This is a fairly common problem. There are a couple of factors here. If the money in your Thrift Savings is your only potential retirement income, you would probably have difficulty retiring even without losing the $27,000.

Given that you are so close to retirement, you likely should reallocate to the more conservative options in the Thrift Savings plan.

Be sure to ask yourself this question: “Based on what I know, do I expect that my current investments will be in a worse state in two years than they are now?” If yes, then the money market option would make a lot of sense. If no, then maybe that means you’ll have recovered some of that loss. Granted, we don’t really know for sure. I have been hearing people talk about the current economic situation lasting 3-5 years. However, I have recently heard talk that the S&P 500 could be back up 20% from where it is now in a year.

If it is an option, I would lean towards trying to leave your Thrift Savings money alone. Assuming you have other potential retirement income, such as social security, you can live off of that while you give this other bit of money some time to recover. In reality the $50,000 (or even the previous $77,000) wouldn’t go very far whether you have other retirement income or not. With that in mind and considering that the difference isn’t real big, you may just want to do whichever one causes you the least stress. Good luck!

@Jeff Rose provides a good “generic” answer (no offense intended Jeff), but with the amount of information you provide nobody can give you a “really good” answer.

Here is a sampling of the additional you’d need to answer:
- What is your expectation for retired life? How long do you figure you’ll live? Are you willing or able to be “semi-retired”? Are you planning to keep your current home, do you want to move closer to the kids? If so, do you rent or sell the home?
- How much money do you figure you need? How much do you currently have (now that you have 38% less)?
- Do you have other non-work, non-403B income available now? In 12-15 years? Does your spouse?
- What is your tolerance for working beyond those 12-15 years?
- How is your current cash flow? Can you invest money elsewhere, do you have emergency funds saved up? Do you have adequate insurance coverages for health, home and auto?
- How is your health? How will it be at retirement? How is it influencing your ability to continue working past 15 years? How are your life’s stress levels?
- Have you ever taken a sabbatical (or equivalent)? Would 6 months on the beach tomorrow be better or worse than a year on the beach in 2025?

If you get where I’m coming from @Peg. “Retirement” is a phase of life like “childhood” or “university” or “raise family”. Just like everyone has a different concept of “childhood”, everyone has a different concept of “retirement”. Any specific advice will be limited by the advisor’s vision of “retirement”.

So let’s flip this around.

In general, during your “retirement” phase, your goal is to work less (or not at all). For most people, their primary stream of income has been work. At retirement, you’re shifting gears and your primary stream is going to be the 403b investments. Most people don’t like lots of risk, they want a consistent income. The current (emphasize “current”) best sources for consistent income comes from interest-bearing securities and dividend-bearing securities.

Interest-bearing: Bonds, T-Bills, Money Market, CDs, etc.
Dividend-bearing: certain Stocks, rental homes (or other units, some assembly required)

However, over the long-term it’s unlikely that these vehicles will significantly out-perform inflation, so you’ll have to manage the amount of money generated and consumed. And if you’re invested in Dividend-bearing securities, you will have to manage/watch those dividends. It’s a weird game in that you mostly don’t care about stock prices (b/c you generally don’t want to sell, but you do care about dividend-to-stock price ratios and such).

So if your goal is a retirement with stable income, then you likely want to start making the shift towards “Dividends and Interest”. But please be aware of my caveat, you probably won’t beat inflation by very much with “Dividends and Interest”. That means that you won’t actually “grow” your money very much with these investments, you’ll just defend it.

But, it also might be a good to review the actual mutual funds you own. You will want to look at expense ratios, their holdings (did they own Freddie Mac, Lehman Brothers, AIG, etc?), their peer ranking group (how did they compare to all the other funds in their class?). Finding some of these answers may help to see the likelihood of recovering what you’ve lost. If you don’t like what you find explore your options for switching. I’ve seen plenty of crummy 403b’s in my time.

FYI.The 403b is getting a major overhaul which makes things difficult to switch until the new year.

Neither of you is “right”.

What is “right”? Who has the most money in 2009, 2015, 2030? Are you asking for correctness in terms of basic stock market “game strategy”? What are your risk tolerances?

In fact, your assumption that there is such a thing as “rightness” here is the fundamental flaw of your question. Jeff Rose is indeed correct, you may both be right. Anyone promising otherwise is just selling snake oil.

Could you please settle a argument for me. My friend and I are both in our mid 40’s. Like many, i have suffered a paper loss of more than $100k on my 401k. He is a “nervous nellie” type and is changing his 401k allocation to mostly cash. I tell him to just ride it out and that he is actually contributing to the market decline by moving stocks to cash. He says I’m crazy. Who is right?

Thank you

Unfortuantely, you’re frustration is shared by many. In your comment you had mentioned “government” bonds which depending on the terminology of the prospesctus could include the household favorites of uncle Freddie and aunt Fannie. Since they were supposed to be “implicably backed by the government” your principal was supposed to be secure. As your bond fund has indicated, this is not so. There may be others powers at work here. But my suspicion hints at at some of the previously mentioned.

If I think I am understanding your question correctly, you are asking about what happens if Morgan Stanley fails, how do you redeem your monies?

First thing to consider is the FDIC limits. (please refer to fdic.gov). Although, the FDIC just increased their coverage, for IRA accounts it is still $250,000 per owner per IRA. In your case, with the information I have, you have currently $150k without coverage. Now, I am aware that many of the large investment firms have a way of having a network of banks that will get you more coverage, so you may be in the clear. You would have to do some further inquiry to verify.

If your CD’s were to fail, the FDIC will step in and make you whole. It is a bit of an inconvenience, but with a litlle patience, you will receive your money back in full. Hope that helps!

That’s a valid fear, but the purpose of a 401k is not to buffer against short-term unemployment. For this, you should have a so-called “emergency fund” or “emergency living expenses”. The typical suggestion is to maintain 3 to 9 months of base living expenses in an interest-bearing, easily accessible account.

If you’ve been pumping up your 401k but don’t have a sufficient “emergency fund”, it may be time to reallocate your savings mix.