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Retirement Savings: Your 401(k) Can’t Do All the Work

Online magazine Slate writes about how The Wall Street Journal reported that the people who pioneered the 401(k) think it has made it more difficult to retire. One of those early proponents of the 401(k) can’t retire as soon as he’d like because his 401(k) took a hit.

Now that 401(k) plans are standard you may not know how they started and Slate provides background:

“The 401(k) began as a technical adjustment to the tax code, one meant to mostly impact high-earning executives using profit-sharing plans. [Some people] convinced the Reagan administration that the language of the statute allowed for all employees to put aside a portion of their salaries on a tax-deferred basis. It was supposed to supplement corporate pensions. Instead, in something almost no one foresaw, the 401(k) replaced them.”

If you are willing to sacrifice some things now, you may be able to live comfortably when you can no longer work. Your 401(k) can’t do all the work. Here are three things you can do:

Start early. If you can, start to save for retirement as soon as you start your career. And if you are well into your career and have not started to save for retirement, don’t put it off any longer.

Invest long-term. It may be fun to follow the markets and buy and sell based on fluctuations or media hype but that may not bring you long-term financial security. A Fee-Only Financial Planner can help you find quality investments that you can hold onto and allow earnings to grow over time.

Save more. Things have changed since the 401(k) was first introduced, when people were advised that saving 3% of income would be enough. When you look at your current expenses, it is tempting to save the minimum percentage for a 401(k) or to save very little but that is not likely to ensure your standard living in retirement. Instead, aim to save at least 10% of your earnings. If it seems daunting, think of it as taking a dime from each dollar—you’ll still have 90 cents left.