Posted by: Christina Dove
With the current recession going on right now, many people are weary about investing too much money in their 401(k)'s. However, although this may be somewhat justified, the best advice is to still invest the maximum amount that you can and participate in the catch up contributions as soon as you turn 50. Many people are under the misconception that is it not worth putting the money away now if retirement is so far off. It is a known fact that the more money that you save and the earlier you start, the more enjoyable your retirement years will be.
The other reason you don't want to focus on the short-term fluctuations and flows of the economy is that such an approach is antithetical to retirement planning. Only by saving and investing regularly throughout our working years will most of us accumulate a sum large enough to maintain our pre-retirement standard of living. The 401(k) makes that sort of regular saving and investing possible in large part because of the ease and convenience of payroll deductions. The 401 (k) is crucial aspect of the 3-legged stool that makes up people's retirement income, the other 2 stools being social security and personal savings.
The last important point about 401 (k)'s is that it is important to diversify your portfolio. Many people learned that lesson the hard way lost at lot of money once the tech bubble bursted. Employees should remember to include a variety of stocks that both do well when the economy is up or down.
Sources:
http://money.cnn.com/2009/10/26/pf/expert/401k_contributions.moneymag/index.htm
http://www.forbes.com/bow/b2c/category.jhtml?id=204
http://www.irs.gov/retirement/article/0,,id=119625,00.html
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