DIY pension plans

NEW YORK – The professionals who managed your pension fund used to ensure you’d be ready for retirement. That was their job. At many companies, pensions are no longer a promise, which means you might need to do the work of a professional retirement fund manager yourself.

Of course, you’re not ready.

You already have plenty of work at your real job. You probably never took a class on money management or personal finance. You may find the personal finance section of bookstores and libraries a bewildering forest.

You also lack one of the great advantages most of the professionals have: With each new worker, a corporate pension plan puts away a little more money, with a much longer horizon. The only beneficiary of your plan is you, so the horizon is much more solid.

There are a few simple things you can do to be smarter about your retirement. If you’re reading this, the chances are great you’re already doing them. But if someone you know could be making smarter plans for retirement, collar them. We’re making big mistakes when it comes to retirement planning and the sooner we fix them, the better off we’ll all be.

•Are you passing up your company’s 401(k) plan? A pension bill President Bush signed Thursday will automatically enroll workers in their company’s 401(k); you’ll have to work to drop out, not opt in.

While you may think you can’t afford to be part of your company’s plan, remember that if you put away just 1 percent of your salary, you should. After all, if you invest even 1 percent of your income in the 401(k) plan, that’s 1 percent you won’t have to pay taxes on. And if your employer matches even a small part of your 401(k) contribution, it’s offering you extra money, with no current tax consequences.

•Do you know the limit on the percent of your salary you can contribute? There is a dollar limit to your contributions, but the percentage you can contribute may be higher than you think. Under the law, the 2006 pretax contribution limit is $15,000, but if you’re older than 50, you can make an additional catch-up contribution of $5,000 per year. Only 9 percent of participants in funds administered by Vanguard, the big mutual fund company, saved the maximum amount allowed under the Internal Revenue Code.

•Are you considering your funds’ costs? Half the people who buy funds directly look at costs, according to a survey by the Consumer Federation of America. But only 30 percent of people who buy through a work plan and 33 percent of those who buy through a professional look at costs, their survey found.

•Have you checked out your planner? The Consumer Federation found that 28 percent of current mutual fund owners who bought most of their funds from a financial services professional said they relied totally on that professional’s recommendation without doing any research. None.