The 401(k) is enjoying a wee bit of a corporate comeback.

Fidelity Investments, which says it's the leading provider of workplace retirement savings plans in the US, disclosed Thursday morning that some of the companies which reduced their financial contributions to 401(k) plans during the financial meltdown have started ponying up money again, or at least plan to. More

• Imagine the perfect gift card: Able to be used anywhere, anytime, without any restrictions. Uh, guess what? It's called cash. [The Wall Street Journal]

• Beware of boilerplate requirements in mortgage commitments. Sometimes you can wriggle out of them. [Tales from the Real Estate Wars]

• Has a friend or relative asked you to co-sign for a credit card or other loan? Here are four excellent questions to ask before you go through with it. [CreditCards.com]

• Maintaining your credit is like keeping yourself fit. Now is not the time to stop exercising what you have. [The Huffington Post]

• Worried about running out of cash during your retirement years? Here's some good advice on how to get the most from your Social Security benefits. [RetirementRevised]

Follow More Money on Twitter at http://twitter.com/moremoneyblog.

More or less buried in the massive debate over what our health care system should look like is a provision to create a national long-term care insurance program. The Community Living Assistance Services and Supports (CLASS) Act would allow people to pay an average $65 a month and, after five years, be eligible for between $50 to $100 a day in benefits. Insurers oppose the CLASS Act — clearly, it would cut into their sales of long-term care insurance, which haven’t been all that great to begin with. Other criticisms of the act: The government doesn’t need to be expanding programs even further than it already is, and low benefits would give people a false sense of security.

While $100 is better than nothing, I can tell you from experience that it doesn’t cover very much. More

Reverse mortgages are increasingly the go-to solution for retirees confronting insufficient nest eggs and paltry income payouts in today’s low-rate environment. Last year, the number of new Home Equity Conversion Mortgages insured by the federal government amounted to 112,000 — more than 14 times the HECMs that were originated in 2001. The 2009 tally is expected to be even higher.

Last week’s news that 2010 Social Security benefits will not be given a cost-of-living adjustment — for the first time since inflation protection was added to the program in 1975 — will likely fuel demand for reverse mortgages. And lenders on the prowl for post-meltdown revenue sources are eager to boost the supply. More

Employment figures are poor all around, but if there's any class of workers that's held up relatively well, it's the college educated. Unemployment stands at only 4.7% for those with college degrees, versus 9.7% for those holding just a high school diploma, according to the latest figures from the Labor Department.

As much as a college diploma may assist today's youth with their future employment, paying for that education is giving their parents a severe headache. New surveys released by Fidelity Investments, the College Savings Foundation, and Sallie Mae have found that parents understand they're not saving enough, are worried about it, and are even planning to delay their own retirement to pay their kids' tuition.

Saving for college nowadays has been like trying to climb a sand dune: While 63% of parents have started saving for college (versus 60% last year), 43% say that they'll have to delay retirement to pay for it, up from 35% last year, according to Fidelity.
More

When the Obama Administration announced the Making Home Affordable program in February, it estimated that the refinancing part of the program, known as HARP, could help as many as four million to five million homeowners with little or no equity (and even up to 5% underwater) refinance into less costly loans. So far it hasn’t exactly played out to expectations. Through July just 60,000 or so homeowners have landed a refi through HARP.

That makes it unlikely that HARP will come anywhere close to delivering on the administration’s goal by the time the program’s current authorization runs out in June 2010. (Its sister program, Home Affordable Modification Program, or HAMP, is authorized through 2012.)

While Treasury has the power to extend HARP past next year's deadline — which won't really help unless Treasury can also arm-twist lenders into doing these deals — a handful of other crisis-induced rule changes will need  Congressional action to be extended beyond this year. More

It's Friday — time to catch up on some of the week's most interesting, and sometimes puzzling, news in the world of personal finance.

