How to Salvage Your Retirement

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If you're in retirement, or nearing it, the recent global market crash probably has your full and worried attention. Even if you you've got enough in savings to be comfortable in the near term, your longer-term prospects may suddenly look far grimmer than they did just a few weeks ago.

At minimum, if you're like most of us, the stock portion of your portfolio has taken a significant hit. Even if your plans don't call for you to draw on that money for several years, seeing your net worth cut significantly is never cheering.

But all hope is not lost, even now. While there's no magic way to restore your portfolio's value, there are things you can do to make the most of what you have today -- and food for thought to help you sleep more soundly as the crisis continues to unfold.

What to do now
A few days ago, I put together a to-do list for retirement investors. While that article was aimed more at younger retirement investors -- those with a decade or more to go until they retired -- the action items I outlined there are good ideas for anyone who has money in stocks they won't need for several years. But for those in or near retirement, there's more to think about.

Perspective is key
"Don't panic" is still my first and most important recommendation for everyone right now. For those in or near retirement, the ability to maintain perspective is related, and equally important. By "perspective," I mean that a long-term view is especially important even if you think your investment horizon is relatively short. Yesterday's low closing prices are not a permanent new reality. The recession will not last forever.

Yes, times are tough. In the next few months, some things could get worse. But if you've been saving for retirement, you'll get through it, and things will get better. The low balances you see when you log in to your retirement accounts today will be higher in the future. Take a deep breath, and keep that all in mind.

Secure your near-term needs
If you're in retirement, you should have a year's worth of money in a money market fund (yes, they're safe), CDs, or other liquid, safe, interest-bearing instruments. Take a look at that right now, and remind yourself that you're safe for a year no matter what happens. If you don't have a year's worth of cash socked away, take care of that soon by selling enough of your other investments (start with the lowest-risk short-term bonds you have) to cover your needs.

You diversified for a reason
Most folks in or near retirement own a mix of stocks and bonds, and hopefully you're among them. Sure, your stocks are way down -- but your bonds or bond funds are probably looking pretty good by comparison, aren't they? That's why you own them. That's why you diversified. Remind yourself that it's OK that your stocks are down -- your actions anticipated the possibility, even if you didn't really give it much thought until recently. The money you have in non-stock investments gives you something to live on while you wait for your stocks to recover.

Reposition your stock holdings
We've had a few weeks of panic selling. Just about everything out there is relatively cheap right now. It's a good time to build the stock portfolio you want by selling what you have. Move into recession-resistant sectors like these:

• Mass-market consumer stocks like Wal-Mart (NYSE: WMT), Kimberly Clark (NYSE: KMB), or Procter & Gamble (NYSE: PG).
• Pharmaceutical companies like GlaxoSmithKline (NYSE: GSK), Schering-Plough (NYSE: SGP), and Johnson & Johnson (NYSE: JNJ).
• Services companies like Automatic Data Processing (NYSE: ADP).

There are a lot of possibilities, and an additional advantage of big established companies like these is the likelihood of dividends. Reinvesting dividends gives you growth no matter what the market does, helping you build your portfolio back up even while prices are low.

This too shall pass
If there's one thing I want you to take away from this, it's that the current market and economic conditions are temporary. That's always true, but it's especially important to remember now. Don't get caught up in the doom and gloom -- or misplaced optimism -- of TV talking heads or market pundits.

At the same time, do get expert help if you think you need it. Consider working with a fee-based investment advisor -- or as a first step, give the Fool's Rule Your Retirement service a try. The archives are full of articles that go into all aspects of retirement, and there's a friendly members-only message board -- staffed by professional retirement experts -- to help you work through the specifics of your own situation. Best of all, it's much cheaper than hiring an advisor, and you can try it completely free for 30 days, with no obligation.