Six Common 401(k) Missteps

More, more, more.

Not the Billy Idol song -- but another refrain you're probably sick of hearing, as in funding your 401(k) plan.

The latest numbers from the Federal Reserve's Survey of Consumer Finances did paint a pretty rosy picture. Compared with 2001, when the survey was last done, more eligible employees are saving in 401(k) plans -- 79% in 2004 vs. 74.4% in 2001.

In addition, more of you are not cashing out when you change or leave jobs (55% vs. 45%), and fewer of you are investing too much in company stock (15% vs. 19%).

Also, those of you at midcareer (40-49) are doing especially well -- almost 50% more of you are saving in 401(k) plans (43% in 2004 vs. 29.5% in 2001).

But there's another side to the numbers, and it spells bad news for younger workers. "They're still coming up short," says Alicia Munnell, who directs the Center for Retirement Research at Boston College and who wrote the 2001 book by the same title with Annika Sunden (Coming Up Short, The Challenge of 401(k) Plans).

From 2001 to 2004, the number of workers eligible for a 401(k) dropped from 55% to 48% among those 30 to 39 years old, and from 56% to 51% among those 40 to 49.

Fewer younger workers are eligible to participate in a 401(k), says Munnell. "It's distressing."

As a result, "The amount of money saved is shockingly small," says Munnell. For 2004, the median (half save more, half less) is about $40,000, but among those 35 to 44, it's far less -- $25,000. To be on track to retire at 62 with a nest egg of $380,000, you need a balance of $63,500 now, according to her calculations.

That's quite a gap, but most of us keep making the same six mistakes that trip us up.

Let's walk through Munnell's six common missteps, so you can change your behavior. Think of this as "money therapy," if that makes you feel better.

Folly of Youth: Younger workers are not participating enough in 401(k)s.
	% of workers eligible for 401(k)s		% of eligible workers participating in 401(k)s		% of all workers participating in 401(k)s
Age	2001	2004	2001	2004	2001	2004
20-29	43.70%	42.40%	66.70%	62.00%	29.10%	26.30%
30-39	54.50%	48.00%	75.60%	77.77%	41.20%	37.30%
40-49	56.20%	51.30%	73.50%	83.30%	29.50%	43.10%
Source: Federal Reserve's Survey of Consumer Finances

To watch Gregg Greenberg's interview with Mike Scarborough about 401(k) mistakes and how to avoid them, click here.