1. Thought you had health insurance? Hah! The Washington Post ran a great story Monday about how insurance companies have canceled the health insurance policies of thousands of people after those policyholders have filed for claims related to expensive medical problems. The cancellations, known in the trade as "rescissions," are ostensibly justified by policyholders' failure to disclose previously existing medical conditions — think of someone who survives a heart attack who doesn't admit to cardiac problems when applying for health coverage the following year. The problem, according to the Post, is that rescission has become not only a tool for fighting fraud, but an excuse for insurance companies to weasel out of paying claims. One such case: After a woman filed a claim for emergency gallbladder surgery, her attorney alleges, her health insurer canceled coverage for her and her husband because he had failed to mention his high cholesterol. More

There doesn’t seem to be much Washington can agree on these days. But I don't think I'm going to go out on a limb by saying that one issue with widespread bipartisan support is the need for Americans to save more for retirement. So you have to imagine there is going to be some quick hustling to avert an oncoming p.r. train wreck: the IRS soon may be forced to impose a lower maximum contribution limit for 401(k)s in 2010. Yes, Washington may tell us it is forcing us to save LESS next year. Not exactly what you want to center your mid-term election campaign on.

The culprit here is low inflation. The annual 401(k) contribution limit is set by comparing the Consumer Price Index (CPI)  for the third quarter of the preceding year to a base level. If the August and September CPI numbers come in as low as July, the Q3 inflation number plugged into the calculation could trigger a decline in the 2010 contribution limit. According to an analysis by Mercer’s Washington Resource Group the 2010 limit might drop from $16,500 to $16,000 for individuals younger than 50, and the catch up contribution for the 50+ cohort might decline from $5,500 to $5,000.

The IRS is scheduled to announce the 2010 limits on October 15. Even if the IRS regulation mandates a reduction in the contribution limit it would be a shocker if Congress doesn’t jump in with a fix.

But the unfortunate reality is that even if the limits were reduced it wouldn’t have much impact on Americans retirement savings. According to a Financial Engines survey of more than 550,000 401(k) accounts, only 7% of participants came within $500 of contributing the maximum allowed by the IRS or their plan limit. So for 93% of Americans this is a bit of a non-issue. (The fact that 93% of Americans should be saving more is an entirely different topic.)

IRAs don’t face the same low-inflation pickle. The formula for computing IRA limits uses the trailing 12-month CPI (through August) to set IRA limits and that stat is expected to show an increase. It won’t likely be enough to budge the IRA limits up for 2010, but will ensure the limits can remain at their 2009 level: $5,000 for individuals under 50; $6,000 if you are 50 or older.

Social Security payouts are where low-inflation is going to do real damage. For the first time since annual cost-of-living adjustments were mandated in 1975, it looks like there will be no COLA increase for 2010 Social Security benefits. In fact, the Obama Administration’s budget forecast assumes there will be no COLA increase in 2011 either. Yet Medicare Part B premiums are expected to rise. That means the net payments to Social Security beneficiaries will be declining in 2010 (and probably 2011.) Let’s see what Congress has to say about that.

How hard is it to stay retired? As you've no doubt heard, football legend Brett Favre just came out of retirement — for the second time. But it isn't just sports figures who see retirement as little more than a passing phase: Polls suggest that anywhere from one-half to three-quarters of working Americans plan to return to some sort of work after they retire — that is, if they expect to retire at all. Some can't imagine life without some kind of work; others simply need the money. For many people, especially Gen-Xers, the notion of working after "retirement" may almost seem a given, especially for those who are struggling to save enough in the current recession.

But as it turns out, unretirement can have as many complications as retirement. There's a giant gap between what people say they're going to do after retirement and what they actually do: A 2009 study by the Employee Benefit Research Institute (EBRI) found that 72 percent of workers planned to work after "retirement" — up from 66 percent in 2007. But in fact, only 34 percent of retirees said they'd actually gone to work at some point during retirement. (A recent poll by the Longevity Alliance, conducted by Harris Interactive, found much lower percentages for both those who planned to work and those who actually did, but the gap between what people said and what they did was still there.)

