Your Retirement: Create a Plan B

WHERE YOU ARE: You lost 30% or more of your retirement savings in the market crash.

WHERE YOU WANT TO BE: Able to retire comfortably within the next five to ten years.

HOW TO GET THERE: Take a deep breath, assess the damage, and figure out how to rebuild. That’s what Penny Spidle, 62, did after she and her husband, John, 59, lost more than 40% of their retirement savings. Penny had hoped to retire this year, but when she opened her 401(k) statement for the first quarter of 2009 and saw that it had fallen 42% from the year before, she knew that was no longer possible. “I panicked,” she says. “I thought, “Oh my God, we’re going to starve to death when we’re old.’”

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Fortunately, Penny’s employer, Arch Coal, a mining company in Wright, Wyo., is among a growing number of companies that offer personalized investment advice to workers through their 401(k) plans. For an annual fee of 0.6% of her account balance, Penny is entitled to ongoing, personalized advice and professional management of her 401(k) investments from Financial Engines, an investment adviser for workplace retirement plans.

Refocus your investments. After a lengthy telephone interview to pinpoint her retirement-income goals, the status of all of her investments and other sources of income, Financial Engines recommended that Penny gradually pare the international stocks in her account, in which she had invested more than half of her money -- a much too aggressive asset allocation for someone so close to retirement. Instead, she is creating a more broadly diversified portfolio, including about 20% in a stable-value fund (see Stable Funds in Chaotic Times).

When Penny’s second-quarter statement showed positive returns for the first time in more than a year -- largely due to the stock-market surge after March 9 -- she was ecstatic. Even more thrilling was her initial financial report from Financial Engines, which showed she had a 95% chance of meeting her retirement-income goal of $64,000 a year -- assuming she maintains her current contribution level to her 401(k), continues to work for three more years and waits until she retires at 65 to begin collecting Social Security benefits. “I was worried that I’d be working until I was using a walker,” says Penny. “Now I think I can attain my new goal of retiring at 65.”

If you don’t have access to personalized financial advice at work to help get your savings back on track, you can hire a financial planner (find one in your area through the Financial Planning Association). Or try a free retirement-planning tool, such as TD Ameritrade’s new WealthRuler, Fidelity’s MyPlan or T. Rowe Price’s recently revamped retirement-income calculator.

Work a few more years. Many older workers assume they will have to work five or ten years longer than they had planned to make up for last year’s stock-market losses. But a recent analysis by Financial Engines found that big investment losses don’t necessarily translate into equally big declines in projected retirement income. That’s because some of that retirement income will come from future savings and Social Security benefits -- neither of which is affected by past stock-market losses. For Penny and many others who are nearing retirement, delaying their plans by just two to three years can get them back on course without any increase in annual savings.