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Saving for Retirement

Streamline Retirement

Enrolling in an employer's retirement plan is becoming more and more automated, which means saving for your life after work is even easier. In some cases, when you start a new job, you might not have to do anything to participate in your company's plan. About half of all firms enroll new employees in a retirement-savings program, diverting a portion of each paycheck -- usually 3% initially -- unless you say no. About 25% of companies that don't have the auto-enrollment feature are poised to add it, according to a survey by Hewitt Associates.Once you're in a plan, some firms increase your 401(k) contributions each year by one or two percentage points, often timed to coincide with annual raises. In fact, some 67% of workers whose companies offer a 401(k) plan have an auto-escalation option, according to Retirement Made Simpler, a coalition that favors automating 401(k) contributions as a way of boosting retirement savings.

When it comes to investing those retirement savings, there are two ways to simplify the process. If your company offers all-in-one target-date retirement funds, which grow more conservative as you near retirement, you can invest all your money in one and let the pros handle the details. If not, your plan may offer an online rebalancing tool that keeps your investments in line with your original asset allocations by regularly selling winners and buying underperformers.

If you've had a number of jobs during your career, you may be receiving an unwelcome pile of statements each quarter. "You want to have a developed strategy that diversifies, which is difficult to do with a lot of accounts," says Susan Elser, a financial planner in Indianapolis. A never-ending stack of statements drove Herb and Cathy Treen, who live near Indianapolis, to seek Elser's help. The Treens -- he's 43 and she's 42 -- have had eight jobs between them, each with a retirement plan. They also had IRAs, bringing their total number of retirement accounts to ten. In the end, Herb, a project manager at a software firm, and Cathy, an attorney with a large health-care system, whittled the number of accounts to four.

If you've lost or left a job, you have three options for your retirement savings. When you have a 401(k) balance of at least $5,000, the simplest strategy is to keep the money with your old employer (you can move it later). If you'd rather have more investment choices, you can roll it into an IRA. As a last resort, you can cash it out, but that's seldom a good plan. You could lose nearly half of your payout to taxes and early-withdrawal penalties.

If your IRA has taken a beating, consider converting it to a Roth IRA for the ultimate simplification: generating tax-free income in retirement. You have to pay taxes on the entire amount you convert, but the lower your account value, the smaller your tax bill. And you don't have to pay the tax on the conversion until next year, when you file your 2009 tax return. To qualify for a conversion this year, your adjusted gross income must be $100,000 or less. Next year, anyone can convert a traditional IRA to a Roth IRA because the income limit for conversions disappears in 2010.

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If you're retired, it's not too late to simplify your finances by buying an immediate annuity. An annuity could help you replace some or all of the income you would otherwise have to forgo due to recent investment losses.

One recent study found that retirees could generate a stream of secure lifetime income for 25% to 40% less than it would cost to create the same income by withdrawing the recommended 4% a year from a traditional portfolio.

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