Saving at Work Through a 401(k) Plan

Find out if your employer offers a 401(k) plan or other such defined contribution retirement plan. If you aren’t already enrolled, do so immediately.

1. Participate in Workplace Retirement Plans

Find out if your employer offers a 401(k) plan or other such defined contribution retirement plan. If you aren’t already enrolled, do so immediately.

If you are just getting started in your career, don’t make the mistake of thinking you’ll have plenty of time later to fund your retirement. Starting early is one of the best things you can do to ensure that you set aside enough to fund a comfortable retirement.

Consider this example: an employee who starts setting aside just $100 a month when they are 21 will have over $191,000 saved when they retire at age 65, assuming they earn five percent a year on their investments. In contrast, a worker who waits until age 40 to begin would have to save nearly $350 a month to achieve the same result.

Don’t let the prospect of having to decide how to invest your retirement money scare you off. Just participating is more important than selecting the perfect investments. Also, many plans today include “lifestyle” mutual funds, with investment styles designed to match the age and expected retirement date of participants. This is a simple option you can use if you don’t feel up to the job of designing your own portfolio.

2. Take Advantage of Any Matching Contributions

Many employers offer to match employee contributions, up to a certain percentage of the employee’s salary. If your company matches contributions, and you can afford to take advantage of the full match, do so. Life doesn’t offer many opportunities to get a guaranteed 100 percent return on your investment, but this is one of them.

3. Gradually Increase Your Contributions

Remember, when you are getting started, no contribution is too small. Even if you only set aside one percent of your salary in a retirement plan, that’s an important start. But over the long term, you’ll almost certainly need to do more.

One way to build your savings is to increase the amount of your salary that you save each year by one percentage point. If you can time the increase to coincide with an annual raise, you probably won’t even notice the change.

Some plans let you choose to make automatic annual increases in your contributions, up to a certain percentage set by you. If your plan offers this option, consider taking advantage of it. That way, you won’t have to remember to make the change each year.

4. Rebalance Your Investments

When you enroll in a retirement plan, you choose how much of your money will go into different asset classes, such as stock mutual funds, bond funds, and cash accounts. Different investments will perform well in different years, however, throwing the asset allocation of your account out of balance over time. It is important to go back periodically and move money between funds to restore your original asset allocation (assuming that allocation is still right for you). Some plans offer the option of automatic rebalancing, which saves you the hassle.

5. Don’t Bail Out Too Soon

Along with starting early, sticking with it is key to retirement saving success. One of the mistakes many people make is to cash out of their retirement accounts when they change jobs. Research by the Employee Benefit Research Institute shows that it typically takes 13 years or more of contributions to an account before you begin to reach a level of savings that is enough to fund a number of years of retirement as a supplement to Social Security. So be sure to roll over your account if you change jobs. And don’t under-estimate the amount you need to retire. Take the earlier example. Most experts would not consider even the $191,000 saved through 44 years of regular $100 monthly contributions to be enough to retire on in comfort.

If you are approaching your planned retirement age and your savings fall short of what you need, keep working. After all, it is better to keep working than to run out of money in mid-retirement. Besides, every added year you work is one more year of saving and one less year of living off your savings – a double bonus. For additional information, see the American Savings Education Council Web site at

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