Don't Give Up on Your 401(k)

Fidelity Investments is America's biggest manager of employer-based retirement accounts, so it has its finger on the pulse of the average saver for tomorrow. Fidelity recently released 401(k) account data for the first quarter of 2009, with some interesting findings.

According to Fidelity, 97% of its participants continue to shovel dollars into their accounts. That is indeed good, suggesting that they haven't sworn off stocks following 2008's dismal drop. This is no time to give up on your retirement investing.

Unfortunately, those contributions have fallen lately, down about 10% from last year's levels. But at $2,780 for the quarter including employer contributions, that's still substantial. If you invested $11,120 per year for 20 years and earned the market's average annual return of around 10%, you'd end up with $700,000. Over 25 years, it'd come to $1.2 million. And even if you earned just 8% over 20 years, you'd have $550,000. That kind of money could help you buy yourself a nice pension. Still, will $11,120 be enough for you? Never assume -- do your own calculations.

In addition, the $1,700 per quarter in employee contributions will help most workers save on their taxes. If your tax rate is 28%, you're avoiding paying more than $1,900 in taxes this year, while saving aggressively for tomorrow.

More encouraging news
There's more to rejoice over. It seems that workers are more interested than before in their money, taking advantage of seminars that Fidelity is conducting. They're benefiting from employers automatically enrolling new hires in plans -- 16% of employers now do so, and because they're mostly big, they account for 50% of the workers enrolled. Without such measures, the average worker often doesn't get around to it. And most of their money is going into stocks.

That makes me happy, because these days sure seem like a great time to invest in stocks, with so many having fallen so far. If you liked Diageo (NYSE: DEO  ) back in 2007, for example, and then it dropped 31% in 2008, isn't it most likely even more of a bargain now? Check out how much these stocks, which have earned top five-star ratings by our Motley Fool CAPS community, have fallen over the past year:

Company	1-year return	3-yr. revenue growth rate	P/E
Activision Blizzard (Nasdaq: ATVI  )	(23%)	57%	387
NYSE Euronext (NYSE: NYX  )	(45%)	60%	N/M
Transocean (NYSE: RIG  )	(41%)	60%	6.6
UnitedHealth (NYSE: UNH  )	(22%)	16%	9.9
McDermott International (NYSE: MDR  )	(61%)	48%	14.3
Foster Wheeler (Nasdaq: FWLT  )	(60%)	40%	8.4

Data: Motley Fool CAPS, Yahoo! Finance.

When the market as a whole plunges, it tends to take healthy and unhealthy stocks with it. Healthy companies become even more attractive at lower price points.

What to do
So, don't be a victim of retirement killers in this brutal environment. Be smart about your retirement planning and investing. Make the most of your 401(k) at work and your IRA on your own. Remember that if you withdraw a conservative 4% of your $600,000 nest egg in retirement, as many experts recommend, you'll end up with $24,000 per year. If that doesn't look like enough, then crank up your savings and investing.

Learn more:

• Why You Need Two Nest Eggs
• 3 Investment Myths
• The Biggest Obstacle to Retiring Early