When 401k plans first started to replace defined-benefit pensions, they showed great promise. Many industry observers and corporate leaders hoped that 401k plans would help their workers build wealth and enjoy comfortable post-work lives, but for many it has not worked out that way.
One problem with 401k plans is that they shift the risk of underperformance from the employer to the individual worker. While defined-benefit pension plans provided a set payout each month, getting a 401k plan to generate a steady income is much harder.
Another problem with 401k plans is that many employees fail to take full advantage of the opportunities they provide. When used properly, a 401k plan can indeed pave the way to a richer retirement. The key is to make the most of the program you have available.
If you are not yet participating in your 401k plan, the H.R. office should be your first stop tomorrow morning. It is never too early to start investing in your future, and you need to start putting money in your 401k plan as soon as you can.
The sooner you start saving for retirement, the less you may need to save. If you start saving early in your career, you may need to invest less than half as much as you would if you waited a decade longer. It all has to do with compounding; the money you earn in the early years keeps building in every subsequent year, and that can greatly increase the value of your 401k account.
Continue reading on the next page to learn more tips to get the most out of your 401k plan.