Get ready to rebuild your retirement savings

Highway sign with the words Retirement-Next Exit

If you haven't paid much attention to your retirement savings since the financial crisis hit, now's the time to take stock.

The recession did some serious damage to your 401(k) and Individual Retirement Accounts, and you've got to make that money back as the economy begins to recover.

These 7 smart moves will help you do that:

Smart move 1 Rebalance your investments.

We don't know if the rally that began in March will continue, but now's the time to evaluate and reallocate your investments to make the most of a sustained bull market.

This asset allocation calculator will make sure your portfolio is divvied up according to your risk tolerance and goals.

If you're too heavily invested in one or two types of mutual funds, rebalance your account by directing all of your new contributions to other assets.

Don't sell existing funds to reinvest in new ones because the market is still down and you'll be locking in losses on the old shares.

Smart move 2 Get back in the game.

If you curbed contributions while the market waned, now is the time to ramp back up again.

The goal is to buy low and sell high, and this is still a chance to buy low.

You can't recoup your losses by hoarding cash in CDs and money market accounts -- especially with interest rates at or near record lows -- or even mutual funds designed to preserve capital, not reap gains.

Those safer investments will never earn large enough returns to build a substantial nest egg -- or even keep up with inflation.

Making regular, periodic investments during a downturn, you're doing what experts call "dollar-cost averaging." That means your money buys more shares when stocks and funds are cheap, lowering your average cost and paving the way for bigger gains in a bull market.

Smart move 3. Reduce, but never stop, your contributions.

If you're still worried about losing your job, it's OK to divert contributions from retirement plans to bolster an underfunded rainy-day account.

One rule of thumb, though, is to never pass up free money. Keep contributing enough to your 401(k) plan to qualify for any matching funds from your employer.

If, for example, your company matches half of your contributions up to 6% of your income, don't cut your contribution below that level or you're passing up a 6% tax-free raise.

And when you reduce the automatic deduction for your retirement account, make sure that money is auto-debited straight into a savings account and not a checking account where you'll be tempted to spend it.

Online accounts at banks like ING and Emigrant Direct are easy to set up, free of fees and paying a tiny bit of interest.

Once you reach your emergency-cushion goal, resume those retirement-plan savings instead of squandering the extra wages.

Smart move 4. Use a Roth IRA for your emergency fund.

One way to save for retirement and a layoff is to use a Roth IRA.

Unlike traditional IRAs, your contributions are made with income that already has been taxed, and so contributions can be withdrawn and spent anytime they're needed with no penalties or additional taxes.

If you don't need the money, it will continue to grow tax-free.

Be sure to shop for competitive expense ratios when opening a Roth so fees don't eat up your money. Vanguard, for example, will let you open a Roth IRA with a small, initial deposit and invest that money in mutual funds with very reasonable fees.

For 2009, the contribution limit for Roth IRAs is $5,000. If you're over age 50, you can stash up to $6,000 under the catch-up provision.

Smart move 5. Attack 401(k) loans.

A shaky job market is a really bad time to borrow against your retirement account.

If you lose your job, you must repay a 401(k) loan right away or it converts to a heavily taxed early withdrawal. You wind up with a big tax bill right at the time you can least afford it.

If you're worried about becoming unemployed, retiring a 401(k) loan is more important than paying down the balance on your credit cards or home equity loan.

The penalties and fees levied on retirement savings converted to income are more costly than even the most punitive credit-card rates. Talk to your payroll manager about options for accelerating your payback plan.

Smart move 6. Suspend college savings and early mortgage payoffs

If you have to make a choice between your own savings and funding a child's college account, such as a 529 plan, stop the college savings and focus on yourself. Your son or daughter can always work, borrow, vie for scholarships, select a less-expensive school or otherwise adjust post-high school plans.

You can't stop the clock or change the fact that someday you'll be aging out of the workplace and dependent on your savings.

Also, if you've been sending extra cash to a mortgage payoff acceleration program, you might want to stop those excess payments for a while if it's undermining your ability to fund a 401(k) or build a stash inside your Roth IRA.

Smart move 7. Know your goal, but don't let it get you down.

Using our retirement calculator to determine how much you'll need for a comfortable future provides a great target.

But obsessing over the substantial sum of money that calculator or an investment adviser says you'll need 10, 20 or even 30 years from now can make investors feel hopeless, even when markets start to recover.

So stop. When you're ready to retire, you'll value whatever savings you have, even if you're short of your optimum goal.

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