401(k) Plans

You've heard all of the talk about the uncertain future of Social Security. Even if the program does survive and you do receive Social Security payments later in life, they were never meant to be your only means of income during retirement. In fact, in 1998 the Social Security Administration estimated that Social Security will provide less than a quarter of what you'll need to pay for housing, food and other living expenses -- not to mention an occasional golf game.

More people than ever before are taking control of their financial futures by saving and investing in company-sponsored retirement plans like 401(k) and profit-sharing plans, according to recent Department of Labor data.

There are several major advantages to saving for retirement through a 401(k), including:

Immediate tax savings on contributions
Tax-deferral of any investment earnings
In-service loans and withdrawals

Even more attractive is if your employer matches part of your contribution. Let's look at an example. Say you earn $35,000 a year and you are contributing 10% of your income to your retirement plan. If your employer matches 100% on the first 4%, your total contribution to the plan is $4,900. That's $3,500 from you and $1,400 from your employer. Due to the positive effects of compounding, over 10 years' time, that $1,400 could really add up--to more than $20,000, in fact. And don't forget the tax benefit. Your $3,500 contribution can shave almost $500 off your tax bill. All in all, a 401(k) plan is a powerful way to build a nest egg.

So start contributing now. Contribute as much as you possibly can. And if you can start with only a 1% or 2% contribution, promise yourself to increase your rate every year until you max out. For 2006, you can contribute $15,000, and the 2006 Catch-Up Contribution Limit (only for those over 50 years old) is $5,000, making the 401(k) one of the most popular retirement plans around.