Money Matters
5:00 am
Tue July 9, 2013

Take advantage of your 401(k)

Are you saving enough for retirement? Most Americans aren't. 

According to a report from the National Institute on Retirement Security, 45 percent of American households don't have anything saved for retirement. Four out of five working households have retirement savings less than one times their annual income.

Financial commentator Greg Heberlein says one way to turn this around is to encourage more people to take advantage of 401(k) retirement plans.

Give the choice of opting out, rather than opting in

Roughly half (46 percent) of the nation’s companies no longer ask employees whether they'd like to join a savings plan. They just put them in the plan whether they like it or not, then give the new hire the option of getting out.

Such a technique has done wonders on the savings front. Millions are now in 401(k)s who otherwise wouldn’t have been. Eighty five percent stay in the retirement plan when given the choice of opting out, versus 67 percent who sign up when given the choice to opt in.

Such a plan becomes even more valuable since the majority of companies (58 percent) add a bonus amount for you if you are in the plan. The most common is the company matching half of your first 6 percent. But many companies offer even more.

Put your pay raises into the retirement plan

Placing raises automatically into a savings plan hoists your retirement stake to even higher levels. So far, three in 10 companies in this country provide that program.

For both of these points, the employee always has the option to reduce or eliminate the diversions to savings.  But the human psyche avoids change, especially when it comes to financial matters. So let's put that inertia to work for us!

These two simple steps can go a long way toward defusing the retirement time bomb.