Facebook Twitter

Retirement saving gets easier

SHARE Retirement saving gets easier

Saving for retirement is about to get a whole lot simpler — so simple, in fact, that in the near future about the only thing you'll have to do to keep your retirement saving on track is show up for work.

What has changed? For one thing, landmark legislation passed last year encourages employers to make employee 401(k) participation automatic. In addition, Congress has permanently extended higher contribution levels for 401(k)s and IRAs, as well as catch-up contributions for workers 50 and older.

Not only will you be able to put more money aside for retirement, but you'll also be able to get advice on what to do with it — if, like many workers, you lack the time, interest or expertise to make those decisions on your own. Starting this year, employers will be encouraged (but not required) to provide employees with investment advice.

Company-provided financial advisers can recommend specific investments within your 401(k) menu — including mutual funds managed by an adviser's own company — as long as their fees aren't affected by which investments you choose. They can also make recommendations based on computer models that take into account your age and how much risk you're willing to take.

To make things even simpler, more companies are offering employees one-stop investment options, such as target-retirement funds (also called life-cycle funds), which essentially combine advice and investing in one product. The idea behind target-retirement funds is to invest all of your 401(k) money in a single fund geared to your projected retirement date and let fund managers automatically shift the allocation among stocks and bonds as you get older.

Initially, the investments are tilted heavily toward stocks, but the asset mix gradually grows more conservative as you near retirement. At Fidelity, the nation's largest 401(k) provider, 83 percent of its nearly 12,000 plans offered age-based funds in 2005.

That kind of simplicity is a huge selling point. When the union representing editorial staff members at the Boston Globe switched 401(k) providers from Putnam Investments to the Vanguard Group in 2005, participants were given the choice of selecting their investments from a new menu of mutual funds or being automatically enrolled in a target-retirement fund. Two-thirds of the nearly 900 plan members were switched to an appropriate target-date fund by default because they didn't make a selection.

Jim Herndon, a Globe employee and one of the plan's trustees, was amazed at how many participants seemed to prefer a fix-it-and-forget-it style of investing. But Herndon, 43, wasn't one of them. "I'm slightly more aggressive than the target-date fund, and I'm willing to take the time to monitor my investments," he says.