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Retirement: How to Tweak Your Retirement Plan

By Mary Beth Franklin, Source: Kiplinger's Money Power

When it comes to saving for retirement, Eric and Andrea Andrews are of one mind -- and have one investment plan. Married for 13 years, they have both worked for Sprint in Kansas City for nearly a decade. Eric, 38, is a corporate lawyer, and Andrea, 37, is a staff consultant. Heeding advice from Eric's dad to save early and often, each of them contributes 10 percent of gross salary to Sprint's 401(k) plan. They'd like to do more, but they are also saving for college for their two young daughters, Molly, 6, and Eliza, 3.

Although the Andrewses have a diversified investment menu through their 401(k) plan, they wanted more guidance than their employer's plan offered. "I felt as if I were stumbling around in the dark," says Eric. So about five years ago, they signed up with Smart401k, a firm that helps employees decide how to choose and manage the investments in their employer-sponsored retirement plans. Smart401k reviewed their savings goals, risk tolerance and investment choices, and made recommendations on how to invest.

Because the Andrewses work for the same company and share the same investment choices and retirement goals, they have one account with Smart401k (for which they pay $200 a year), but each of them follows the investment recommendations. "It's worth the cost," says Eric, particularly during the market meltdown, when the firm urged investors to stay the course.

Although the Andrewses lost nearly 40 percent of their retirement savings in 2008, their balances bounced back to precrash levels by the end of 2009, thanks to the market rebound and their continued contributions. With the extra mutual fund shares they scooped up at bargain prices, and with decades to go before retirement, they are well positioned for future gains.

"One of the benefits of the downturn is that it's a great opportunity to assess where you are and what changes you need to make," says Scott Holsopple, president of Smart401k. Rebalancing your investments periodically to get back to your original asset mix forces you to sell some winners and increase your stakes in underperforming investments -- a great way to follow investing's golden rule of buying low and selling high.

The Andrewses are comfortable with their retirement planning. But to hedge their bets against potential future tax hikes, they each split their 401(k) contributions equally between their traditional 401(k) and a Roth 401(k) option. The traditional account reduces their tax bill now, and their Roth contributions will guarantee that a portion of their future retirement income will be tax-free.

(Mary Beth Franklin is a senior editor at Kiplinger's Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com. And for more on this and similar money topics, visit Kiplinger.com.)