As tough as times have been for workers trying to save for retirement, there's at least one piece of good news. Increasingly, employers have taken matters into their own hands, by automatically signing up their employees to participate in 401(k) plans and other company-sponsored retirement accounts.

It might seem insulting that your employer would sign you up for a 401(k), instead of asking you to do it yourself. But the sad truth is that when it's up to us to take action, many of us don't -- and our futures suffer for it. If you ask me, I say hooray for automatic enrollment!

Proving my point, Labor Department statistics from 2008 show that around a third of those who could participate in 401(k)s don't. Estimates suggest that automatic enrollment could lower that rate to about one-tenth.

Targeted funds
You may reasonably ask at this point just how an employer might invest this money of yours that's being diverted into a 401(k) account. Well, it can choose from customized portfolios and funds that balance stocks and bonds. "Target-date" or "life-cycle" funds will likely be a popular option.

A target-date mutual fund is designed around a specific retirement date, with its investments chosen accordingly. The Vanguard 2025 (VTTVX) fund, for example, is for those who plan to retire in 2025. It recently had 76% of its assets in stocks and 24% in bonds and cash; its Vanguard 2045 (VTIVX) counterpart had 90% in stocks and 10% in bonds and cash. Each fund shifts your assets as you get older, adding more bonds in later years.

Target-date funds tend to invest in a handful of other funds from the family's lineup. The Vanguard 2025 fund, for example, recently had almost 61% of its assets in Vanguard's Total Stock fund, about 7.5% in its European Stock fund, and just under 4% each in its Pacific Stock and Emerging Markets fund. That gives you exposure to lots of different types of companies:

Fund

5-Year Annualized Return

Holdings Include

Total Stock (VTSMX)

1.1%

Johnson & Johnson (NYSE:JNJ), IBM (NYSE:IBM)

European Stock (VEURX)

3.4%

GlaxoSmithKline (NYSE:GSK), UBS (NYSE:UBS)

Pacific Stock (VPACX)

3.3%

BHPBilliton (NYSE:BHP), Toyota Motor (NYSE:TM)

Emerging Markets (VEIEX)

13.6%

CNOOC (NYSE:CEO), Gazprom

Source: Morningstar. Returns as of Feb. 2.

Of course, during 2008, you might have wished your employer would just leave your money in a cash fund. But while "safe" options do better in bear markets, they aren't likely to help workers build substantial (and necessary) nest eggs over time.

IRA matters
Should you invest all your available dollars in your 401(k), or should you invest in an IRA? There's no single best answer for everyone, I'm afraid. For many people, the best choice might be to use both.

One factor to consider is what you expect your future income tax rate to be. By using a 401(k) or traditional IRA, you get your taxes deferred on your contributions, and you'll pay them in retirement. If your rate is lower then (probably because of a lower income level), it makes sense to invest significantly in these vehicles.

If your rate is lower now than you expect it to be later, a Roth IRA can be especially attractive. It has you pay your taxes up front, then lets you enjoy tax-free withdrawals in retirement.

Of course, how on earth can we know what our incomes will be in 10, 20, or 30 years -- much less what the prevailing income tax rates will be? That's why it's smart to hedge your bets a little. One detail that can sway your decision is whether your company offers to match any of your 401(k) contributions to some degree. If it does, it's usually smart to grab as many of those matching dollars as you can: They're essentially free money.

Whether you use an IRA or your 401(k), a target-date fund can be a useful way to invest. Its low-maintenance simplicity makes an easy choice both for employers looking to adopt automatic enrollment, and for workers wanting the ease target-date funds offer.

Prepare for your golden years
For additional useful advice, I encourage you to take advantage of a free trial of our Rule Your Retirement newsletter service. It's prepared by Robert Brokamp, a smart and witty guy who distills all of what you need to know into a manageable volume each month.

A 30-day free trial will give you full access to more than five years of issue archives, allowing you to gather valuable tips and even read how some folks have retired early and well. Robert regularly offers recommendations of promising stocks and mutual funds, too.

Looking for the right stocks for your retirement portfolio? Let Dan Caplinger show you seven stocks you can retire on.

This article was originally published on Jan. 14, 2008. It has been updated by Dan Caplinger, who doesn't own shares of the companies mentioned. CNOOC is a Motley Fool Global Gains selection. Johnson & Johnson is a Motley Fool Income Investor pick. The Fool owns shares of GlaxoSmithKline. Try any of our investing services free for 30 days. The Motley Fool is Fools writing for Fools.