Saving for retirement at work
Take advantage of your company’s 401(k) plan
If you’re fortunate, your employer gives you the opportunity to save for your retirement through a 401(k) plan. The contribution limit for 2014 is $23,000. If you can't afford that much, contribute what you can. And if your employer offers a contribution match, try to contribute enough to take advantage of the match.
Here are a few things to consider:
- How much to contribute. Many experts say you should contribute between 10 percent and 20 percent of your income to your 401(k). If you can’t afford that much, contribute what you can. And if your employer offers a contribution match, try to contribute enough to take advantage of the match.
- Tax advantages. Contributions to a 401(k) are “pre-tax” dollars, so they reduce your taxable income. If your employer offers a Roth 401(k), you may want to consider that. Contributions are after tax, but qualified withdrawals are income tax-free. How to decide? One factor is whether you think you will be in a higher or lower income tax bracket when you retire.
- When to begin saving. No matter how old you are, you should be contributing to your 401(k). And the younger you are, the more your savings will build over your lifetime. If you’re 50 or older and are concerned that you won’t have the money you need, you can make catch-up contributions—an extra $5,500 a year (2014, indexed for inflation) —as long as your employer doesn’t have contribution limits.
- How to invest 401(k) contributions. Most plans offer a diversified array of investment options from conservative to aggressive. Financial experts agree that “asset allocation”—spreading your money across different types of investments—is the best approach. When making decisions, consider your age, how close you are to retirement, your financial goals, and your risk tolerance. The company that administers your plan may offer interactive tools and worksheets, but if you’re uncomfortable doing it yourself, a licensed financial professional can help.
Don’t wait to get started. If you’re not already putting money into your company’s 401(k) plan, be sure to sign up as soon as you can.
There is no guarantee that asset allocation will ensure a profit or protect your investment against losses in declining markets.