There's a similar gap — if not quite as dramatic — between the age at which people expect they'll retire and the age when they actually do. While many say that the current economic mess has led them to delay retirement, the effect of these planned delays is hard to find in the data. As EBRI notes, among the people who have changed their expected retirement age within the past year

the vast majority (89 percent) say that they have postponed retirement with the intention of increasing their financial security. Nevertheless, the median (mid-point) worker expects to retire at age 65, with 21 percent planning to push on into their 70s. The median retiree actually retired at age 62, and 47 percent of retirees say they retired sooner than planned.

Why is this? Well, when you get older, to borrow a euphemism from Donald Rumsfeld, stuff happens. You may have health problems that keep you from working; getting a job may be harder than you thought. Heck, you might even decide that a life without paid work isn't quite as boring as you thought it would be. If you've already started getting Social Security, you may face reductions in your benefits if you go back to work (though this is only the case if you started your benefits before you reached your "full retirement" age). The AARP has a very useful page that can help you to sort out some of the costs and benefits of going back to work. And you'll find some helpful advice in this CNNMoney story.

You shouldn't count on being able to work enough in retirement to make up for a significant lack of retirement savings. But if you're healthy enough to work, the benefits of working in some capacity after you hit retirement age can be considerable. I suspect the percentage of those who actually do work after the age of 65 — as opposed to just saying they will — will increase considerably as the boomers and then the Gen-Xers hit that age.

Are you planning to work after the age of 65? If you're already past that age, are you working, or do you plan to return to work at some point in the future? If so, why? Money? Self-fulfillment? Health care benefits?

Maybe it’s a sign that recession really is easing: Once again we’re hearing arguments that you can save a lot less for retirement than the financial services industry would have you believe.

The last time this argument got much traction was in early 2007, when the housing market was still bubbling. Now John Rekenthaler, the well-respected vice president of research at Morningstar, has re-introduced this notion in a recent blog post entitled “The 80% Myth.” Writes Rekenthaler, “The financial services industry misleads the everyday investor by selling the notion that an 80% replacement rate of pre-retirement income is required for a successful retirement.”
As proof, Rekenthaler cites own parents, who retired at age 50 and have lived contentedly for nearly 30 years on just 50% of their pre-retirement income. They don’t eat out often or drink Starbucks, but they have traveled the world over. If his parents had aimed for 80% of pre-retirement income as the prerequisite for retiring, he notes, they might have had to work until age 70.

A modest income may work well for his parents. And it’s certainly true that the average retiree makes do with not that much. The median income for households headed by retirees is just $25,000 a year, according the Federal Reserve’s 2007 Survey of Consumer Finances (the most recent data available). That’s just about half the median income for all families, which is $47,000.

But does that mean aiming for an 80% income replacement ratio is really excessive? Consider that the past three decades have been extremely kind to retirees (2008 aside), who have benefited from strong GDP growth, low inflation, lower taxes, and bull markets in both equities and bonds. That’s undoubtedly helped many of them get by, along with a big boost from Social Security — the largest single source of income for people 65 and older, accounting for 40%.

Future retirees, however, face a very different economy than earlier generations. The problems with funding Social Security are serious. Moreover, given the trillions of dollars in debt being racked up by the U.S. government's  bailout efforts, many economists say higher tax rates are inevitable. Meanwhile, forecasts for economic growth and investment returns are lower.
And then there’s the problem of soaring healthcare costs. A recent study by the Employee Benefit Research Institute found that a typical 65-year-old male retiring in 2009 would need savings of anywhere from $68,000 to $173,000 to cover health insurance premiums and out-of-pocket expenses in order to have a 50-50 chance of affording those bills. To have a 90% chance, you would need to set aside $134,000 to $378,000. Women, who tend to live longer, need even more. The current healthcare reform efforts in Washington may slow the rate of increases, but that remains to be seen.

