Answered by Gregory Ostrowski

If the question is—“Do I have to sign up for my 401k plan every year?” the answer is typically “No”.

Once enrolled in your 401k plan your ongoing participation is up to you. If your company provides matching contributions try to save at least enough to get their “free money”. Make it a longer-term goal to save 15-20% of your salary and consider allocating merit pay increases straight toward this goal. Some 401(k) plans have automatic savings increase programs where you can increase your savings rate automatically over time.

While it is important to save for retirement, it is also critical to have other, potentially more liquid savings. Consider establishing an emergency fund with 3-6 months living expenses in case of unforeseen events. Also, examine your debt load. If you’re racking up credit card debt just so you can contribute to your 401(k), you’re probably doing yourself a disservice. Prioritize and reduce high interest debt.

Greg

February 13 2012