by David Pitt — Aug. 28, 2008 10:31 AM

The Associated Press

Making decision about retirement savings can be complicated. Many workers may see recent drops in the value of their employer-sponsored 401(k) programs and question whether they should be making changes.

Following are some answers to common questions about 401(k) programs and saving for retirement.

Q: My employer matches 50 cents for every dollar I contribute up to 6 percent of what I put into my 401(k), but I am putting in 8 percent. Is there a better use for that additional 2 percent such as a Roth IRA?

A: It depends on whether you want an immediate tax break, or a tax break in retirement, said Chad Terry, director of retirement solutions at Principal Financial Group, a provider of retirement and investment services.

Money in your 401(k) plan is contributed before taxes, which helps reduce your taxable income now. It’s growing tax-free but you will pay taxes when you take it out in retirement. Money contributed to a Roth IRA is put in after taxes. The earnings on the account and withdrawals in retirement are tax free if you wait until 59 1/2 to take withdrawals, and the money has been in the account for at least five years.

A Roth IRA is generally most appropriate for people who will be paying more taxes in retirement than they are now, which some advisers say is not that unusual. For example, many retirees could end up paying more taxes as they lose their home mortgage deduction when they pay off their home, and they lose the tax benefit of setting aside money in a 401(k). What’s more, at 70 1/2 they are required to start taking 401(k) distributions, which are declared as income and, when combined with other income, could push them into a higher tax bracket.

apps.finra.org/investor-Information/Calculators/1/RetirementC alc.aspx

FINRA is the largest non-governmental regulator for all securities firms doing business in the United States.

Q: With the recent downturn in the stock market and the resulting dip in my 401(k), I’m telling myself I haven’t really lost anything and I should just leave the money where it is to be poised for a rebound. Am I kidding myself or should I consider some reallocation/withdrawal of funds?

A: Your investment strategy should remain consistent based on your risk tolerance, savings goals and length of time to retirement.

Even though it may be difficult not to react to the market, remember that saving for retirement is a marathon, not a dash, Terry said. History shows that the pain of a down market doesn’t last forever. Losses from market declines are merely paper losses until the asset is actually sold.

Withdrawal from a 401(k) prior to age 59 1/2 will make the paper investment loss real, and result in a 10 percent penalty on top of the taxes that must be paid.

Yet there are times when it makes sense to capture a capital loss, usually when an investor wants to offset short-term capital gains.

A recent study released by Putnam Investments, a Boston-based money management firm, indicates investing for the long term makes sense because bull markets historically last much longer than bear markets.

The research measures each bull and bear market as a period of at least four consecutive months of continuous gain or decline, as measured by the S&P 500. It found that over the last 60 years, there have been 12 bear markets, lasting an average of 14 months and declining a total of 22.4 percent before recovering.

By contrast, the 12 bull markets since 1948 have lasted an average of 45 months, each growing an average of 123.9 percent.

The study found that a $10,000 investment in the S&P 500 in 1988 would have grown to $72,932 by June 30, 2008, despite the 43 percent downturn of 2000-2002.

Whether the current bear market has reached a bottom or not is unclear, but one thing we know from this study is that market gains have more than made up for losses for those investors who stayed invested over the long term, said Elaine Sullivan, head of retail marketing. The market has always recovered but by trying to predict the best time to buy and sell, investors may miss the market’s biggest gains.

Q: What is the appropriate amount of investment risk for someone approaching retirement or beginning retirement?

A: Investment risk differs for people based on their tolerance for volatility, level of savings, health, and income needs. One should review investment risk and asset allocation annually.

A detailed investment strategy review should be done within three to five years of retirement.

Most people want to cut back risk as they near retirement but a strategy that places savings in a guaranteed account may not result in the further growth potential that’s needed to sustain the account for the rest of your life.

With increasing life expectancies, some retirees live 30 years beyond retirement. Investment risk should be considered along with other factors including how long you expect to live, the purchasing power of your money in retirement and interest rates need to be considered. There are several asset allocation calculators online that can help you begin to think about mapping out an appropriate investment plan.