In the end, 50% or 80% of pre-retirement income targets are only rough rules of thumb. The only way to be sure you’re setting aside enough money for your needs is to draw up a realistic retirement budget — something that only becomes possible when you’re actually closing in retirement. But if you add up the economic challenges ahead, it seems pretty clear that it’s better to set your savings target high rather than low. The consequences (and the likelihood) of saving too much are small, while the consequences of saving too little could be disastrous. And by saving a lot now, we can all learn to live on less, which looks to be good practice for the years ahead.

It looks like the end of the American retirement dream as we know it. The 77 million baby boomers who are heading into their golden years with shattered nest eggs may prove to be the first generation in modern U.S. history to have less retirement security than their predecessors.

The numbers tell the story. For older workers, those ages 55-64, nearly 30% had no personal retirement savings — zip, nada — according to a recent analysis by benefits consultants Watson Wyatt, which reviewed data from the 2007 Survey of Consumer Finances (the most recent available). Those non-savers were mainly low-income households, but even among middle- and upper-income groups, retirement wealth was "generally inadequate," say the consultants.

Worse, only an elite 15% of households of any income level had saved the equivalent of at least four times earnings. And even that level of savings will probably not be enough to support you without a drastic downgrade in lifestyle. Say you are a 65-year-old who has saved four times your $100,000 salary, or $400,000. To reduce your chances of outliving that money, you should count on withdrawing only between  4% to 5% of that amount each year, or $16,000 to $20,000.  (To see how much you need to save for retirement, cnnmoney.com's retirement calculator can give you a rough idea.)

Social Security boosts that income, but the higher your salary pre-retirement, the less it helps afterward. For the lowest-paid individuals, according to one study, Social Security replaces 71% of income; for the highest-earning workers, it replaces only 31%. If you're the 65-year-old retiree in our example, a simple Social Security calculator estimates you'll receive $24,000 a year in benefits; adding in withdrawals from savings brings your income to around 40% to 44% of the pre-retirement level. Not all that retirement income is taxable, but it's still a big drop. And remember that Watson Wyatt's estimate of people's retirement savings is based on 2007 wealth levels; the recent market downturn has undoubtedly reduced the ranks of households that are successfully saving for retirement. (To get an estimate of your Social Security income, try this tool.)

All of which makes retirement security a critical issue that the Washington has yet to confront. Right now President Obama is grappling with a stalled health care plan and controversial financial reforms, among other issues. But judging by the one measure he has put forward, he seems to support only incremental change: His  automatic IRA plan would require employers that don't currently offer a retirement plan to automatically enroll workers in an IRA. (They could opt out.)

But that proposal doesn't address the real causes of the crisis, according to many economists, who say do-it yourself  plans like 401(k)s and IRA burden investors with too much risk and fail to deliver reliable retirement income. Some recommend crafting a universal retirement savings plan instead that would spread risk and responsibility among workers, employers and the government.

Even many supporters of the current system urge broader reforms. Says Christian Weller of the Center for American Progress: "The three-legged stool of retirement — public pensions, employer pensions and individual savings — is still intact, but it does need to be strengthened." He suggests more automatic features individual retirement accounts that would make them look more like pensions, as well as offering incentives for workers to stay on the job longer.

Clearly, given the pace of change in Washington, any major reforms, if they ever happen, are a long way off. Meanwhile, would-be retirees will need to save as much as they can and work longer they planned. That doesn't bode well for the American retirement dream.

What do you think should be done to rescue the retirement?

Are you more insecure about retirement?

Feeling insecure about retirement? You're not alone. Americans' confidence in being able to enjoy a financially comfortable retirement has hit an all-time low, according to the Employee Benefit Research Institute's 19th annual Retirement Confidence Survey.

Only 13% of workers surveyed said they were "very confident" about having enough money to live comfortably through retirement, the lowest number since EBRI started asking the question in 1993. (The high was 27%, just two years ago in 2007.) And 44% of workers responded that they were "not too confident" or "not at all confident" about their retirement security.

