considering what is the best move for their 401(k) and other retirement funds they may have invested. We asked AARP spokeswoman Kathy Keller, Vanguard senior investment analyst Donald Bennyhoff, and Motley Fool officials what to do with your retirement funds.
QUESTION: Should I withdraw funds from my 401(k)?
BENNYHOFF: No, no, no . That is an extreme position to take even if retirement is imminent." Drop-offs in the stock market are usually not long-term. Ride out the storm.
In the long-run, the recent dips may even work to your advantage as new investments will gain more ground more cheaply over time.
Q: Are bonds safer than stocks?
BENNYHOFF: Not necessarily. Bonds do not tend to grow as well during inflationary periods. Diversify your retirement holdings with bonds, a mixture of stocks and short-term reserves for the best return.
Q: I want to retire now. What should I do?
MOTLEY: Plan to save way more aggressively or work longer. Saving is less feasible as, for example, if before the crash you had $500,000 in retirement savings, your 401(k) is now down to $360,000. To make up the difference in five years, you would have to save an additional $2,800 a month.
