Retirement Planning for the Salaried Employee

June 2000  -- While people at work have many things to think about, retirement planning is fairly low on the "to do" list. Employees will have Social Security and, often, a pension to count on, but that may not be enough.

The best step that most employees can take is to participate in their company's 401(k) plan. Many people never bother to sign up -- a big mistake. 401(k) plans allow employees to contribute up to 10,500 pre-tax dollars to the plan each year. And, often, companies match the employees' contribution. This money is then invested tax deferred until retirement. Employee investment options are chosen by the employer but employees can give input for better investment options.

"What employees want to encourage their employers to do are really look at offering a broad selection of investment options so that it fits the risk categories of everyone that's involved as well as the long term growth goals of a lot of these investors," says Michelle Arpin of Merrill Lynch.

For some more highly compensated employees, another retirement savings option is a deferred compensation plan.

"The employee is actually deciding not to take part of their income and they're putting it away for the future, in a deferred compensation plan," says Arpin. "The monies grow tax-deferred just like a 401(k) and when the assets are distributed, they're taxed at ordinary income to the employee at that time."

As the years go by, inflation and the cost-of-living can eat into pensions and social security. While nothing is guaranteed, early retirement planning and careful investments can help make life easier when the days of work are left behind.