How Should I Manage My Retirement Plan?
Employer-sponsored retirement plans are more valuable than ever. The money in these retirement plans grows tax deferred until it is withdrawn at retirement. Contributions to a 401(k) plan actually reduce your taxable income.

But figuring out how to manage the assets in your retirement plan can be confusing, particularly in times of financial uncertainty.

Conventional wisdom says if you have several years until retirement, you should put the majority of your holdings in stocks. Stocks have historically outperformed other investments over the long term. That has made stocks attractive for staying ahead of inflation. Of course, past performance does not guarantee future results.

The stock market has been extremely volatile lately. Is it a safe place for your retirement money? Or should you shift more into a money market fund offering a stable but lower return?

And will the instability in the markets affect the investments that the sponsoring insurance company uses to fund its guaranteed interest contract?

If you’re participating in an employer-sponsored retirement plan, you probably have the option of shifting the money in your plan from one fund to another. You can reallocate your retirement savings to reflect the changes you see in the marketplace. Here are a few guidelines to help you make this important decision.

Consider Keeping a Portion in Stocks
In spite of recent turmoil, the stock market may still be an appropriate place for your investment dollars — particularly over the long term. Retirement planning is a long-term proposition.

Since most retirement plans are funded by automatic payroll deductions, they achieve a concept known as dollar cost averaging. Dollar cost averaging can take some of the sting out of a descending market.

Dollar cost averaging does not ensure a profit or prevent a loss. Such plans involve continuous investments in securities regardless of the fluctuating prices of such securities. You should consider your financial ability to continue making purchases through periods of low price levels. Dollar cost averaging can be an effective way for investors to accumulate shares to help meet long-term goals.

Diversify
Diversification is a basic principle of investing. Spreading your holdings among several different investments (e.g., stocks, bonds, etc.) lessens your potential loss in any one investment.

Do the same for the assets in your retirement plan.

Keep in mind, however, that diversification does not guarantee against loss; it is a method used to manage risk.

Find Out About the Guaranteed Interest Contract
A guaranteed interest contract offers a set rate of return for a specific period of time, and it is typically backed by an insurance company. Generally, these contracts are very safe, but they still depend on the security of the company that issues them.

If you’re worried, take a look at that company’s rating. The four main insurance company rating agencies are A.M. Best, Moody’s, Standard & Poor’s, and Duff & Phelps. A.M. Best ratings are based on financial conditions and operating performance; Moody’s, Standard & Poor’s, and Duff & Phelps ratings are based on claims-paying ability. You should be able to find copies of these guides at your local library.

Periodically Review Your Plan’s Performance
You are likely to have the chance to shift assets from one fund to another. Use these opportunities to review your plan’s performance. The markets change. You may want to adjust your investments based on your particular situation.