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  • If your company offers a 401(k) retirement savings plan, chances are you have filled-out the paperwork, set the percentage you want taken out of your paycheck every time, looked at the different options for where to put your savings, signed your name, and handed in your documents. However, there is more to a 401(k) account then simply saving money. If you choose the wrong funds or mishandle your allocation of funds, you may be making a mistake with your money that your future self will have to pay.

    Why Contribute to a 401(k)?

    No matter the market conditions, contributing to an employer-sponsored 401(k) retirement savings plan is known to be an effective means for savings for retirement. If your employer provides a match, saving makes even more sense. As reported in Personalmoneystore.com, contribute enough to earn the full employer match or "otherwise, you're throwing away free money." Another advantage, according to Fidelity.com, is tax savings. Fidelity.com states that the money you save in a 401(k) is pulled from your paycheck without taxation and "you don't pay income tax on the money you contribute to your 401(k) account or on any earnings until you take it out, which is usually at retirement." Saving with a 401(k) plan makes good sense but it will only pay-off for you in the long run if you are making good decisions with your allocations.

    Allocating During Your Peak

    How you make your allocations and how much to allocate depends on your stage in life. During your peak earning years, according to Fidelity.com, you'll want to invest aggressively. Your allocations should focus on funds that have a strong, long-term growth history. Since you are investing for the long haul, choose a plan that allows for maximum growth. A general guideline would be to invest more in stocks than in bonds, have a diverse group of funds in your portfolio, including blue chip, tech, and international funds. Fidelity.com suggests taking the emotion out of your investment plan, instead focusing on facts, and your long-term retirement goals. When deciding on a percentage to allocate, consider your current spending versus the need to save for your retirement. This is the time in your life when you are spending the most, but make sure you don't short-change yourself for the future.

    Allocating Closer to Retirement

    Your retirement date is approaching and you are wondering if you have enough money saved. Remember, your retirement could last as many as thirty years or more and you want to plan that way. Most importantly, you want to protect what you have already saved. Fidelity.com suggests dividing your retirement savings into two categories -- guaranteed income products that will sustain you through the basics of living and growth stocks that will continue to earn through retirement. Income annuities may also be a good option to place your money for a guaranteed stream of income. While you are still working, and, as you get closer to your retirement date, check with your employer to see the maximum you can contribute and, if possible, hit that number. The more you can save in your last years of work, the more time you will have to enjoy that hard-earned income later.

    Source:

    Personalmoneystore.com

    Fidelity.com: 401k Basics

    More Information:

    Moneycentral.msn.com

    Mainstreet.com: Retirement

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