Many 401(k), 403(b) or other employer-sponsored retirement plans match employees’ contributions up to a specified limit.
For example, your company may match every dollar you put into the retirement plan up to 5 percent of your salary. The match is usually 25 or 50 cents to your dollar.
This means for every dollar you contribute to the retirement plan the company will deposit 25 or 50 cents in your account up to the specified limits.
You get an instant 25 or 50 percent return on those dollars deposited even before the money begins earning a return. This is the only free money in the market.
BoostEmployees have come to expect that type of boost to their retirement savings accounts.
A tough economy may force your company to make some hard decisions, including reducing or eliminating its match to the retirement plan.
If you find your company is in this situation, what is the best strategy for you?
In most cases, you are better off continuing to contribute to the plan.
Your earnings grow tax-deferred in most retirement accounts and that is a significant advantage you don’t want to lose.
Wise ChoicesIf your account is holding its own, you have made wise choices in selecting the investments.
On the other hand, if your retirement plan is sinking and you are nervous, consider reallocating your assets to more secure choices, such as mutual funds tied to government issues.
You may not earn much in return, but your money should be safer.
If you can afford some risk, stay partially invested in stocks. This is where the largest returns will be scored when the market rebounds, but be prepared for volatility in the interim.
Employer-sponsored retirement plans are generally good deals for employees. If your employer still offers a match of your contribution, you should definitely take advantage of it up to the maximum percentage allowable.
Free money is always a good deal.
Articles on Investing for Retirement in this Series
Tough Choices for Stock Investors Facing Retirement
What to Do If You Lose Your 401(k) Match
Can Your 401(k) Be Resurrected?
Investing to Avoid the Longevity Risk
Time to Re-Think Role of Stocks in Retirement
Don't be too Conservative with Stocks in Retirement
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