Six ways to make your retirement a reality (even in a bad economy)

By Bill Losey. CFP , CSA 1. Control your emotions - take a deep breath. During this volatile period and every volatile period there is always a cycle of greed and fear. Greed and fear are the two things that move the market. We have periods where the markets get ahead of themselves and investors become too optimistic and other periods where investors begin to panic, throw the baby out with the bath water, and become overly pessimistic. We are obviously in the throes, or very close to the latter scenario. This volatile period will pass like all the others have. This is one area you have direct control over. It may require that you reduce your current spending or earmark your raise for savings, but putting more away now will allow you to buy more shares at cheaper prices (since the market is lower). The younger you are and the earlier you start saving, the more years your money can grow tax deferred inside your 401k or IRA. This tax-deferred compounding can mean thousands or tens of thousands of extra dollars for you to spend come retirement time. Also, every dollar you invest in your 401k/403b plan today is one less dollar included in your income this year so you can lower your tax bite. Employee's elective contributions are limited to $16,500 per year in 2009 ($22,500 for those people age 50 and over). How much are you saving? Can you save more? 3. Consider reallocating your 401k/403b to higher yielding investments. I realize that this may be counterintuitive to what you're feeling given the recent market slide but perhaps you should invest more aggressively. Over time, stocks have historically outpaced bonds and inflation. Certainly, the greater the potential return on your money, the more risk you'll be taking. However, if you have 10 years or more until your retirement date (and have at least 20 years or more of life ahead), you may well be rewarded for taking this additional risk. Certainly, past performance is no guarantee of future results and I'm not saying you should get more aggressive; but you should take a few minutes and review your asset allocation. Most people have no idea what they're invested in, what they can expect to earn, and how much risk they're taking with their portfolio. This can all be quantified. What percentage do you hold in stocks versus bonds? If you're not sure, talk with a professional or trusted advisor and gets his or her guidance. Recognize that every extra one percent you can earn on your money over time will go along way to helping you enjoy the retirement you envision sooner. 4. Consider retiring later. Don't retire when what you really need is a break. All too often I see people in their fifties and sixties who retire or take an early incentive offer because they think they're ready to stop working. After a few months or a few years the find themselves bored and restless and wanting to go back to work. Before you decide to fully retire, discuss a phased retirement or flexible work schedule with your employer. Explore all of your options before retiring. Gaining an extra day or two a week of free time may be just what the doctor ordered. Realize that every year you earn an income is another year you defer money into your 401k/403b, lower your tax bill and allow your savings to grow tax deferred. The longer you work the less you would need to accumulate to afford your desired lifestyle. If you love what you do, why would you ever completely retire? If you don't love what you're doing, why are you still doing it? What's holding you back (time, money, confidence, knowledge, connections)? Research indicates that there is a direct correlation between our happiness, our health, and our financial wellness. When was the last time you examined your situation? 5. Consider lowering your investment costs. Do you have any idea what you're paying in dollars and cents for your investments and/or investment management? If you're like most people I see, you don't have a clue. Recognize that each investment has its own internal cost structure. Usually this information is contained in small print in the back of the prospectus, which most people never take the time to read. Additionally, these fees usually get skimmed off the top and you don't even realize it. You get my point! Take some time and review your investments. Quantify what you're paying. Determine if you're getting good value for what you're paying. Understand that every dollar you lower your investment costs by is another dollar in your pocket. Can you say ca-ching? 6. Consider reducing your retirement income needs. At the end of the day (or work week), you can only control what you can control. If you can make astute lifestyle choices, control your spending, eliminate your debts and live on less, you may feel more in control of your future. FYI - my happiest private clients are those that have downsized, organized and simplified their lives. Bill Losey, CFP , CSA, publishes Retirement Intelligence , an award-winning weekly newsletter He is also the author of Retire in a Weekend! The Baby Boomer's Guide to Making Work Optional (a 2008 Finalist at The Indie Excellence Book Awards) For more info visit, www.myretirementsuccess.com.