How well you live in retirement depends in part on how well you run your 401(k) plan. The amounts you and your company contribute are important, but even more critical are the investments you choose. Here are four examples of people at various ages and how they might launch or improve a 401(k) investment program.* JUST STARTING Age Retirement Age Current Income 27 67 $40,000 Contributes 5% of income SUGGESTED ALLOCATION SMALL-COMPANY STOCKS Risk level 21% High LARGE-COMPANY STOCKS Expected return 35% 11.2% BONDS Value at retirement 30% $2.2 million 0R INTERNATIONAL STOCKS Risk level 44% High SMALL-COMPANY STOCKS Expected return 26% 13.2% BONDS Value at retirement 30% $3.6 million If employee boosts his contribution to 6% of income, the final value grows to $4.4 million. *These examples were calculated using Prosper by Ernst & Young, a personal-finance software program. It uses the following assumptions: The maximum contribution an employee may make is $9,240--the 1995 limit; the employer puts in $1 for every $4 the employee contributes--up to $5,000; and there are 3% annual increases in income--and thus in contributions and in the employer's maximum match.
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