Monday, November 15, 2010

Making Best Use of 401(k)s

The past decade has been a disastrous one for many stock-market investors, but a new study from Fidelity Investments shows that many people's 401(k)s actually made it through OK. According to Fidelity, people age 55 and older who had a 401(k) for the entire decade saw its value more than double, from an average of $96,000 to $211,300.

The key, of course, is that most of that money came from the worker's contributions, rather than from market gains. People who were able to put at least 8 percent of their earnings into their 401(k)s saw their accounts increase by an average of 130 percent over the course of the decade.

At the same time, though, most Americans do not max out their 401(k) contributions. A survey by ING, released earlier this month, showed that 87 percent of all Americans say they could contribute more to their retirement plans. More than half, or 59 percent, said they could afford to raise their contribution level by 3 percent of their salary. Perhaps it's because they've been spooked by the investing environment of the past ten years, but clearly, Americans are not making the most of this important retirement-planning tool.

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