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How to adjust your retirement plan to the new reality

October 18, 2010

| MoneyRates.com Senior Financial Analyst, CFA

This article is part of a MoneyRates.com series, 10 steps to a comfortable retirement.

The economy has thrown some curveballs at retirement savers over the past few years. Americans in aggregate are $6.6 trillion short of what they need for retirement, according to a study by Boston College's Center for Retirement Research.

Here's the good news: Even if you are behind on your retirement savings, you only have to make up a tiny, tiny fraction of that $6.6 trillion. You can narrow your retirement gap, but do it in the right way so you don't dig yourself a deeper hole.

Low returns sandbag retirement savings

As a starting point, it helps to understand the problem -- where did the retirement savings gap come from?

As you've probably noticed, interest rates on savings accounts and money market accounts are so low they are threatening to disappear. CD rates are a little higher, but even the best CD rates are a fraction of what they were historically.

Low interest rates are evident on not only deposit accounts like savings accounts and money market accounts, but also on bonds. Low rates reduce what savers are earning now -- and in many cases, they've led people to lower their projections of what they expect to earn on their savings in the future.

Asset losses in stocks and real estate have contributed to the retirement savings gap. Plus, it didn't help that many baby boomers chronically under-contributed to their retirement savings until retirement age was staring them in the face.

Dos and don'ts of adjusting your retirement plan

Although looking at your statements may still make you feel a bit queasy, there's definitely a right way and a wrong way to adjust to the new market reality. Follow these do's and don'ts to make sure you can recover without further endangering your retirement years.


  • Max out your savings. With investment returns providing little help, you may need to adjust your return assumptions downward and simply save more cash. Max out tax-deferred and company-supported retirement options first, and augment those with after-tax saving if need be.
  • Push back your retirement date. The dual effect of adding a year of savings while subtracting a year of drawing down savings can help you narrow a retirement gap in double-time. (Can't stand more time in your job? Look into a second career.)


  • Don't panic. Panic can lead to despair, which can lead to paralysis and poor judgment. Right now, your retirement gap may seem huge and insurmountable. Yet, if you have a few years to patch things up, know that discipline and management can make up for a lot.
  • Don't shift drastically to risky assets. In desperation, it's tempting to move all your money into assets that offer higher average returns. Never forget that reward and risk go hand-in-hand. Gambling to make it all up quickly is a mistake, just as becoming overly conservative is a mistake. Take an objective long view to determine the asset allocation of your portfolio.

If nothing else, the past decade has been a learning experience for retirement savers. Make sure that you benefit from that experience.

Read more financial advice from our series, 10 steps to a comfortable retirement.

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