Rebuild retirement savings with 401(k) and smart use of stocks

— -- The bear market and the economic slump have caused most 401(k) retirement savings to have a major meltdown this year.

Not only has the financial mess caused retirement investments to plummet in value, it also has caused a growing number of employers to suspend their 401(k) company match.

But as gloomy as it all seems, you shouldn't spend the winter hiding under your blankets. After you put away your holiday decorations, it's a good time to regroup and learn from this year's pitfalls and mistakes.

Here are some tips for rebuilding your retirement savings in 2009:

Make sure you can sleep at night

As difficult as the year was, you may have learned some important things about yourself. You may be far less willing to take risks than you think.

"We've been through one of the most rapid and extreme bear markets in history," says Stephen Utkus, principal at Vanguard's Center for Retirement Research. "And if that wasn't a test of your risk tolerance, I don't know what would be."

If you're still comfortable with your asset allocation, then your risk and return are in a good balance. But if you've lost much sleep this year, you know it's time to reduce your risk and adjust your investment priorities.

Don't panic

After the worst financial crisis since the 1930s, you need to start 2009 by making a candid assessment of your retirement plan, Utkus says. If that means investing less in stocks, fine. Just be aware that you may have to increase your savings over the long term to compensate for the lower returns you'll get from bank CDs and money market funds.

If you shifted money in a panic, however, you might want to reconsider. So far this year, 401(k) trading activity has risen to 6%.

"It's only 6%, but it's very high, relative to other years," says Pamela Hess, director of retirement research for Hewitt Associates. "And there has been a lot of emotional selling."

Not surprisingly, most have moved their money into stable value funds and money market mutual funds. That may seem safe. But if you're planning to get back into stocks, don't think you'll be able to time the market. Most people simply sell low and buy higher.