The financial turmoil that is wreaking havoc on global economies is likely to force many people to examine their relationship with money, some psychologists say. According to a nationwide report released last week by the American Psychological Association (APA), as many as 80 percent of Americans are stressed about their personal finances and the economy.

Nearly 7,000 Americans responded to the survey between April and September of this year. Within five months, anxiety about the economy rose from 66 percent to 80 percent. Even before this month's dire news, the APA in June found that 75 percent of more than 2,500 adults said money was the No. 1 source of stress in their lives.

Meanwhile, Americans' confidence in their ability to afford a comfortable retirement has dropped to its lowest level in seven years, according to the 18th annual Retirement Confidence Survey (RCS) by the Employment Benefit Research Institute (EBRI). Decreases in confidence occurred across all age groups and income levels but were particularly acute among younger workers and those with lower income.

In the past 15 months alone, Americans' retirement plans have already lost as much as 20 percent of their value, or $2 trillion. (Source: The Associated Press)

The current market turmoil adds to an already difficult retirement savings picture for Americans, who are increasingly shouldering the burden of managing and funding their own retirement savings plans as firms eliminate traditional pensions.

A study from AARP this month found that "if the economy does not improve significantly, over six in 10 workers age 45 and older say it is likely they will spend less in retirement (69 percent) as well as delay retirement and work longer (65 percent)." Moreover, because of the economic downturn, one in five workers 45 and older has already stopped putting money into a 401(k), IRA or other retirement savings account during the past year.

So what can you do to protect yourself while the economy goes from bad to worse? It depends on your age and what stage you are at in your working life.

Those Already Retired
Current retirees should be focusing on not outliving their retirement nest egg. "If you're living on fixed pension income and Social Security, you don't have to worry; you're lucky — and unusual. If you're living on investment income, you have no choice but to dial back your withdrawals," an analyst at T. Rowe Price recently told Newsweek. Reduce expenses and funnel the savings into your nest egg, the U.S. Dept. of Labor's Employee Benefits Security Administration (EBSA) recommends.

"Decrease the amount of money you withdraw from your nest egg," SmartMoney.com suggests, and "keep distributions at the same level each year until the market recovers, instead of increasing them for inflation."

Those About to Retire
For those just around the corner from retirement, continue to invest aggressively in a 401(k) and other retirement accounts. The EBSA suggests putting away "at least 20 percent of your income." Aim for higher returns; don't invest in anything you are uncomfortable with, but see if you can squeeze out better returns.

Delay dipping into Social Security; benefits should be higher when you start taking them. Says Newsweek: "Every extra year of work and 401(k) feeding can increase retirement income by 7 percent, and delaying the start of your Social Security benefits can push that up, too."

Unfortunately, recent losses sustained on 401(k)s and IRAs are "so severe that anyone planning to retire over the next five years should reconsider leaving their job," SmartMoney.com says. "You may not need to work full time beyond your planned retirement age," the EBSA acknowledges, but consider a part-time job doing something you enjoy.

Those Gradually Approaching Retirement
"Forty- and fifty-something's who've been saving for retirement for years now, should ... increase their retirement contributions," SmartMoney.com suggests. The purpose is to "counteract losses in your portfolio."

Workers in this age group don't have as many years to recover as someone in his or her 20s or 30s, so they'll "need to add new money" to their 401(k), SmartMoney adds. "If you're already maxing out a 401(k), now's also the time to start contributing to an IRA or Roth IRA," SmartMoney notes for those in their 40s or 50s.

For those in their 30s and 40s, Newsweek recommends they "keep making those 401(k) contributions," and use the current economic turbulence to re-balance investments to have "a mix of domestic and foreign stocks and bonds, small and large companies and a variety of sectors."

Those Just Starting On Their Financial Path
Those in their 20s are in a position to cash in on the crisis — and they have time on their side. "Your money will have decades to enjoy tax-deferred compounded growth. And although this may feel like a risky time to keep contributing to a 401(k) or IRA, it's actually a great buying opportunity," Bill Losey, a financial planner and author of Retire in a Weekend, tells SmartMoney.com. Diversification may not be working right now, but "this strategy will protect you" over a long period of time, a financial adviser tells Newsweek. "You've got decades to recover from the current turmoil."

In addition to your workplace 401(k), stash away as much as you can afford (up to $5,000 this year) into a Roth IRA, suggests Newsweek, as "that money will accumulate tax-free until you need it for retirement."

Of course, each person's priorities and financial accounts are different, so approaches to retirement preparation will vary. But at least one approach is universal to all who hope to someday retire: Start saving for it now. Start small, if necessary, as even small amounts can make a big difference given enough time and the right investments. Save regularly, and make saving a habit. But also be realistic about investment returns.

Do the research and figure out what's best for you and yours.

Earlier: Relax into Retirement

Resources

Annual Stress in America Survey Shows Increasing Stress Takes Toll on Physical and Emotional Health
American Psychological Association, Oct. 7, 2008

How to Protect Yourself
by Linda Stern
Newsweek, Oct. 6, 2008

Protecting Your Retirement Savings in Volatile Times
by Stacey L. Bradford
SmartMoney.com, Oct. 10, 2008

Retirement Accounts Have Lost $2 Trillion So Far
by Julie Hirschfeld Davis
The Associated Press, Oct. 8, 2008

Are Your Retirement Accounts Safe?
by Ellen Hoffman
BusinessWeek, Sept. 10, 2008

Safeguard Your Retirement in Hard Times
by Ellen Hoffman
BusinessWeek, May 2, 2008

Top 10 Ways to Prepare for Retirement
Employee Benefits Security Administration

Employee Benefits in the United States
Bureau of Labor Statistics, Aug. 7, 2008

Savings Fitness: A Guide to Your Money and Your Financial Future
U.S. Dept. of Labor, Employee Benefits Security Administration, August 2007

Retirement Tips for Individuals
Internal Revenue Service

18th Annual Retirement Confidence Survey
Employee Benefit Research Institute, April 2008

2008 RCS Fact Sheet: Saving for Retirement in America
Employee Benefit Research Institute, 2008

Retirement Security or Insecurity? The Experience of Workers Aged 45 and Older
by Colette Thayer, Ph.D., AARP Knowledge Management
AARP, October 2008

National Compensation Survey: Employee Benefits in the United States
U.S. Dept. of Labor, Bureau of Labor Statistics, September 2008

6 Steps to Six-Figure Savings
Consumer Federation of America

How to Make Recession Proof a Retirement Life Style
by Bill Herrfeldt
eHow.com