Anya Kamenetz Generation Debt

Have you started preparing for your retirement? If not, you should -- now.

The 401(k) is Americans' chief retirement plan, and the money you contribute at the beginning of your career has the most power to grow over time. A bill sponsored by Rep. George Miller (D-CA), likely to be voted on next month, would make it easier to make good decisions about your 401(k) by requiring clearer disclosures about fees and commissions, and requiring plans to offer a low-cost index fund option.

That's great, because if you're like most young people -- heck, most people -- you feel you don't know enough, or you don't make enough, to get started with investing for retirement. But you shouldn't wait for the laws to get less confusing. There's no day like today to start contributing to your future.

Marc Bruno would certainly agree with that statement. He's a journalist in his early 30s who started working for Crain's Pensions & Investments, an industry publication, a few years ago.

"Every other week we were writing about a different company freezing its defined benefit [pension] plan and enriching the 401(k) for new workers," Bruno says. "And it dawned on me, I'm that new worker and so are my friends and peers."

So he wrote the book "Save Now or Die Trying: Achieving Long-Term Wealth in Your 20s and 30s" to give us the information that's not always included in that confusing packet Human Resources provides. Here are Bruno's essentials.

"The biggest mistake people make is just not participating," says Bruno. "It's amazing how many people don't bother. You just don't realize how much money you're leaving on the table."

Shockingly, only 18 percent of workers under 24, and just 38 percent of workers under 35, contribute to employer-sponsored retirement accounts even when they are available.

The rewards of contributing are threefold. One reward is the employer match: If you put in money, your employer will put in money, too. The second is the tax-sheltered nature of 401(k) contributions -- money that you put in is deducted from your taxable income. The third is the time value of money; thanks to compounding, money you save in the beginning of your career will grow much more than anything you sock away in your 50s.

Bruno spells all of this out with real-world examples. Here's one:

Let's say you make $50,000 a year and have a 100 percent employer match on your 401(k). You contribute just 6 percent of income, or $3,000 a year. At the end of the year, you have $6,000 saved for your future, and you bring home $34,310 after taxes. When you retire, 30 years later, that one year's contributions could be worth $45,674 or more.

Your sister is making the same salary, but she chooses to save $3,000 in a regular savings account. At the end of the year, not only does she have just $3,000 banked (plus maybe 2 percent or 3 percent interest), she's netting just $33,500 in take-home pay, because she took neither the tax benefit nor the employer match. That's what they call leaving money on the table.

So call up your HR department today and say you want 6 percent to 10 percent of your paycheck placed into your 401(k).

Have no idea where to put your 401(k) money? Don't want to spend more than five minutes deciding? Bruno has this advice for you: Choose life-cycle funds. These are the options with dates at the end like Fidelity Freedom 2045 or State Farm LifePath 2030. There's a list of low-cost life-cycle funds here.

The beauty of a life-cycle fund is that it has a predetermined mix of stocks, bonds, and other investments that automatically rebalances over time for the correct mix of growth and stable value. It is designed to be a one-stop shop; theoretically, you could put all your money into a single life-cycle fund from now until retirement and be just fine.

"I'm a huge fan of autopilot," says Bruno. "It's like having your own money manager."

But if you want a little more control and you've graduated from the fingers-in-your-ears stage of investing, listen up. In your 20s, your retirement money should be invested in 80 percent to 100 percent stocks. This is important -- the stock market has been volatile lately, but as a young investor you have the luxury of taking the long view, and stocks simply provide the best options for growth.

First, look to the U.S. market, where you want to own a mixture of large-company stocks, known as large-cap for capitalization (like the S&P500), and small-cap stocks (the precise proportions will depend on your risk tolerance).

Then, Bruno and I agree that the most important direction for diversification is in international funds -- both developed countries and emerging markets like China, India, and Brazil -- such as the Fidelity Spartan International Index or the Vanguard Total International Stock Index Fund. This is true especially now, because U.S. markets represent less than half -- and falling -- of the value of global equity markets.

Overall, Bruno says his best piece of investment advice came from Christine Benz, the director of mutual fund analysis at Morningstar  and co-author of the "Morningstar Guide to Mutual Funds": "The investor who shops for the cheapest funds will usually be far better off than the investor who chases the funds that have had the best past performance."

This means you want to look at the expense ratios of your funds, which are published right up front in any prospectus, and try to make sure they're well below 1 percent. Index funds tend to be the cheapest because they are not actively managed. That means, rather than buy and sell the stocks in the fund often to try to get the best returns, an index fund simply holds a little bit of a very large number of stocks, aiming to replicate a stock index such as the S&P 500. (See a long list of no-load index funds here.) The original index fund was the Vanguard S&P 500, which still has some of the lowest costs in the business -- currently an expense ratio of just 0.15 percent.

One of the common excuses Generation Debt gives for not saving for retirement is that they have student loan and credit card debt to pay off first. In most cases, that argument just doesn't wash. Are you really dedicating every extra cent to paying down debt, or will you not even miss a 6 percent deduction from your take-home pay every two weeks?

If you have student loans, make the standard payment each month and contribute to your 401(k), too. 401(k)s, with the employer match and tax benefits, offer a return that beats the pants off of the 3 percent to 7 percent interest you're paying on your student loans.

The only time it may make sense to defer retirement savings for a bit is if you have a massive amount of high-interest credit card debt. Then Bruno has a suggestion for you: Consider taking a loan from your 401(k) balance. Instead of paying back 10 percent to 20 percent to a credit card company, you'll be repaying a low level of interest to yourself. But be careful. Some of the risks are summarized here.

A final wrinkle that comes up in employer-sponsored retirement plans is that young people switch jobs a lot -- according to the Bureau of Labor Statistics, 10 times by age 36 is the new norm. The youngest workers, those younger than 25, are also twice as likely to hold a temp, contract, or other type of job without benefits. This all means we're very unlikely to have our retirement decisions taken care of with a single 401(k) plan. But that's okay, as long as you're prepared to take the correct steps to roll it over.

That's why young workers need to know the ins and outs of Individual Retirement Accounts, or IRAs. I'll cover that in next week's column.