For instance, assume you earn $50,000 annually and your employer matches 50 cents for every dollar you contribute to the 401(k) plan, up to 6% of your pay. If you put 6% of your pay, or $3,000, in the plan, your employer will match 3%, or $1,500. Your contribution really costs less than 6%, because the money is taken out before income taxes. If you are in the 25% tax bracket, your $3,000 contribution will save you $750 in taxes, or 1.5% of your pay. So, between your contributions and your employer’s match, you will contribute 9% of your pay toward retirement, but it will only cost you 4.5% of your pay.

Made over long periods of time, those levels of contributions can help significantly in funding your retirement. If you contribute $4,500 annually starting at age 30, you would accumulate $837,460 by age 65 with an investment return of 8%. (This example is provided for illustrative purposes only and is not indicative of the rate of return of a specific investment.)

What if you don’t have a 401(k) plan at work? Take a look at individual retirement accounts (IRAs). While you won’t get an employer match, you can contribute to a deductible IRA, if eligible, and contribute pretax dollars, which reduces your contribution’s cost by your marginal income tax rate. In 2007, you can contribute a maximum of $4,000 to an IRA, and individuals over age 50 can make an additional $1,000 catch-up contribution. So, if you are in the 25% tax bracket and make a $4,000 contribution, you will save $1,000 in income taxes. Or, you may prefer to contribute to a Roth IRA. While you won’t get a current income tax deduction for your contribution, you can make qualified distributions free from federal income taxes.

In summary, don’t just assume that you don’t have the funds to save for retirement without taking a very close look at the after-tax cost.