Automate Your 401(k)

An unstable market means you need to save and invest more, not less.

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Considering all the turbulence of the past year, the thought of ratcheting up your 401(k) contribution may make you somewhat seasick. But an unstable market means you need to save and invest more, not less, if you want to better the odds of still being afloat in retirement.

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And this may be especially true for workers whose companies have automatically enrolled them in a 401(k); some experts worry that people who are signed up involuntarily tend to assume they're all set and never make any adjustments. About 46 percent of large companies and 19 percent of small companies were offering auto-enrollment in 2011, according to the Transamerica Center for Retirement Studies. Most automatic plans set your contribution rate at 3 percent of salary, compared to the 5 to 10 percent employees typically choose when they sign up on their own.

Some plans offer an "auto escalation" feature, which boosts the contribution rate by 1 percent a year, to between 6 and 10 percent. The Employee Benefit Research Institute predicts that a 25-year-old earning $34,000 a year, who auto-escalates to 6 percent, will accumulate 28 or 29 percent more by age 65 than if she had stayed at a 3 percent default rate, assuming she earns between $100,000 and $150,000 at retirement.

[See How to Maximize the Higher 401(k) Contribution Limit.]

"The beauty of automatic escalation is that you don't have to be disciplined to increase your savings. You set it and forget it," says Mary Claire Allvine, a certified financial planner in Atlanta. If your company doesn't offer that option, Allvine recommends putting an annual reminder in your calendar to escalate yourself. "If you increase by 1 percent a year now, you'll hardly feel it," she says. For 2012, the most you can contribute to a 401(k) is $16,500, unless you're at least 50. In that case, you can set aside as much as $22,000.

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