Current retirees are feeling the burn, too: Their confidence in having a financially secure retirement reached a new low, with only 20% responding that they are very confident–down from 29% in 2008 and 41% in 2007.

Why the increase in pessimism? Surprise, surprise: Workers cited the economy, inflation and cost of living as primary factors in their loss of confidence. Job losses, pay cuts, loss in retirement savings and increased debt also contributed to the decline.

Other key survey findings:

• Workers expect to work longer: 28% said the age at which they expect to retire has changed in the past year, and 89% of them said they postponed retirement.
• More workers will keep working in retirement: 72% said they planned to work for pay during their retirement years (up from 66% in 2007).
• Basic expenses seem more daunting: Only 25% of workers said they felt very confident about having enough money to cover basic retirement expenses, down from 40% in 2007. Among retirees, only 25% felt very confident about being able to cover their health expenses.
• Workers are changing their financial life in response to their lack of confidence: 81% have reduced expenses, 43% are changing the way they invest, 38% are working more hours or taking on a second job, and 25% are seeking advice from a financial professional.

What do you think? Are you feeling more or less confident about your retirement prospects? Tell us in the comments below. And if you're like the 44% of workers who simply guessed at how much they will need for retirement, try the retirement calculators at CNNMoney.com to help you with your planning.

Get ready for higher mutual fund fees.

Morningstar reports that expense ratios will likely climb in 2009. As investors yanked money out of the market in the last year, fund asset levels declined. At the end of February, for example, mutual funds held $5.9 trillion, down from $8 trillion at the start of 2008, according to Morningstar. Since a fund's expense ratio reflects total fees divided by assets, it's not surprising that fees are on the rise.

It's just painful — and a dubious approach for winning back investors hit by losses of 50% or more.

Granted, expense ratios may climb by only a few basis points. But in a market where positive returns are scarce, slight increments are felt. If you own a fund where the expense ratio already was high, you may want to reconsider your position. In 2008, the average fee for a U.S. stock fund was 1.6%. For an international stock fund the average was 1.8%, and for a taxable bond fund, 1.3%, according to Morningstar.

Getting below the average can minimize the pain. Vanguard–yes, even this fee-conscious shop–is raising the expense ratio on some of its funds, including Intermediate-Term Tax-Exempt (ticker: VWITX), a MONEY 70 pick. The new fee is 0.20%, up from 0.15%. At that level, however, you're not giving up too much money. Let's say the fund manages a 5% return this year (hey, it's a hypothetical). On $10,000, the higher fees cost you only an additional $5.

–Carolyn Bigda

A market dip in the years before retirement can be scary, but bailing out of stocks isn't the answer. Here's how to make sure you're still on track.

Question: I am 61 and plan to retire in about eight months. Given the current market, do you think I should withdraw some or all of my 401(k) money and put it in a safe place that is covered by FDIC insurance? This is part of my retirement income. —Peggy Wagstaff, Marietta, Georgia

Answer: There’s no doubt that the older you are and the closer you are to retirement, the more frightening the current economic crisis is. After all, if you’re ready to retire or have already called it a career, you simply don’t have as much time to wait for stock prices – and your 401(k) account balance – to rebound.

If you’re drawing money from your retirement portfolio for income and your investments are dropping in value, the double-whammy of withdrawals and losses leaves you with less capital to participate in the market’s recovery, increasing the chances that you may run out of money later in retirement.

But moving your 401(k) stash and other retirement savings into safe options like CDs, a stable value fund or a money-market fund isn’t the right response.

What you really need to do is give yourself a more comprehensive retirement check-up that looks not just at your 401(k) investments but also helps you figure out what other moves you may need to make to assure a secure retirement down the road.

Here are three steps you can take to make that broader assessment.

