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Market Turmoil and a Retirement Portfolio

Chris Farrell Mar 12, 2008

Question: My husband and I both put the maximum into our 401ks, which we now see dwindling (9% loss this year already). Money is tight; our daughter is making the decision about what college to attend; and we do not have a lot in savings ($200k in our 401ks; $50k in stocks). Should we continue to put the max into our 401ks or decrease the contribution during this economic downturn? We both turn 50 this year. Thank you so much for your help. Kary.

Answer: With the drop in the market, I’m getting many variations of your question. The feeling about retreating from the market is understandable. But here’s my cautionary note: You’re both still young. Taking into account your average life expectancy, you’re still investing for another 30-plus years. That’s why the main lesson I would take from this volatility and turmoil in the market is to review your portfolio. Are you comfortable with how much you have in stocks, bonds, and other securities? Do you need to get more conservative?

That said, you have a big expense coming up: Your daughter’s college education. It’s a big deal, and if you want to slightly cut your contributions to your retirement savings in order to help pay for college expenses, that’s fine (with me, that is).

Nevertheless, I do believe you should take care of your retirement needs first and your daughter’s college expenses second. She can always borrow. The reason for establishing this priority is that you and your husband are nearing the end of your earnings years to save for retirement, and she has a lifetime ahead of her.

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