If your employer offers a 401(k) plan and you qualify, run -- don't walk -- to sign up.
"If anybody is saving money or would like to be saving money, it's probably one of the best first steps they can make because every dollar you save is pre-tax," said Hal Cumberland, a stockbroker with American Discount Securities in Wichita, Kan.
When evaluating a company's 401(k) plan, whether you are deciding on a job offer or are already employed, check these aspects of the plan:
* The level of the company's matching contribution.
* Requirements for eligibility for a plan.
* Past performance of the plan's investments.
* Flexibility in changing allocations to different investments and how many options there are in the plan.
* Whether you can borrow from your account.
The only disadvantage is that once money is committed to a 401 (k) plan, it's pretty hard to get at that money, said Alan Roskam, a certified financial planner.
Withdrawals from a 401(k) before you are 59 1/2 are subject to taxes and a 10 percent penalty.
Most companies match their employees' contributions into a 401 (k) plan, such as 50 cents on every dollar. Usually, employees have to remain with the company a certain number of years before they are vested to receive the matching contributions.
But even a worker who is considering leaving a job before being vested should join the plan, Mr. Roskam said, because the taxes are deferred on the employee's wages and earnings.
The next step is deciding how much money to deduct for your plan. And that depends on what you'll need for retirement income.
"Many people perceive $100,000 as a lot of money," said John Huffman of Kansas State Bank & Trust. "But when you think of it as an amount to live on, that's a whole different objective."
Many people realize they can't immediately save enough to reach their goal. That's a signal they need to talk with somebody used to dealing with money -- perhaps a financial planner, a bank's trust department or their accountant, Mr. Huffman said.
"The worst thing is to give up when they ought to be using their energy to devise a plan to add to their overall income," said Mike Hastings, a senior vice president at KSB&T who directs the trust department.
0 Most advisers suggest putting as much as you can into your 401 (k) plan, aiming at the maximum amount allowed. The IRS limits contributions to $8,475 in 1991.
Deductions are made from your paycheck. And most people find they don't miss having that money to spend, Mr. Hastings said.
You can contribute as much as 10 percent of your wages without paying income tax on them, up to $8,475 a year in 1991. You can also contribute as much as 10 percent more, although you won't qualify for the tax deduction on that money.
"Even after-tax pays because of the aspect of earnings being tax-deferred," said Steve Yager, a Wichita financial planner. But his personal choice is to put that money into a variable-rate annuity. The annuity also has tax-deferred earnings, but it is easier to control the length of time the money will be invested, he said.
The earlier a worker can put aside money, the more impact the tax deferral will have.
Let's say a 25-year-old worker contributes $1,250 a year for 10 years and then lets the savings accumulate at 8 percent return for 25 years. At retirement at 60, she'll end up with $124,014.
Her co-worker, however, begins contributing $1,250 a year when he's 35. Although he keeps on adding money each year for 25 years -- and earns the same rate of return -- he'll wind up at 60 with $91,382.
Many 401(k) plans don't permit employees to choose among investment options. But other plans, called self-directed, do offer investment choices. And, to most advisers' concern, too few employees are making the best choices for their retirement savings.
According to the latest figures from the Profit Sharing Council in Chicago, about 60 percent of the money in the nation's 401(k) plans are in fixed-income investments, such as money-market funds.
That figure is somewhat misleading, said Robert Mason, of the Investment Institute in Washington, a trade association for mutual funds. Many plans only offer a guaranteed income investment or company stock. Where plans offer a wider variety of choices, about 40 percent of the money is in guaranteed-income funds, Mr. Mason said.
Most financial planners urge young workers with decades before retirement to put most of their savings in equity assets, in funds that invest in the stock market or in individual stocks.
"If you've got more than 10 years, you're foolish not to use a growth fund," Mr. Yager said. "It's going to outperform fixed-rate investments by a lot over a period of time."
L The crash of 1987 left many people wary of the stock market.
"That scared everybody," Mr. Yager said. But investors who bailed out of stocks after 1987 have missed earnings because the market is now higher than it was before the 1987 fall.
"The market goes up far more than it goes down, as far as mutual funds," Mr. Yager said.