December 29, 1997

Q. I am a 35-year-old woman who is dependent on her 401(k) for retirement. My company matches 6 percent of my $37,000 salary. I currently have $12,975 in the plan: 70 percent invested in Fidelity Magellan fund, 15 percent in Janus Worldwide fund, and 15 percent in American Century Income and Growth. I also invest $140 per month in an IRA. My husband says it is unwise to invest more than an employer will match. What do you think? Is my portfolio diversified enough? I would like to have at least $750,000 to retire on at age 60.

A.C., Fort Worth

A. According to my calculations, you should be right about on target.

If we presume 10 percent average annual growth from your 401(k) with ongoing contributions of $4,440 a year ($2,220 each from yourself and your employer), the account would be worth $597,271 after 25 years.

It's the IRA that will get you over the top. You don't mention the current balance of the IRA, nor how it's invested. But even if you have just started the IRA, after 25 years of $140 monthly payments it would grow to $172,802 by age 60, presuming 10 percent average annual growth. (And if you could kick that $140 up to the $166.66 monthly maximum, it would be $205,708.)

Anyway, the course you're following now would take you to $769,073 in total retirement savings at age 60. (Although you should remember that these are only rough approximations, likely to have a 10 percent margin of error.) Your fund selections are basically solid, but you should add another element that might provide some spark to the portfolio: a good health care fund.

If you have $1,000 or more currently in the account, I suggest Vanguard Specialized Health Care. If the balance is less than $1,000, which is Vanguard's minimum for IRA accounts, you could use Fidelity Select Health Care, which is also a solid fund and has the lower minimum.

As for your husband's opinions on retirement saving: Employer matches of retirement savings are wonderful, and in fact the most foolish thing a person can do is not take advantage of every penny.

But the critical thing is that you'll need money in retirement, and if you work for an employer who doesn't match your contributions, that simply means you need to save more, not less. After all, in the projections I made for you, the employer matches will have accounted for nearly $300,000 of that nest egg after 25 years.

Second, not only does the IRA represent the critical addition that allows you to attain your goal (at least on paper), but it supplies you with a nice tax deduction and tax-deferred growth until it is withdrawn.