In This Chapter

“Your retirement security is up to you.” That’s the clear message behind the movement away from employer-managed and -funded pension plans to employee-managed and -funded (with a bit of incentive payment from your employer) 401(k) plans. As ominous as it may sound, this trend toward individual responsibility for retirement financial security is not all bad. Defined-contribution plans, as 401(k) and similar plans whose success relies on individual contributions are called, are more portable and less expensive than traditional pension plans. This works in your favor when you change jobs, and it helps lower costs for the employer, which should, in theory at least, help the company’s bottom line and keep you employed.

With control comes responsibility, and growing your 401(k) is your responsibility. The money you’ll have to spend in retirement depends on the amount you save from your paycheck and the success you have in your investment choices. In this chapter, we help you understand the basics of how your 401(k) plan works and how to select among the investment choices your plan gives you.