Most Americans are pretty sure they’ll do just fine in retirement. The latest Retirement Confidence Survey, released in April, found that 65 percent of workers either are very confident or somewhat confident they’ll have enough money to live comfortably in their retirement years.

A lot of us are kidding ourselves.

The survey, by the nonpartisan Employee Benefit Research Institute in Washington, D.C., reported that 20 percent of those who say they are very confident are not currently saving for retirement. And 37 percent of workers who have not saved a dime for retirement are somewhat confident they’ll do all right.

The raw numbers are not encouraging. In 2001, according to the Brookings Institution’s Retirement Security Project, half of all American households headed by people between 55 and 59 had less than $10,000 in sheltered retirement plans such as 401(k)s or IRAs.

Even if you take out the 36 percent of people who had no accounts at all, the median balance in these accounts was still only $50,000. While statistics show that more than 80 percent of eligible workers have balances in their company’s plan, many of them currently are contributing little or nothing to their accounts on payday.

Big procrastinators

Why aren’t we putting more away, especially in retirement plans that save us money upfront on income taxes?

“One of the big reasons is simply procrastination,” said Peter Marathas of Boston, partner in the law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo. “They simply don’t fill out the forms.”

Marathas, who advises companies on employee benefits, said, “People don’t see the benefit, especially if there is no employer match. But it’s mystifying that they don’t even if there is a match.”

Opting out of your company’s 401(k) wasn’t so mystifying in the years when Social Security seemed really secure and most companies offered pension plans that didn’t cost you a dime.

But things are different now.

300 dpi 4 col x 6.25 in / 196x159 mm / 667x540 pixels Richard Hodges color illustration of anxious old men, in small boats crafted from folded paper money, adrift in stormy waters. Columbus Ledger-Enquirer 2002

“Increasingly, the 401(k) is the only retirement vehicle sponsored by the employer, with pension plans and even medical plans being dispensed with,” said Lori Lucas, director of participant research at benefits consultant Hewitt Associates in Lincolnshire, Ill. “So this is much more important.”

Nobody denies that it takes discipline to save, but just about everyone agrees that saving in a tax-sheltered plan is the way to go.

Most large companies and lots of smaller ones match all or part of an employee’s 401(k) contribution up to a certain percentage of pay.

But don’t expect a lot of generosity.

“Because costs are so much higher today,” Marathas said, “companies aren’t devoting the resources to make these benefits as rich as they were.”

To make sure a company isn’t using its 401(k) merely to feather the nests of its top people, plans must pass the government’s “top-heavy test,” said Scott Coleman, a financial planner and certified public accountant with KRD Financial in Schaumburg, Ill.

Stay on ‘top’ of plan

A plan is considered top heavy if “highly compensated employees” – those making more than about $91,000 a year – collectively have more than 60 percent of total plan assets. The company has to even things out, either by giving contributions back to the highly compensated group – and creating some disgruntled employees – or increasing contributions for all employees.

When the employer is in violation of the top-heavy rules, a common corrective measure is for the company to make a nonelective contribution of at least 3 percent for all eligible employees, not just those participating in the plan.

But Marathas said many employers were going to the new “safe-harbor plan,” where they agree to contribute roughly 4 percent to every participant in the plan. But you’ve got to be contributing to the plan yourself to get in on the free money.

Neither the worker’s nor employer’s contribution is subject to income taxes until you take the money out after retirement.

If you keep retirement savings in a mutual fund outside a 401(k), you pay taxes each year on any increase in the fund’s value, slowing the growth of your nest egg. The same money in a tax-deferred account grows faster, and because you may be in a lower tax bracket when you retire, you’ll pay less tax when the time comes.

To compare returns on taxed and tax-deferred investments, go to www.fincalc.com, click on “ConsumerCalcs” and scroll down to Investments, where you can click on “Taxable vs. tax-advantaged saving comparison.”

The IRS says you can put up to $14,000 a year into your 401(k) in 2005, plus another $4,000 if you’re older than 50. But plans vary from company to company, and the rules may limit your contribution to a certain percentage of your pay.

If you want to save more, see if your company will start a Roth 401(k), a new savings vehicle that beginning in January will let you put money you’ve already paid taxes on into a 401(k). No company contribution is involved.

Raising investments

You aren’t even seeing the money, so you don’t feel deprived. And you’ll be feeling downright smart as you watch your balance grow.

“This works,” Marathas said. “People start seeing statements, seeing a buildup, and participate even more.”

Out of sight, out of mind works when you’re just starting a job, but it also works at raise time. If you choose to put say, half your raise into the 401(k), you’ll still see a little boost in your take-home pay. This is especially smart when a raise bumps you into a new marginal tax bracket, the biggest surge coming at $58,101, from 15 percent to 25 percent.

The company must put your contribution into the fund no later than the 15th of the month after it’s collected.

Stay vigilant once your money is in the plan.

“People forget it’s their money,” Marathas said. “A typical employee looks just once a year and then sometimes rebalances. But 401(k) accounts are like any other investment: The rule of attention and the rule of diversity apply.”

Your human resources department must give any plan member who asks a “summary plan description,” which details eligibility, company contributions, distribution options, the plan provider and how to contact them.

The investment choices in the plan are key to how well it serves employees of all ages, and the trend is to outsource management of the plan and let workers divide their money among a variety of investments.

“The retirement-plan market is extremely competitive among different types of vendors, including insurance companies, mutual-fund companies, payroll companies and CPA (certified public accountant) firms,” Coleman said. “I often see employers taking a very simple approach by going with the lowest-cost provider in terms of direct dollars. But the compensation models in the 401(k) market are very complex.

“Knowing the differences between classes of mutual funds is important, and insurance companies often package their retirement plans within group annuities, which can present separate costs of their own.”

And if costs are too high, they can have a dramatic effect.

“Just a couple of basis points can make a difference of tens of thousands of dollars on the back end,” Marathas said.

Marathas thinks employers should put the administration of the plan out to bid “every couple of years, particularly if the fees are coming out of the employee account.”