Five Tips for Successful 401(k) Retirement Planning 

Friday, September 11, 2009 is 401(k) Day. Here are some tips from the financial advisors at Prudential so you can position yourself for 401(k) success: 

1) Resist the urge to stop contributing to your workplace-provided retirement plan.

Yes times are tough and money is tight. But an important driver of human behavior is "inertia." Once you're in the plan, you tend to stay in it, and once you leave it, it will be tough to restart. Do yourself a favor and stay the course and reap the benefits when the economy recovers.

2) Keep your focus on the long term.

Retirement plans are long-term vehicles, so keep your eyes on the prize: saving as much as possible for your future retirement and investing for the long-term. Do not try to time the markets' volatility because you are likely to miss out on upturns you can't predict.

3) Don't take a loan or a withdrawal.

While many workplace-sponsored retirement plans permit loans and withdrawals, they are almost always a bad idea, primarily because you are depleting your savings and you jeopardize your future financial health. Additionally, you might be subject to additional taxes and/or penalties. The best plan is to look elsewhere for immediate sources of emergency cash. You will thank yourself during your retirement years.

4) Take a deep breath and don't panic!

The financial markets are scary right now, which is exactly why you shouldn't panic. Most experts believe that the markets will recover, over time, and if you panic and sell the stocks or stock mutual funds in your retirement plan, you could well be selling at the low point of the market. Retirement plans are no place for hasty decisions, but rather a place for a longer term approach. Remember you will still be retiring one day and being prepared for it is the right thing to do, so try to stay calm.

5) Think about how much money you will need to live on in retirement or your retirement income rather than how much you need to save or your retirement nest egg.

Many people forget that the whole point of retirement savings is to create a stream of income to live on during retirement, when you will no longer receive a paycheck from your employer. So, take advantage of Web-based tools that let you project how much retirement income your eventual savings will generate. For many people, it is much less than they imagine, which could suggest two proven solutions: working longer or saving more. Not completely enticing, of course, but probably better than not having enough money to survive during your retirement.