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401(k)'s under new management

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All those 401(k) participants who find they lack the time, expertise or inclination to monitor their own accounts have an alternative: managed accounts.

Soon, it's likely that you'll be able to plug your retirement information into a computer program that cranks out a strategy for your 401(k) plan. The program will figure out how much you need to save and will automatically allocate your money among the plan's investment options.

"We use the same tools that money managers use to run big pension funds," says Jeff Maggioncalda, president of Financial Engines, the investment advisory firm that collaborates with Vanguard and other 401(k) providers. In effect, participants get access to professional money management at a much lower cost — with fees typically ranging from 0.1 percent to 0.8 percent of assets — and with no minimum investment. Funds are rebalanced automatically, and they are invested more conservatively as you near retirement.

Some advisers offer services that are more specialized. For example, New York Life Investment Management Retirement Plan Services will automatically increase your 401(k) contribution when you get a pay raise. And if your employer decides that company stock should be limited to, say, 15 percent of your account, the program will gradually sell off shares if your holdings exceed the cap.

Huge nest egg

Most people think that as long as they have a nest egg of $1 million, they can retire comfortably. That may be true, but a million bucks ain't what it used to be, and by itself the number has no bearing on your actual expenses in retirement.

"It's just pulled from the air," says Evelyn D'Amico, a financial planner in Paoli, Pa.

If you've paid off your mortgage, live in a low-cost area and have a comfortable pension, a nest egg of $1 million may be enough.

"The $1 million will safely generate $40,000 per year," says Stuart Ritter, a financial planner with T. Rowe Price. "So if you can live on $40,000 plus your other income sources, then it's enough. If you can't, it isn't."

Figure out how much money you think you'll spend annually in retirement, then work backward to calculate how large a fund you'll need. T. Rowe Price's retirement income calculator can show you how likely it is that you'll outlive your nest egg at the rate you expect to spend, and give you alternatives to help your money last longer — you can find the calculator at www3.troweprice.com/ric/RIC.