Saving for Retirement

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6 tips for making the most of your 401(k)

August 21, 2013

The challenge of saving for retirement can be intimidating. In fact, surveys have shown that only about half of all Americans say they're confident they'll have enough money saved for a comfortable retirement.

However, if you're able to participate in a 401(k) or other employer-sponsored retirement plan, you can take a few simple steps to build your confidence and help put yourself on the road to a financially secure retirement.

1. Set goals. Investing without a long-term plan is like setting out on a cross-country journey without a map. Take some time to think about how much money you'll need to have the kind of retirement you want. Decide how much to set aside each year to reach this goal. Set benchmarks for how much you'll have saved at various points along the way. And be realistic—make sure you have reasonable expectations for the amount you can save and your rate of return.

Do you really know who will inherit your 401(k)?

You may think you've made all the necessary arrangements to ensure that your 401(k) is handled according to your wishes after you're gone. So, what could go wrong? Plenty.

Learn more »

Learn more about setting clear, appropriate financial goals »

2. Make it automatic. Your employer-sponsored plan probably allows or even requires contributions to be deducted from your paycheck automatically. That's a good thing, because it makes investing simple, and it means your money goes to work on your behalf before you—or the tax collector—have had a chance to spend it. Many employers also offer the option of automatic annual savings rate increases.

3. Don't say no to free money. Many employers will match a portion of your 401(k) contributions as part of your benefits package. If your employer offers a match and you don't take advantage of it, it's like turning down a raise—and a tax-deferred raise, at that. Make sure your contributions take advantage of the full amount of any match.

4. Diversify, diversify, diversify. Diversification helps you spread your risk around, which is especially important during periods of market volatility. We believe you should seek a broadly diversified portfolio with appropriate allocations to stocks and bonds and to domestic and international assets. Confused by your choices? Consider a target-date mutual fund such as one of our Target Retirement Funds, which offer diverse blends of stock and bond index funds that align with the amount of time you have to invest before retirement. If your plan doesn't offer this type of fund, you can still assemble a diversified portfolio with just a handful of funds.

Learn more about developing a diversified portfolio »

5. Watch your bottom line. Every dollar you pay your investment provider is a dollar that disappears from your account. When choosing investments, pay attention to their costs. Your expense ratios and maintenance fees can add up and can drastically reduce your overall return over time.

Learn more about the importance of investment costs »

6. Gradually increase your savings rate. We believe you should aim to save 12% to 15% of your salary (including employer matching contributions, if any) for retirement. But we also understand that getting started is often the hardest part. Start by saving what you can, and build up from there. Gradually increase your savings rate over time, taking advantage of raises or bonuses.

Learn more about the value of increasing your savings »

One other tip: Don't wait! Saving in an employer-sponsored plan is one of the best ways to set aside money for your retirement, and you can get a tax break too. So don't wait. If your employer allows online enrollment, get started today.

Enroll in your plan now »
(For employer-sponsored plans where Vanguard is the recordkeeper.)



  • All investing is subject to risk, including the possible loss of the money you invest.
  • Diversificaton does not ensure a profit or protect against a loss.
  • When taking withdrawals from a 401(k) before age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.
  • Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the work force. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target date funds is not guaranteed at any time, including on or after the target date.
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