401(k) Fixes for Every Age

Retirement-saving strategies for each decade of your life, from your 20s to your 70s.

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Most retirement accounts are battered and bruised these days, as the financial turbulence of the past year has swallowed the gains of the 2003-07 bull market. Younger investors still have decades to reclaim (and surpass) their previous balances, but the market plunge has been agonizing for investors at the other end of the spectrum. At this point, those nearing retirement desperately need growth to bring their portfolios back to where there were a year ago. At the same time, they're seeking to ensure that their painstakingly built 401(k) and IRA balances won’t deteriorate even more. Regrowing retirement savings will be difficult for any age: Older investors may need to work longer and scale back on their expenses; meanwhile, the younger set may need to invest smarter and save even more money. Here's how to take back control of your retirement at any life stage:

20s. Young people today aren’t likely to get a traditional pension, so retirement is something they'll have to fund themselves. Given often meager paychecks, many in this group are saddled with fixed expenses like rent and health care that compete with retirement funding. Twenty-somethings are also more likely to have student loan debt, credit card debt, and cell phone bills than previous generations.

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Young people are best position of their lives to begin saving for retirement. If they can manage to tuck away a few dollars here and there, compounding interest can turn a little into a lot over time. A 25-year-old who begins contributing $5,000 annually to an IRA could potentially accrue $1.6 million by age 70, according to Fidelity calculations that assume a 7 percent annual rate of return. Any employer contributions to retirement accounts are an added bonus. It's also a great time for 20-somethings to take a few chances in their retirement accounts because there’s plenty of time to ride out market swoons. “You can take the most risk at 25, because even if the stock market falls down, things will bounce back,” says Eric Hayden, a finance professor at the University of Massachusetts at Boston's business school. When it comes to finance, the biggest risk young people take is failing to save for retirement.

30s. Many retirement experts say the current financial climate presents an opportunity for investors - especially those with more discretionary income - to buy into the stock market at bargain prices. “A young individual essentially can make up for losses with new savings relatively quickly, whereas an older person doesn’t have time to make up for large losses with new savings,” says Dallas Salisbury, president and CEO of the Employee Benefit Research Institute (EBRI). But if you can’t stomach the possibility of a steep stock market drop, begin building a diversified portfolio that can weather any market condition - one that includes stocks, bonds, and even some cash. “If you want to keep your financial life simple, a target-date retirement fund can be a great choice,” says Manisha Thakor, co-author of On My Own Two Feet: A Modern Girl's Guide to Personal Finance. Target-date funds automatically provide age-appropriate investments that grow more conservative as you approach retirement.

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40s. It’s important to find a balance between preserving the savings you've already accrued and continuing to grow your nest egg. A common rule of thumb in selecting an age-appropriate asset allocation is to subtract your age from 110 and allocate that percentage to stocks. That means a 45-year-old would have 65 percent of their retirement funds in the stock market. Other investors might choose a more conservative 50-50 split between stocks and bonds because of the steady returns bonds provide. Once you determine a level of risk that's appropriate for you, rebalance your portfolio at least once a year to make sure you’re not taking on more (or less) risk than you can handle. Minimizing 401(k) fees will help your nest egg grow faster. Be sure to set up an emergency fund outside of your retirement savings for things like an unexpected medical bill or job loss. That way, you'll avoid dipping into your retirement savings.