Starting a retirement plan takes a dose of determination and a bit of strategy.
"Managing a 401(k) can be intimidating for young people who have little-to-no investing experience," said Catherine Golladay, vice president of participant services and administration at Schwab Retirement Plan Services.
Add to that volatile market conditions and it's no wonder many first-time workers are feeling lost.
In fact, 75 percent of millennials say they would like help managing their 401(k), yet just 7 percent are receiving any, according to a recent survey by Schwab. Altogether, about half said that they don't know what their best investment options are.
To that end, here's advice from the pros on kicking off your 401(k) plan the right way.
1. Start now
Depending on where you work, you may be able to sign up on your first day. Some companies may require a waiting period before you can participate.
If you can't contribute right away, use that time to get into the habit of saving money from each paycheck, said Golladay.
For example, if you plan to allocate 6 percent of your salary to your 401(k) plan once you're able, then take that 6 percent and put it toward an emergency fund or paying down high-interest debt or student loans in the meantime. That way, you'll get in the habit of saving regularly and improve your financial standing along the way.
Right now, the median contribution for all ages is 7 percent of annual pay, according to the Transamerica Center for Retirement Studies.
"That's a great start but try to get up to at least 10 percent," said Catherine Collinson, the center's president.
2. Play the match game
One of the greatest advantages of saving in a 401(k) plan is that many companies offer a matching contribution.
While 73 percent of all plan sponsors offer a match, according to Transamerica, a separate report from Aon Hewitt found that nearly a quarter of those workers didn't get the full amount last year.
If your company has a match, you should contribute enough to take full advantage of it, experts say. Not participating enough to get the full 401(k) employer match is like leaving money on the table, they say.
"The match is like an automatic return on your investment that you can't get anywhere else," Golladay said.
3. Consider your investment options
A typical 401(k) will come with a wide selection of funds across several asset classes, such as large-cap stocks, international stocks and bonds.
Current market swings can skew your 401(k) allocations if, for example, stocks either underperform or outperform bonds in your portfolio.
Make sure you're allocated to give yourself the balance of potential growth and risk and don't put all your eggs in one basket — and that includes company stock, Golladay said.
Your 401(k) plan could also include some low-cost investment options, like index mutual funds and exchange-traded funds. These kinds of funds typically have lower fees, but it's wise to check either way. "Ask what investments are available and what it costs," Collinson said.
4. Tap the professional 401(k) advisors
Choosing the right allocation in a 401(k) can be confusing for anyone, and particularly so for first-time employees. One mistake millennials often make is being too conservative, said Collinson.
"They're the most likely to have retirement savings in low-risk investments. They may not realize their longer-time horizon offers a greater growth potential in equities and dollar cost averaging," she said.
Many 401(k) plans do offer some form of managed account service or third-party, professional advice, often at an extra charge. If your plan does not feature an advice component or you would rather not pay for that, consider a target-date fund, Golladay said, which puts the plan on autopilot.
"These funds adjust their stock/bond mix to be more aggressive when you are younger and more conservative when you near retirement."
5. Don’t forget the tax implications
For those new to retirement planning, it is important to note that different types of 401(k)s will impact your tax plan, too.
For example, traditional 401(k) plans can help lower your annual tax bill because you make contributions with pretax dollars. A Roth 401(k), also increasingly offered by more companies, is funded with after-tax dollars instead, meaning the money is taxed when you contribute but when you withdraw from your account in retirement it's tax-free (after you meet certain requirements).
This option is particularly attractive for younger workers, who anticipate retiring in a higher tax bracket than the one they are in now. But many plans also allow you to do both.
"If in doubt, call the retirement plan provider," Collinson said.