Taking Care of Your 401(k)

In this example, without the 401(k), you would pay about $7,112 in federal and state taxes, while the 401(k) investor would pay $6,320 -- a savings of almost $800.

Altogether, your disposable income may be cut by $1,609, but you have $2,400 set aside for retirement. If the company matches your contribution -- say 50 cents to the dollar, which is common -- then your annual retirement savings is $3,600.

Play or Pay

Deciding not to participate is the biggest mistake you can make, says Rick Meigs, president of 401khelpcenter.com in Portland, Ore.

"You've got to participate -- it doesn't matter if you think you can't afford it," he says. "If you can make a commitment to putting even a small amount of money in, soon you will not even notice it."

Meigs says non-participation is most common among workers between the ages of 20 and 29; only 55% of that eligible group contributes. (The national average is 68.2% , according to a recent Hewitt report.) And the sooner you start contributing, the sooner -- and thus longer -- your investment can multiply.

"Do at least as much as you have to get the company match," advises Cassidy. That truly is free money which, at the worst, will offset investment losses on your contributions.

Adjust and Adapt

According to Hewitt, many 401(k) investors have no other investments. Yet even those who do -- including those well-versed in building portfolios -- often make their initial investment selections and pay little, if any, attention thereafter.

"The tendency is to check off the boxes when you sign up, stick it in the bottom drawer and hope that at 65, you're OK -- that's not much of an investment strategy," says Cassidy.