Take active role to manage 401(k) contributions sooner than later
BY JANE BENNETT CLARK Money Power
Sunday, February 10, 2013
2/10/13 at 4:07 AM
Ah, for the days when employers worried enough about your old age to set aside and invest money on your behalf, assuring you of a secure - or at least sustainable - retirement.
Actually, employers still worry about your old age, but now they mostly use your money, plus the power of inertia, to get you where you need to be. Companies are not only automatically enrolling employees in 401(k)s - the pretax accounts that have mostly supplanted pensions - but they are also choosing employees' investments and boosting contributions on an annual timetable.
If you're like most people, you still need to save harder and longer to accumulate enough for a secure retirement - say, for an annual income that replaces 75 percent to 85 percent of your final pay.
So, rather than letting your employer make all the decisions, you can start by beefing up your contributions. Concerned that employees weren't saving enough for their retirement, Congress authorized employers to automatically enroll workers in the company 401(k) and peel off 3 percent of their pay (gradually rising to as much as 6 percent) for the plan.
Automatic enrollment helps get procrastinators off the dime, but it can also send a message that a contribution rate in the low single digits is enough to create a comfy nest egg. You should be setting aside at least 10 percent, up to the annual max ($17,500 for 2013 and, if you are 50 or older, another $5,500 as a catch-up contribution), says John Killoy, of Diversified and Transamerica Retirement Services, which designs retirement plans.
Original Print Headline: Adjust contributions to 401(k) for future
Jane Bennett Clark is a senior editor at Kiplinger's Personal Finance magazine. To send her a question or comment, go to tulsaworld.com/kiplingerfeedback.