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Why You Should Be Putting More into Your 401(k)

investments, retirement
Most Americans are only contributing 20 percent or less of the IRS maximum amount to their retirement funds, which isn’t enough, says the University of Missouri. / Credit: Investment image via Shutterstock

Are you putting enough money into your 401(k)? Even if you've got decades before you hit retirement age, it's never too early to think about your future financial stability. Yet 90 percent of working Americans contribute a minimal amount of their salaries to their retirement accounts, a recent study found.

The University of Missouri study revealed that employee contributions have been steadily declining since the recession. Led by finance professor Rui Yao, researchers found that the number of Americans contributing 20 percent or less of the IRS-determined maximum amount to their retirement funds has more than doubled over the last decade. Just 3 percent of adults ages 21 to 70 reached the maximum contribution level in 2010.

"With the future of Social Security benefits in America very much up in the air, it is crucial that people save and invest for their future retirement," Yao said. "We studied how Americans invested for retirement before and after the recent economic recession, and our findings were alarming. Americans, especially those who are middle-aged, should be saving much more than they currently are, not only for their own financial security, but for the country's sake as well."

[Retirement Strategies for Every Age]

The lingering effects of the economic downturn have led more employers to opt for retirement plans that require employees to invest funds on their own. Since many Americans are concerned about having cash for the present, they're less inclined to invest in their retirement accounts. However, the lack of current contributions leaves a perilous financial future for Generations X and Y.

"Common-sense economic theory tells us we should buy when the market is low and sell when it is high," Yao said. "But Americans are doing the opposite of that and actually contributing less when the market is low. If workers truly want to maximize their retirement funds, it is critical that they contribute more during a weak economy and ease up a little when the markets are higher."

This study was published in the Family and Consumer Sciences Research Journal.

Originally published on BusinessNewsDaily.

Nicole Fallon

Nicole received her Bachelor's degree in Media, Culture and Communication from New York University. She began freelancing for Business News Daily in 2010 and joined the team as a staff writer three years later. She currently serves as the managing editor. Reach her by email, or follow her on Twitter.

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