DiversityInc - November/December 2008

Have Faith in Your 401(k)

For those facing retirement, the market crash is a bit more critical. But don’t fret; all is not lost. If your portfolio has taken a hit, consider delaying your retirement. Use online retirement calculators, like the one offered by T. Rowe Price, to help plan your retirement.

And no matter what, continue to match or exceed your employer’s contribution. Remember: Withdrawing from your 401(k) early for reasons not approved by the IRS will be costly. In addition to having to pay income tax, you’ll be hit with a fee that equals 10 percent of the amount withdrawn. T. Rowe Price has made it known that its customers are not in immediate danger.

From the T. Rowe Price web site: “It is important to note that the position of T. Rowe Price Group in the financial markets is significantly and fundamentally different from other more diversified financial services companies that may be involved in numerous businesses, such as insurance, lending, investment banking, and various capital market activities. T. Rowe Price focuses on one business: investment management for our clients.”

If you must move your money, consider investing in Treasury bills. They are extremely safe investments that don’t yield any interest until they mature.

Ride the Wave

Riding out this tough market may at first seem like a bad idea, but history has a way of repeating itself. The market will bounce back. And while the market will probably get worse before it gets better, it’s important to remember that if you are investing correctly, you have time on your side.

Although it’s impossible to time when the market will improve, some financial experts predict we could begin seeing improvements in three to four years.

Explore Alternative Saving Methods

It’s true that obtaining a loan will grow increasingly difficult as the credit market freezes. If you are saving for your child’s college education or for a down payment on a home, consider exploring alternative saving methods.

For starters, look into opening a 529 account. This college-savings plan allows you to save either at the current tuition inflation rate or at the rate of the market.

If you are thinking of buying a house in the future, you should still put money into your 401(k), as the IRS allows you to borrow against it to purchase a home without a tax penalty, if necessary.