You have several options, and you should pick one based on your unique situation and financial goals.

Stay The Course: 401k Is a Long Term Investment

Your first option is to do nothing at all when your 401K is losing money! There are many people who are of the belief that a 401K plan is there for long term investing. If you decide to move your money to another account because you see it lose money, you aren’t following long term investment strategies. The idea of a 401K retirement account is that it provides you with a consistent investment plan that does not depend on what the market is doing. You are sometimes investing when the market is down and sometimes you invest when the market is up- which means your contributions are averaged out and you will eventually see gains even if you’re currently experiencing losses in your 401K plan.

Roll it Over

If you aren’t satisfied to ride out the wave of 401K losses, you could always consider moving your retirement account into another savings vehicle. If your company writes a check for the funds in your 401K and makes it out to you – you will be subject to a 20% early withdrawal fee (not to mention a penalty on your income taxes). This is not the way to roll over a 401K.

If you decide to change how you save your money for retirement, you can roll a 401k into an approved IRA. The company handling your existing 401K would write the check to the trustee handling the IRA you are about to open, and you avoid any fees since the money is going into an approved retirement.

Stop Contributing Temporarily and Pay off Debt

Another option when your 401K plan starts losing money is to stop your contributions temporarily, and apply the money you WOULD have been investing in your retirement account to debt. This will help you pay down debt faster, and you aren’t adding money to an account that is losing money.

When circumstances change, you can begin your 401K contributions again, and with any luck, you’ll have a lot less debt by then!

Retirement planning is a small part of an over financial plan which will help a person maintain an income level or provide for the necessary funds for creating an environment in which one can cease income activities (jobs and careers).  It is not a difficult activity, but it can be complex in its makeup.

Regulation. Provide for handling cessation of income activities – government regulations thereof.  There are regulations which must be followed in order for retirement assets to remain in an untaxed state in order for the retirees to be able to use them to establish their plan and execute it with the maximum amount of impact with their resources.  These must be taken into account before reaching retirement age.

Provide for Income. If one has enough resources financially, those resources can be put to work in a financial portfolio with will provide income from interest generation and asset growth.  This income can be used by retirees for their expenses.

Provide Money for Living. The sum of accounts at retirement can provide money for the purchase of property for living arrangements.  Also, if one finds that constant medical attention is needed, these monies can provide for those arrangements as well.

Provide Money for Estate Wills and Trusts. A will should be made out long before retirement.  However, now might be a good time to review that will in order to make any changes which are precipitated by changes in living status of family members, etc.  One of the goals for retirement planning must be the preparations of passing on any wealth realized to descendents.

Plan for the Unexpected. Another concern for retirement planners is what to do about eventual medical bills and costs?  While medicare provides assistance for those who are unable to pay, it is an eventuality that even the most modest of medical expenses will begin to eat away at a retirement portfolio.

Proper planning and possible insurance vehicles can be employed which can help mitigate the negative impact of the medical occurrences.  One must consider supplemental insurance as an alternative.

Retirement planning is a broad subject and must be tailored to meet the needs and expectations of those whom it is intended to serve.

Pitfalls often come in the form of the owner of the account adjusting the account in order to try to increase the returns.  This often invites disaster.  It is difficult for the plan owner to maintain a level of objectivity about their account and how it is being handled.  That is why it is a good idea to allow professionals direct the plan and account activities.

Therefore some guidelines in handling a retirement account are in order.

No Loans. Do not take out loans against the account balance.  While this is a tempting way to realize an instant cash infusion, it also places your account at a disadvantage in that you will have to allocate a regular payment to the account to pay it back for the loan.  Once the use of the loan funds is over, and you are left with paying back the loan, it becomes easy to question the wisdom in withdrawing the funds in the first place.

Diversify. Do not try to “out-smart” the market by moving all of your money into one asset group.  Even the best investment professionals make unwise choices in the market that adversely affects returns on accounts.  To think that you can outperform them in this capacity is not wise.  One small move in the wrong direction can cause large losses in your account that will take a very long time from which to recover.  The philosophy of not “placing all of your eggs in one basket” applies.  It is good advice.

