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the age of retirement, it may be preferable to aggressively save and invest as much is possible in 401 (k) plans to avail the tax benefits, especially if you fall in a higher tax bracket. On the other extreme, if you have just started working and are looking to settle a household and get married, then you may decide to first take care of the present. Planning for retirement need not be done at the cost of your life, though you may still invest in 401 (k) for the sake of tax benefits, in a moderate way.

5. INCOME AND WEALTH - Those borne with a silver spoon, i.e.. substantial inheritance, should pay more attention to safeguarding their assets and ensuring a steady stream of income. For them, unless they are having income from work, limits for contributions to 401 (k) plan will be lesser. On the other hand, those with very few assets and approaching retirement must invest as much as they can.

6. LIFE STYLE & PROJECTED EXPENSES - If you are in your twenties, it may be virtually impossible to make any intelligent projection about your post-retirement expenses, though some experts keep trying and coming up with some figures. In such a case, instead of indulging in meaningless jargon of numbers, it would be preferable to save and invest prudently without compromising the present. I would advice not to put all your investments in any single 401 (k) plan because of the long vesting period of those investments. However, once you are in your forties and know the family and personal liabilities that you are likely to face in post retirement years, you should try to plan accordingly.

7. OTHER ALTERNATIVES FOR INVESTMENT - While investing, it is important to understand the after tax returns on investments, both in case of retirement plans and other assets. if the after tax return on other assets, like real estate or shares are likely to be substantially more than the investments in 401 (k) plans, it may be preferable to go for the assets with higher returns. However, the risk associated with these high return assets must be taken into account while making the decision. As a thumb rule, the higher your age, the lower risk you are advised to take.

CONCLUSION

How much a person should invest in the 401 (k) plans or other tax qualified retirement plans depend upon individual choice and situation. All the factors detailed above should be considered while making a decision, and the pros and cons of all alternatives should be considered. Moreover, such decisions need to be taken as a part of comprehensive retirement planning during which one should also plan to have an active retirement life with some part time or free-lance work to keep the body and mind active, and sufficient attention should be paid on health and insurance to keep the health related expenses to minimum.

Generally, those in higher tax brackets and close to retirement age should invest as much as is possible, in the 401 (k) plan. On the other hand, those in twenties and in low or exempt tax brackets may prefer to invest in other instruments that provide higher returns with higher risk. Generally, even for the young, it is preferable to keep investing steadily in plans like 401 (k) because of the tax benefits that add up to make substantial numbers because of the 'compounding effect'. For those approaching retirement, this decision will also need to be linked with other decisions like investing in a residence, which can later be used by way of 'reverse mortgage' to provide a steady stream of income during the last years.

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