30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances

Part V. Invest in Your Company Retirement Plan

A bear market is never welcome, but the one that rocked investors in late 2007 and 2008 was particularly ill-timed. That's because it clobbered the account balances of the first wave of 401(k) investors, many of whom were newly retired or getting set to retire.

The number of employees who are managing their own retirement plans has climbed steadily over the past few decades. As the costs of providing pensions, which offer steady income streams, have skyrocketed, many companies switched from offering so-called defined-benefit (that is, pension) plans to defined-contribution plans: 401(k)s, 457s, and 403(b)s. (401(k) plans are mainly for private sector employees, whereas 457s are for government employees and workers at some not-for-profit firms. 403(b)s are mainly for educators and also may be set up for employees in the not-for-profit sector.) In 1980, the Department of Labor estimated that 40 percent of all workers in the private sector had a defined-benefit plan, 19 percent were participating in a defined-contribution plan, and 11 percent participated in both types of plans. By 2004, that mix had shifted substantially: The percentage of employees participating in defined-benefit plans had shrunk to 21 percent, whereas 42 percent were participating in defined-contribution plans, and 13 percent were participating in both.

Unfortunately, roughly a fourth of employees who have 401(k) plans don't participate because they don't think that ...