Corporate pensions have been disappearing in the American workplace for decades now. They have largely been replaced by 401(k)s as the primary type of employer-sponsored pension. These accounts are a critical piece of the retirement planning of some 27 million American workers — so it pays to know a little bit about how they work and what you can do to maximize your returns.
What is a 401(k)?
In contrast to a traditional defined-benefit pension, a 401(k) is a defined-contribution account. Companies like these retirement plans because they cost less, but the defined-contribution structure shifts most of the burden of saving onto the employee — and financial planning pros worry that Americans just aren’t saving enough: According to the Employee Benefit Research Institute, the median 401(k) account balance was just $90,015 at the end of 2018.
Most Americans should be saving more than they are, experts say. “One of the biggest mistakes a person can make when it comes to their 401(k) is simply not saving enough,” says Robert Comfort, president of CUNA Brokerage Services Inc., a division of Madison, Wis.-based CUNA Mutual Group. If you’re not doing so already, take advantage of the tax benefits and employer contributions to maximize your 401(k) nest egg.
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