In this era of do-it-yourself retirement planning, your quality of life in retirement will probably depend on how much you’ve stashed in your 401(k) or similar employer-sponsored retirement plan. Fortunately, a raft of plan enhancements, ranging from automatic enrollment to set-it-and-forget-it portfolios, have reduced the risk that you’ll misuse this valuable asset. But that doesn’t mean you can’t do more to get the most from your plan.
Hands down, the most effective way to increase your plan’s performance is to divert as much as you can from your paycheck. Your savings will grow even faster if your employer offers a company match—on average, employers match 4.7% of pay—which is why it’s critical to contribute at least enough to pocket that free money.
But once you’ve established a savings routine, you have to figure out how to invest the money. One option that’s increasingly popular with 401(k) plan participants is a target-date fund. With these funds, you select a year that’s closest to the year you think you’ll retire and let someone else manage your mix of stocks and bonds. As you get closer to retirement, your allocation of stocks and bonds will gradually become more conservative. Half of 401(k) plan participants invest at least some of their money in target-date funds, according to the Investment Company Institute.
Jonathan Leung, 25, a software engineer for Amazon, opted for a