Some of these sentiments may sound familiar.

“I’m panic stricken. The company is in trouble. The market’s falling ...”

“It’s so scary ...”

“Wow! What happened today? I want all my money ...”

As the economic downturn deepened, lots of workers—especially those closest to retirement—panicked and snatched their money out of the stock market.

“We can’t stand it any more,” I heard from one friend only weeks before the market bottomed out. She and her husband joined the tide of investors turning to safe but low-earning alternatives such as money market accounts.

Unfortunately, according to Ken Fine and Wei-Yin Hu of the retirement investment advice firm Financial Engines, your instincts often are not right. Many investors fled the market when prices were at or near record lows.

According to Hewitt Associates 401(k) Index, a total of $6.3 billion was moved out of stocks and stock funds in 2008, most of it put into conservative investments equivalent to cash, which protect principal but don’t promise much in the way of earnings.

Problem with fleeing the market

“We saw a lot of people move to all cash,” Hu said. “It’s a natural response, but, on average, it does more harm.”

The problem with fleeing the stock market is twofold: The first is the drawback of selling low. The second is that, once you’re out of the stock market, you miss the good days once the recovery begins.

Stock prices increased by nearly 40 percent after what may have been the bottom of the market in early March. There’s been some give and take in prices since then, but if you stayed in the market instead of fleeing, you’re probably better off than those who sold at the low.

Consider this scenario: Someone who invested $1,000 in a Dow Jones industrial average index fund when the Dow hit its high point of 14,164 in October 2007 sells it all in March 2009, when the index reached its recent low of 6,547 last March. That investor would have gotten only $462 of his original stake back. If he had let it ride, his investment would already have recovered to a value of $582, based on the Dow’s value in the first week of July.

Recovering from losses

Financial Engines looked at the impact of moving investments to cash equivalents—what it would mean for an investor’s ability to recover from losses and get back on track for retirement. The results weren’t pretty.

Financial Engines found that it would take at least an extra year on the job for investors who stayed in age-appropriate diversified portfolios to recover from the market declines of 2008. For investors who jumped to cash-equivalent portfolios, it would take up to four years of delayed retirement to get back on track.

The setbacks for those who moved to cash point to a much larger problem with our current system of retirement finance—its dependence on individuals to find the right investments and set aside enough money. Most of us, and this is certainly true of me, are not financial experts. We don’t have the expertise needed to decide how to allocate our investments. Sure, we understand that we are supposed to diversify our portfolios. We just don’t know what that really means.

When I first started writing this column several years ago, I was pretty confident that my investments were diversified because I had invested in several different stock mutual funds. It was only when I thought to look at their top 10 investments that I discovered a lot of overlap. I was investing in several different funds, but they held the same stocks.

Protecting average investors

Over the years, folks who support 401(k)s and other retirement savings plans have turned their thoughts to how to protect individuals with little knowledge of investment strategy.

Some experts advise using your age to limit your stock holdings—if you’re 60, keep 60 percent of your money in relatively safe investments such as bonds and cash. Another manifestation of this concern was target-date funds, which were supposed to be designed to take more risks when investors were young and could afford it, and to become more conservative as investors approached retirement.

But target-date funds are no guarantee that the money will actually be enough to fund retirement at the targeted date, and their strategies are wildly divergent—some retain a lot more risk than others as participants approach retirement.

Still, they are popular. A 2008 Hewitt Associates study found that 31 percent of employers who did not currently offer target-date plans considered it “very likely” that they would add them.

Another approach was contained in the Pension Protection Act of 2006, which made it easier for employers to offer third-party investment advice to participants in savings plans. The same Hewitt Associates study found that 38 percent of companies already offer online, third-party investment advisory services, and 10 percent of employers were likely to add online advice.

A retirement checkup

That’s the kind of session Financial Engines began offering this spring with a “retirement checkup,” a phone counseling session provided by 110 Fortune 500 companies to employees. In it, the counselor goes over the participant’s savings and investments and anticipated retirement income.

About 70 percent of those who have had the counseling, which is designed for people 50 and older, have changed their investments as a result, according to the firm. Nearly half changed their projected retirement age from 65 to 66, and 22 percent increased their savings rate.

What can you do to make sure you are on track for retirement?

•  First, check to see whether your employer is providing third-party financial advice for your savings plan, and, if it’s available, take advantage of it.

•  Consider delaying retirement or increasing your savings. Delaying retirement is a powerful tool for improving financial security. It gives you more time to save, and it means a shorter retirement to finance.

•  Remember when you’re staring at that 401(k) account and fretting about your losses that a 40 percent loss in the account doesn’t mean a 40 percent reduction in retirement income. Although fewer and fewer or us can also count on a traditional pension, almost all of us can count on Social Security.

•  Consider taking your Social Security benefits later. Once you are fully eligible, your payments increase by about 8 percent for each year that you delay taking payments, up to age 70.

Martha M. Hamilton, formerly with the Washington Post, writes a regular column, Your Financial Future, for AARP Bulletin Today.