How to Retire Rich

According to the Financial Industry Regulatory Authority (Finra) and the Retirement Security Project, about 95% of surveyed adults agreed that automatic 401(k) plans make saving for retirement easier. An early start on saving will work its magic over time. But if you're a late bloomer, it's still not too late. Starting now and try to increase your contributions a little bit each year, and you would finally reach your goal.

If you don't actively select an investment for your automatic 401(k) account, your employer is now required to direct your contributions to an appropriate long-term investment, such as a target-date retirement fund, also known as a life-cycle fund. Even though automatic 401(k) features tend to target younger employees, you may be able to benefit from it even if you are already enrolled in your company plan. Many companies now offer their employees access to personalized financial advice or all-in-one investment solutions, such as professionally managed accounts or target-date funds that diversify investments in a broad class of stocks and bonds. A recent research by Charles Schwab found that 401(k) participants who received assistance with choosing their investment lineup, whether through advice services, target-date retirement funds or plan-sponsored asset-allocation models, received better returns on their investments than those who decided to do it themselves.

The Roth 401(k) is a retirement plan that offers no upfront tax break but promises tax-free income in retirement. Plus, with this retirement program, you can leave your retirement fund to your heir tax-free. Most employees who start saving for retirement early in their career favor Roth 401(k) to the traditional 401(k). But Roths aren't just for the young. Older workers who earn too much to be eligible for a Roth IRA can still take advantage of tax-free income in retirement through a Roth 401(k).

When you switch jobs, don't cash out your 401(k); you have several options for what to do with your retirement savings. You can leave the money with your former employer if you're happy with the investment selections in the company plan. In most cases, however, you're better off consolidating your savings in a rollover IRA, which gives you flexibility in choosing your investments, or rollover into your new employer's 401(k), if it accepts transfers. If you take a loan from your 401(k) account and cannot pay it back on time, the loan will be treated as an early withdrawal, meaning you will have to pay taxes as well as 10% penalty.