Time Heals Wounds

NEW YORK (Money Magazine) -- He's only 34, but Darin Knight admits he's already losing sleep over his retirement. He would like to stop working at age 55, but watching $18,000 in his 401(k) disappear over the past 12 months has left him uncertain and disillusioned.

"I just lost an entire year's worth of savings in equities, and it keeps going down," he says. "Yeah, it scares me to death."

Darin, who earns $110,000 a year as a marketing manager, and his wife Keri, 32, who just re-entered the work force as a part-time teacher, wonder if they've taken too many risks with their retirement portfolio (currently $218,000).

Darin always considered himself an aggressive investor. In his twenties he tried, unsuccessfully, to day-trade a few tech stocks. But he's starting to wonder whether betting so heavily on equities could be jeopardizing the future of his family (which includes daughters Julia, 5, and Lauren, 2).

What they should do now

Because they have so much time on their side, the Knights needn't be so worried, says Fred King, a financial planner with the H Group in Portland, Ore.

"You're not really touching this money for 20 years, so you can withstand the ups and downs of the market," he tells them. In fact, they could withstand an additional 25% drop and still be on track to meet their goals, he says.

What's more, Darin and Keri are doing a terrific job of saving, socking away 12% of their income toward retirement.

Keri's parttime job pays just $12,000 a year - but once Lauren starts school, Keri will go full time, raising her earnings to around $50,000.

Even if the Knights leave their saving rate as is, that raise will boost the amount they stash away, putting them on track for a comfortable retirement.

And if because of some unforeseen market mayhem they turn 55 and still don't have enough to retire? They can always push off their retirement date by a few years, King says.

As for stocks, King is adamant: It's too risky for this young couple to give up on them entirely. So he recommends they reduce their equity stake from 93% to 75% of their portfolio - for now. But as they regain some comfort with stocks, they should consider boosting that back up.

"We feel better having this analysis in hand," says Darin, adding that over time, he thinks he and Keri would be comfortable keeping around 80% of their money in stocks. That's still conservative for a couple in their early thirties. But maybe it will help Darin get some shut-eye.