Thursday, October 16, 2008

401(k) Tips for Today's Economy

Recently, WISER has received a bevy of questions about 401(k)s. A reader from Baltimore wrote in wondering "What do I do in this economy? Do I leave my 401(k) untouched, do I pull everything out, or can I switch to different investments?" A recent caller from California lamented that "All of the headlines are so overwhelming. I'm trying to just keep saving and stick to a budget, but the newspaper puts me in a panic every morning. What do I do if my 401(k) investments keep suffering?"

WISER's non-profit status coupled with a lack of information on the details of either of our friends' financial situations makes it impossible to answer these specific questions. We sat down with WISER senior policy analyst Laurel Beedon to talk about a few rules of thumb that everyone can follow when it comes to taking care of their 401(k) during these troubling economic times.

Don't Keep all Your Eggs in One Basket!
Make sure that you are still contributing to a savings account outside of your 401(k) so that you have another source of retirement income. Consider investing in bonds, which are low-risk. " A bond is a loan, a stock is a chance," says Beedon. For more information on bonds, visit the WISER website and read our fact sheet: "US Savings Bonds."You can also learn more by visiting the US Treasury website at

Spread Your Risk
Find out more about the administrator of you 401(k). Where is your money now? Are there ways that it could be spread out? Make sure you have your money in a range of different funds so that if you suffer a blow to one of your investments, it doesn't have to impact all of your investments.

Stay Aware
Review your investments every six months. Consider seeking guidance from a financial planner. BE CAREFUL: Always ask how your planner is based. Commission-Based Financial Planners earn commissions on the investments they sell. They may have a bias for investments that will pay them commissions. Some commission-based planners also charge a fee. Look for a certified financial planner (CFP). You can call the Institute of Certified Financial Planners at 1-888-806-7526 or visit the Certified Financial Planner Board of Standards website at

Get Rid of Your Credit Card Debt
Paying more than the monthly minimum on your credit is a great investment. If you're concerned about your future finances, take care of your present debt so that you can save more for later. If possible, pay your credit card bill as soon as you receive it, especially if you are carrying over a balance, to reduce your interest charges and remember to pay off the credit card with the highest interest rate first.

Look into Savings Alternatives
Find out about options to supplement your savings plan. One option, depending on your present life circumstances and financial situation, may be annuities.
  • Annuities:

Immediate: This is a straight-life annuity that pays a fixed amount for as long as you live. Another option is to get guaranteed payments for a certain number of years, for example, “life or 10 years certain,” and if you die sooner, your beneficiary receives the payments.

Deferred: This is an investment product that accumulates money until a future payment. Most annuity articles and advertisements seem to be talking about deferred annuities.

There are several types, including:

  • Fixed – based on interest rate that is initially fixed and then may vary.
  • Equity-indexed – based on the stock market, with a guaranteed minimum rate.
  • Variable – based on accounts invested in stocks and bonds.

You may decide that the best way is to use a combination of both of these by managing your own retirement fund until the time seems right to convert some of your fund into an annuity. For more information, visit WISER's website and check out our publications and fact sheets on annuities.

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