Coolly review your investment strategy

Hunkering down in the security of conservative investments may be emotionally appealing. But unless you’ve got a huge nest egg, the yields you’ll earn on such options are just too low to provide adequate income and maintain your purchasing power in the face of inflation over a retirement that could easily last 30 or more years.

So while the stock market may be the last place you want to put any of your retirement money right now, the fact is that you still need the long-term growth that equities have historically provided. The key is to get that growth without being pummeled too badly during market downturns.

One reason so many pre-retirees are hurting so badly now is that they went into this crisis with far too much of their retirement savings in stocks. In recent testimony [www.ebri.org] before Congress, Employee Benefit Research Institute research director Jack Vanderhei noted that nearly four out of 10  401(k) participants in their mid-50s to mid-60s had 80% or more of their account invested in stocks in 2006.

Hey, I’m an optimist when it comes to the long-term outlook for stocks. But unless you’re holding a big cache of cash or bonds in some other account, having 80% or more of your 401(k) in equities is just way too aggressive for someone already retired or nearing retirement.

Reasonable people can disagree about what the exact blend of stocks and bonds should be, but for anyone on the verge of retiring or already in the early stages of retirement, something in the neighborhood of 55% stocks and 45% bonds is more appropriate. As you age, you should cut back your stock holdings even more, until you’re down to 20% to 30% in equities by the time you’re in your 80s.

Determine whether your planned retirement date still makes sense

The key question you must answer here: Given your 401(k)’s current value, can you still draw enough from your account to live comfortably over the next 30 or more years without running out of money before you run out of time?

The only real way to know is to crunch the numbers. You must figure out how much income you’ll need to live comfortably in retirement and then see if you can realistically expect to generate that amount from Social Security, any pensions you may have plus what you can safely draw from your 401(k) and other retirement accounts.

Any decent financial planner should be able to help you with this sort of analysis. You can also do it on your own by going to an online tool like the Retirement Income Calculator in the Investment Guidance and Tools section of T. Rowe Price’s site.

Originally designed for people who were already in retirement, this tool has been re-tooled, so to speak, so that you can also use it if you’re still in the pre-retirement stage.

Plot a course of action

If you’ll have enough coming in to cover your living expenses, great. You can stick to your scheduled retirement date.

But if you’re coming up short – and I suspect many people will, given the toll the market’s decline has taken on retirement  accounts – then you’ll have to make some changes.

One option might be to retire on schedule but work part-time in retirement. Or you might decide to work a couple of more years. That would not only allow you to accumulate a couple extra years of saving, it would also give your portfolio a chance to recover.

And there’s another advantage to working a few more years: a bigger Social Security check. Each year you delay taking benefits beyond age 62, you get "delayed retirement credits" that can boost your monthly check by about 8% for each year you postpone up to age 70. Your Social Security check might go up even more because the extra accumulated wages can increase your benefit. You can see how much more you might receive by working a few extra years by going to Social Security’s new Retirement Estimator .

It’s crucial that you give yourself this sort of pre-retirement check-up before you leave a job that’s providing a good paycheck and decent health benefits. Otherwise, you may find yourself having to go back into the workforce where, as an older worker, you may have a hard time duplicating the pay and benefits package of your old employer.

Finally, whenever you eventually decide to retire, be sure to check in every year or two with a planner or calculator to assure that you’re not going through your retirement savings too quickly.

Starting with a modest initial withdrawal of around 4% of your retirement portfolio’s balance and then increasing that amount for inflation each year generally gives you about a 90% chance that your savings will last at least 30 years. But if your 401(k)’s value takes a big hit early in retirement and you don’t adjust your withdrawals, those odds can plummet.

So if you retire into a slumping market like this one, you may want to cut back your spending a bit so that your savings well doesn’t run dry late in retirement. After all, what could be more disconcerting than to realize that you’re in good enough shape to go another 10 or 20 years in retirement but your portfolio’s only healthy enough to make it another five?

iReport.com: What's your dream retirement?

