Why You’re Stressed About Your 401(k) — and How to Get Over It

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401(k)s are a source of confusion and fear for many of us. Here's what you need to know about them.

If you’re lying awake at night wondering if your 401(k) is properly invested, it’s not much comfort to know that millions of other Americans are probably losing sleep over the same thing.

Safely saving for retirement doesn’t have to be as complicated as we make it, however.


We “lack the confidence to effectively manage” our retirement savings, a poll by Charles Schwab concludes. It found, in a nationwide survey of more than 1,000 401(k) plan participants, that:

  • More than half (52 percent) find explanations of their 401(k) investments more confusing than explanations of their health care benefits (48 percent).
  • Fifty-seven percent wish there was an easier way to figure out how to choose the right 401(k) investments.
  • Nearly half (46 percent) don’t feel they know what their best investment options are, and one-third (34 percent) feel a lot of stress over correctly allocating their 401(k) dollars.

The crazy thing is, anxious investors are right. Our 401(k)s were never intended to be a primary path to retirement. They were developed in the 1980s for highly paid corporate executives to shelter additional investments from taxes – a supplement to their companies’ old-fashioned pension plans. Later, companies decided to offer them to employees in place of traditional pension plans.

Although 401(k)s may not be ideal, they’re what a large proportion of Americans have to work with. Here are seven ways to wring the most out of your retirement accounts:

1. At the very least, max out your employer contribution

Find out if your employer matches your 401(k) contribution and, if so, what the maximum contribution is. For example, if your employer matches your contributions dollar for dollar up to 6 percent of your $4,000 monthly salary, you’ll get $240 free in your account for the first $240 you save. If you don’t take advantage of your employer’s match, you’re throwing away free money.

Don’t stop there, though. If you can, add more to your 401(k). The maximum the IRS allows you to save in a 401(k) in 2015, if you are 49 or younger is $18,000. Add another $6,000 if you’re 50 or older.

2. Bone up on 401(k) investing

To start, watch this 90-second video primer for beginner investors. Your 401(k) allows you to choose among three types of investments:

  • Stocks: When you see the word “growth” in the title of an investment option within your 401(k), that’s a clue that stocks are involved. Stocks, basically ownership in a company, offer the most potential for reward, but they also present the greatest risk.
  • Bonds: When you see “income” as an investment option, you’re probably looking at a fund that contains bonds. While stocks are an “ownership” investment, bonds are “loanership.” You’re lending money to a company (corporate bonds), local government (munic ipal bonds) or Uncle Sam (treasury bonds). Bonds pay a fixed rate of interest, come due on a certain date and are backed by the company or government agency that issues them, all things that generally earn them the reputation of being safer and more stable than stocks.
  • Cash: When you see the words “money market,” you’re probably seeing a fund that’s basically a cash equivalent. Like a savings account, these funds don’t earn much, but the risk is lower than either stocks or bonds.

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