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How are 401K decisions affected in each age decade? Shortly after the 2008 financial crisis, I saved a Money magazine article on the topic of 401K investing, curious to see if I would change their advice two to three years later.  Now it’s over 10 years later, and most of that advice is still relevant. Following is a synopsis.  For the 20s, 30s, 40s, and 50s, not much has changed.  But for the 60s, note how the article leaned toward armageddon, contingency planning, and worst case scenarios.  There was nothing in the article about staying the course.  It’s interesting to reflect back on the mood at that time.

[The following are both direct quotes and paraphrasing of the main ideas of the article.  The sources listed are attributable to Money magazine.]

In Your 20s

In your 20s, the challenge is that retirement isn’t even on your radar. Debt is accumulating instead, and most 20-somethings can’t see past the goal of getting out of debt first.  According to the Project on Student Debt, 2007 graduates on average who took out student loans left college owing $20,000.  Nevertheless, 20-somethings should pay off high-interest debt like credit card bills and start funding a 401(K).

Nearly half of all twenty-somethings with a 401(k) plan turn down the company match by not contributing the full qualifying amount – essentially free, tax-deferred money.

What can you do? Start brown-bagging lunch. For someone making $30,000 a year, setting aside $35 a week is all it takes to sock away 6% of salary.

An additional pitfall at this stage is job-hopping. When switching employers, many are tempted to pull out their 401(k) savings. But, while $5,000 may not seem like a whole lot of money, if invested, that amount will be substantial by the time you retire.

In Your 30s

By this decade, just being enrolled in the retirement plan isn’t enough. How the money is invested begins to take on more importance. According to a survey by investment advisor Financial Engines, 40% of all 401(k) participants make investing mistakes that impede their portfolios’ growth.  The two most common mistakes are: 1)  investing too conservatively in cash, therefore not beating inflation; 2) investing too narrowly in a single stock (typically, the employer’s).

To catch up, learn to diversify according to “asset allocation.” Embrace both stocks and bonds. Combining the two will bring a cushion against market drops.

If your 401(k) has a Roth feature, and you believe your income taxes will be higher in retirement, use that feature to invest after-tax dollars now for tax-free withdrawals later.

Once you have your portfolio fine-tuned, revisit it on a regular basis but no more frequently than quarterly to “rebalance” to your original mix. If you start managing your investments early,  you can reap rewards down the line.

In Your 40s

Too many claims on the paycheck becomes a common problem for forty-somethings. Even though you are entering your peak earning years, major expenses like college tuition loom. When the AARP recently asked workers why they didn’t save more for retirement, 33% of 45-to-49 year olds said they were saving for a child’s education instead.

Only 10% of 401(k) participants in their 40s are saving the full amount allowed under the pretax IRS or plan ceiling, and that’s the highest proportion of all age groups. Now is the time to max out your contributions to $16,500.

What about the kids? As Fidelity’s Mike Doshier says, “You can get student loans, you can get car loans, but you can’t get retirement loans.” Don’t dip into your 401(k) for tuition expenses. Save as much as you can, ideally, 10% of your income.

In Your 50s

When the stock market falls at this age, your nest egg begins to look cracked.  The market will probably rebound before you retire, but how do you make sure you’re protected against another downturn?

Seemingly seasoned investors still make rookie mistakes. Given the option, 40% of 401(k) participants in their 50s keep more than 20% of their savings in unrestricted company stock, a perilously risky proposition, no matter how healthy your employer is, especially for those nearing retirement.

50-somethings are allowed to make catchup contributions. You can put an additional $5,500 in your 401(k) every year. Fewer than 20% of eligible participants take advantage of that option, according to Vanguard.

In case the stock market takes a dive just in the year you want to retire, that is the time to create a cash cushion by shifting 5% to 10% of your balance into short-term bonds or cash, generally two years ahead of time. In the decade before retirement, it’s more important than ever to make sure you’re controlling for risk and positioning your portfolio to ride out rough patches.

In Your 60s

In a down market, the dilemma facing the ready-to-retire set is:  retire later or retire on less? When savings shrink drastically late in the game, prepare to adjust your expectations and your game plan.

More than half of workers over 60 say they will probably postpone retirement, according to an AARP survey. 68% of fifty-somethings and 70% of forty-somethings said they were likely to work longer than they had planned due to the 2008 market meltdown.

If you can stay on the job, working a few extra years can vastly improve your long-term financial prospects. You can cover expenses, add to savings, and give your portfolio time to rebound.

Your pre-2008 expectations are gone, so if you’ve already retired, rethink your budget. Look for ways to postpone withdrawals, or consider starting Social Security early. You’re eligible at age 62. Finally, plan for longevity and inflation. That means keeping a portion of your portfolio in equities even after retirement.

Notice the doom and gloom tone from that time? For the 60-somethings who did not panic and sell out their 401K balances during those difficult times, there may have been a sigh of relief. Yet, remember life expectancies are lengthening. Money market returns won’t help the money last into our 80s and 90s.  Although once-in-a-lifetime market plunges are difficult to stomach, some percentage in a diversified stock portfolio is likely necessary to maintain your lifestyle for decades to come.

For more on how to preserve your lifestyle post-retirement, see the The Mindful Money Mentality: How To Find Balance in Your Financial Future.