A New Year Means a New Chance to Build a Stronger Retirement

New Year’s resolutions don’t always have to be about losing weight or quitting smoking. How about making some that will help you establish your financial freedom in retirement?

Financial experts say that now is an excellent time to reassess your retirement savings goals for the new year.

“Take stock of where you’re at,” says Richard Salmen, president of the Financial Planning Association and a certified financial planner in Overland Park, Kan. “A year-end evaluation is a good idea at this point. Really look at your 401(k) or 403(b). It may not be as ugly as you thought.”

In fact, most workers are still recovering from the nose-dive that retirement account balances took over the past two years. Together, 401(k) accounts and IRAs lost $2.8 trillion—one-third of their value—between September 2007 and March 2009, according to the Urban Institute. Since then, the market has rebounded and stocks have regained ground, though on average, retirement accounts still remain 17 percent below their peak value in 2007.

Whether the rally will last or investors will face more losses in a volatile market is anyone’s guess. But one thing is certain: As 2010 draws near, financial experts say you should take steps to ensure that your retirement savings continue to grow. Here are some tips to consider:

1. Save more. You’ve heard this before, but it bears repeating—and doing. Look for ways to spend less and boost savings. If you participate in a retirement plan, make sure you stash away enough to qualify for an employer match if one is offered. For 2010, people age 50 and older are permitted to sock away a maximum $22,000 tax-free in retirement contributions, the same as in 2009.

2. Mix it up. Reconsider your asset allocation in your retirement plan so that your investments are a mix of stocks, bonds and money market accounts that are low-risk and liquid.

“People have been sitting in very conservative investments or in cash, believing this rally has not been real, but that’s not realistic,” says Don Bertrand, vice president and senior financial planner with WealthTrust in Scottsdale, Ariz.

He suggests allocating about 40 percent of your portfolio to domestic and international equities; 30 percent to alternatives such as commodities, real estate investment trusts or absolute return funds; and 30 percent to fixed-income investments such as quality corporate funds, municipal bonds or high-yield domestic and international bond funds.

3. Say no to withdrawals. If you’re unemployed, and even if you’re not, don’t withdraw money from your retirement plan. If you do, and you’re younger than age 59 1/2, you’ll incur taxes and a penalty on the amount you take. And the money won’t be there for your retirement.

4. Invest in you. Take steps to enhance your skill set or make it more valuable to current and prospective employers.

“Most of us use our gifts and talent to generate income so we can save for the future,” says Karin Maloney Stifler, a certified financial planner for True Wealth Advisors in Hudson, Ohio. “Do something to strengthen your skills or add to your skill set to bolster your job security or increase your earnings capacity.”

5. Postpone retiring. Work as long as you can, even one to two years later than you might have imagined, to save more toward your retirement. Delay taking your Social Security benefit to increase your monthly amount.

“The old rule of thumb used to be you needed 70 percent of your income” to retire comfortably, Bertrand says. “I think that number will be higher because food costs will go up, inflation is going to be a factor, health care is likely to go up. Your living expenses are not going down.”

That’s why Danica Goshert, resource center director at Securian Financial Services Inc., recommends paying off your mortgage, and other debt, by the time you retire.

“If a large portion of your retirement income is used to pay off bills and loans,” she says, “you may find it difficult to live on the remainder.”