The Economy and Your Retirement Account

It's very tempting to panic right now. It seems to be all the rage on Wall Street to do so. However, now is not the time for hotter heads to prevail. And, when it comes to your retirement account, it is definitely time for cooler heads. Instead of getting caught up in the selling frenzy on Wall Street, now is the time to consider your situation.

If you are far from retirement

If retirement is a long ways off for you, then really there is not a great cause for concern. Over time, the stock market generally gains, and is likely to more than recover from the current situation. If you are truly concerned, look at the holdings in your retirement account, and check for stocks and mutual funds containing stocks that look especially vulnerable (for the most part, bonds, cash and index funds are likely to be less at risk). You could switch your allocation to something more conservative.

But it is worth remembering this: Now, with the stock market at lows, is a good time to buy. Your retirement account (if you are using automatic investment) is buying more shares for your money. This means that when the stock market does recover, you are likely to see rather nice gains down the road. Besides, cashing out now is a good way to earn yourself penalties. For the long haul, it is usually more beneficial to keep your retirement account invested.

If retirement is within the next five years

For those closer to retirement, it is understandable that this is a time of extreme stress with regard to your portfolio. However, the long-term truths mentioned above still hold true. You might try making a more conservative allocation -- getting into cash and looking outside the stock market for retirement income. Another suggestion is to see if you could put off retirement for an extra year or two to give the economy time to stabilize. Many boomers (including my parents) are taking this approach.

Some are getting into reverse mortgages to span the gap, but these are increasingly difficult to get, and it is hard to get anything approaching the equity in your home, since lenders are afraid that home values will fall.

These are, indeed, tricky economic times. However, giving into fear and panic may lead you into decisions that are not in your best financial interest. Instead, take a measured approach. And don't panic.

Disclaimer: I am not an investment professional. This should not be construed as investment advice. All investment carries the risk of loss. Before investing, do your own research and/or consult with an investment professional.