While the popularity of the 401(k) plan has soared in recent years, many investors may not have given much thought to why it works so well. Some factors are within an investor’s control, while others are not. If investors want to achieve retirement success, this Fiduciary News column notes, they need to understand the four primary cogs that contribute to the 401(k)’s success:
1. pre-tax savings
2. tax-deferred compounding
3. company match/contributions
4. investment returns
(Caution: Column includes automotive metaphors.) It’s important to note that successful retirement savers have learned that relying on huge investment returns is a “fool’s game” — in other words, they put too much focus on the investments and not on other key considerations, such as how much and how consistently they are contributing over time.