Question: I am currently contributing 15% of my salary to my 401(k). With the current crisis taking a toll on the stock market, would it be a good idea to reduce my contribution to 10% and place the additional 5% somewhere else? —Verona, Savannah, Georgia

Answer: Without a doubt, the last few weeks have ranked as the most tumultuous – and scariest – times that I’ve experienced in the more than 20 years I’ve been at Money magazine.

We’ve witnessed events that up to now had been almost unimaginable with the stock market fluctuating wildly up and down and governments around the globe taking stakes in or seizing control of major financial institutions in an attempt to unlock frozen credit markets. Yet, despite the extraordinary steps that have been taken, the questions of when we’ll hit bottom and how long a recovery will take still linger.

Given all this turmoil and uncertainty in the present, I can understand why you might be tempted to scale back a saving and investing plan that doesn’t have its payoff until sometime way off in the future.

But reducing your 401(k) contributions now would be a mistake for several reasons.

Keeping Uncle Sam at bay

To begin with, you would be giving up some lucrative tax benefits. You pay no income tax on the money you contribute to your 401(k), nor on the investment gains your contributions generate, until you begin making withdrawals in retirement.

That tax deferral is a huge advantage, which means you’re much more likely to end up with a larger nest egg by contributing to your 401(k) than by saving in a taxable account.

So foregoing those tax breaks alone – even on a portion of your savings – means you will almost certainly reduce the amount of money you’ll have available to you when you retire.

Building a bigger nest egg

Depending on your company’s policy on matching contributions, you may also be turning away the equivalent of free money if you shift funds outside your 401(k).

For example, if your employer kicks in 50 cents for each dollar you sock away, you’re effectively giving up an instant 50% return on your contribution. That’s a terrific deal at any time, but especially attractive today when losses have been the norm.

And let’s be honest, you’ve also got to ask yourself whether you’ll actually end up saving this 5% of salary you’re planning to divert from your 401(k). Without the convenience of a 401(k)’s automatic payroll deductions, good intentions to save can too often succumb to the temptation to spend. That’s an important consideration because when this crisis passes and the economy and markets recover – which they eventually will – you will still be counting on the balance in your 401(k) to finance a big part of your retirement.

Indeed, the additional debt that the U.S. government is taking on to deal with today’s financial crisis will place even greater strains on the federal budget in coming years, increasing the possibility of cutbacks in already stressed programs like Social Security and Medicare. Which means that more than ever before your security in retirement will likely depend on how successful you are in growing the size of your 401(k).

Saving for a rainy day

So while you’ll certainly want to make sure you’re investing your 401(k) money appropriately given current conditions now is not the time to cut back on your contributions.

With one possible exception.

We’ve already seen the unemployment rate climb from less than 5% earlier this year to just over 6% as of September. If economic conditions continue to deteriorate, companies may be forced to pare payrolls to cut costs, and the ranks of the unemployed could swell even more. So it’s especially important now that you have an emergency cushion of three to six months’ living expenses that you can tap should you lose your job.

This reserve should be tucked away in one or more highly secure stashes, such as federally insured bank accounts and short-term CDs or money-market funds run by large well-known fund companies.  (For an extra measure of safety, you can stick to money funds that participate in the Treasury Department’s money fund guarantee program.

If you don’t have such a cushion, you need to start building one pronto. Ideally, you would want to do this by tightening spending rather than contributing less to your 401(k). But if that’s not possible, you may have to resort to temporarily putting away less in your 401(k) or other retirement accounts.

I can’t stress enough, however, that such a move, if needed at all, should be temporary. Once you’ve created your emergency fund, be sure to bump your 401(k) contributions back to where they were before, if not a bit higher to make up for lost ground. To assure that the amount you’re setting aside will allow you to retire comfortably, you can check out our Retirement Planner.

That exception aside, don’t let anxiety about today’s financial crisis interfere with funding your 401(k). Otherwise, you may end up facing your own personal financial crisis when you’re ready to retire.