Even It Out. Balance risk with reward.  Even though a more conservative approach to investing may run contrary to your philosophy, a retirement account is not the place to take on huge amounts of risk.  Long term strategies must be dominant in order for the returns to be there when retirement arrives.  If you find it necessary to “play” the investment market in a risky fashion, it would be wise to set up a separate account just for that purpose.  That way, your retirement funds will not suffer if you make a mistake.

Recognize that gains and losses are a part of the process.  Ignore the knee jerk reactions to sudden or drastic market fluctuations.  The ebb and flow of market movements is normal.  Just recognizing this fact alone will help one to understand that a view to the long-term is the way to regard your retirement account.

Seek Advice. Consult the services of a professional for advice when it becomes necessary to move your funds due to job changes.  You will not want to place your account balance at risk by not handling these changes incorrectly.

Make it a normal part of your routine to watch your account with the understanding that it is working for you and will be there when you are ready to retire.

In fact, a 25 year old who manages to save just $5,000 a year and earns 8% interest on those savings will have over $1 million when he or she turns 65.  If the same $5,000 a year is saved at the same 8% interest by someone who is 45 years old – they’ll only have $230,000 saved by the time they turn 65.  See the difference?  Would you rather live out your golden years with over a million to work with or a couple hundred thousand?

Tax Advantaged Accounts for Retirement

Saving for retirement can be done with various tax advantages when you select one of the many tax advantaged options.  If your employer offers retirement options, look into them.  The 401K and 403B savings plans are tax-deferred (like traditional IRAs).  Other options with tax advantages include the Roth IRA and Roth 401K, both are tax-free for qualified distributions.

Contributing to 401K or 403B plans, as well as traditional IRAs are usually made with pre-taxed money.  When you withdraw the money from the accounts, you are taxed at the normal income rates.  For after-tax contributions to Roth IRA and Roth 401K plans, you pay taxes on the money going in and withdraw qualified distributions free of federal income tax.

With any retirement account, if you withdraw before the qualified minimum age limit, you’ll pay 10% penalty tax as well as income tax on the money as additional income.

How to Choose Savings Vehicle

If your employer matches your income to a 401K plan, it makes sense to choose this retirement savings option.  It doesn’t have to be your only source of investing, as there may be other investments with the opportunity to give you higher returns – but whenever you can get free money you shouldn’t turn it down!  Employer matching contributions is essentially free money, and should be taken advantage of.

Also, look for flexibility.  Certain accounts, such as the 401K, may offer the ability to take out a loan (with repayments on the loan paying yourself back, including interest on the loan); where as using a traditional IRA does not offer the ability to withdraw money  without paying early withdrawal penalities (except for very specific exceptions – like taking money out for a downpayment on your first home for example)

Consistency is Key

Regardless of the method you choose to save money, the key is to save money on a consistent basis- and to start as early as possible to benefit from compounding interest.

The Basics. The 401k plans are the most widely used and recognized retirement planning tool. Your company or country may not offer a plan with this name, but chances are high that you can find a similar one in your locale. While every company and plan has differing features, these basic questions must be considered.

• Is participation required?
• Are changes in beneficiaries allowed?
• When can one join the plan?
• Can one transfer money from one plan to another?
• Can one make contributions beyond retirement age?
• Are distributions mandatory upon retirement?
• What is the maximum annual contribution allowed?
• If one leaves an employer, what happens to the account?
• Does the employer provide matching contributions?
• Can one take out a loan on the plan assets?
• When are contributions made to the plan from the employee paycheck?
• Is management of the plan permitted via the Internet?
• When does vesting occur for the employee?
• What frequency is permitted for the changing of investment mix between funds?
• What investment strategy options are available to be made by the employee?
• Does the plan provide for individual direction with regard to investment choices?

Once these questions are answered, then a strategy can be established and executed on a timely basis.

Execute Your Strategy. The basic premise of retirement planning is to place a regular amount into an associated account that offers a high rate of return on your invested money while maintaining a level of safety and comfort for the investor.  This is a delicate balance and requires forethought and often the direction of a professional who has experience with these types of accounts.  Once you determine how much to set aside into your account, try not to make changes to that amount.  Once the account balance begins to grow and you begin to see the results of a carefully guided investment plan in action, a sense of purpose and goodwill takes over and helps keep you on track.