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Tips for your pension

- Alan Lavine and Gail Liberman

Contrary to popular belief, not everyone who works for a company has a pension. But if you have one, be sure to maximize the opportunity it provides.

Fewer than one of three persons eligible for a 401 (k) ever bother to join. Those who do sign up usually don't save nearly enough to create an adequate nest egg. Only 8.4 percent of 401(k) participants put away the maximum.

Clark Blackman, a member of the American Institute of Certified Public Accountants (AICPA) personal finance committee, suggests taking these steps:

  • Sign up for your company's 401(k) plan. Do this, and you'll be further ahead than most. Fail to join, and you're not only short-changing your effort to retire, but you may be turning away free money in the form of employer matching contributions.

  • Know your investment choices. A growing number of plans automatically enroll you in a 401(k) as soon as you're hired--unless you specifically opt out. But you may or may not be automatically enrolled in the best investment option possible. Nowadays, you don't always have to make gut-wrenching decisions to pick the right investment either.

    Many plans let you direct money to a target-date or life-cycle fund. These represent a new breed of mutual funds that offer a diversified mix of stocks and bonds geared toward your expected retirement date or stage of life. Or, you may even be able to turn over your account to an independent financial adviser who will custom-tailor an investment mix for you. But even these automatic programs have different investment mixes. So it pays to understand what you own and stay on top of your plan. The younger you are, the more you can afford to have in stocks or stock mutual funds. The closer you are to retirement, the more it pays to keep in bonds or cash investments.

    Many programs gradually will boost your contributions according to a pre-set schedule--say, an extra 1 percent of your salary annually--until you hit the maximum. This prevents you from languishing at a low contribution rate as your income grows.

    When you're finally closing in on retirement, some plans help convert your account balance into a monthly income stream that should last the rest of your life. You may wish to take advantage of some of these options.

  • Consider the new Roth 401(k) if your company offers it--particularly if you expect to be in a high tax bracket when you retire. Unlike with a regular 401(k), you'll pay tax on the money you contribute. But come retirement time, withdrawals are tax-free.


    Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is "Rags to Retirement (Alpha Books)." You can e-mail them at MWliblav@aol.com.

    To read more columns, please visit the column archive.

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