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Many Americans consciously ignore their 401(k) accounts in the same manner that they may ignore necessary maintenance to their cars. That is, as long as you're moving ahead, is it really so bad to put off routine maintenance or tune out that odd rattling sound?

However, in the case of your 401(k), you can't afford to wait for a breakdown, because it may be your only savings vehicle to take you to the future. Indeed, as more employers opt to cut costs and discontinue traditional pension plans, the 401(k) will become for many Americans, along with Social Security, their chief source of retirement income. And the shift of responsibility from employer to employees has left many angry, challenged and scurrying.

According to a recent paper by researchers from the Wharton School and Dartmouth College, "only a minority of American households feels confident about retirement saving adequacy," but it is unknown "whether planning and information costs might affect retirement saving patterns."

One out of three employees who are eligible to join a plan don't bother to, and those who do join tend not to save enough, according to a Money Magazine report from last fall. And the vast majority of retirement plan participants who do buy into a 401(k) plan simply sign up and forget about it, reported the Pension Research Council early this year.

How Neglect Hurts
What would happen if you simply put your money into the plan and didn't choose your funds? The money would go into the "default" fund, typically a conservative investment like a money market fund. If you selected stock or bond funds, what difference would that make?

Here's a look at three different types of mutual funds—a stock fund from Fidelity (Spartan U.S. Equity Index Fund), a bond fund from The Vanguard Group (Total Bond Market Index Fund), and a money market fund from T. Rowe Price (Prime Reserve)—as examples of how these three main investment types performed over different time periods:

Note that returns for the past 10 years included a sharp downturn in the stock market in 2000-01. Of course, past performance doesn't guarantee future results.

Imagine that in 1995 you invested $10,000 in each of the above funds and never added to it, and that the funds grew at the 10-year average rates shown. (In real life, of course, you and possibly your employer would steadily add money with each paycheck.)

By 2006, here's how the funds would have grown:

The savings "abandoned" in the default money market fund would amount to only $14,105. Worse yet, the money actually hasn't grown in actual buying power; it has done little more than keep up with inflation.

The stock fund did more than 30 percent better than the money market fund.

Does that mean you should put everything in stocks? It's not a good idea, because what if you retired just as the stock market was plummeting? In 2000, some people lost a quarter of their savings or more. Those who retired then didn't have time to wait it out and recoup their losses. As for bonds, "The more you use," writes Steven Goldberg in a recent Kiplinger article on retirement funds, "the less volatile the anticipated performance, but the lower the long-term return."

Owning a mix of stocks and bonds is your best bet for gaining the possibility of growth while avoiding extreme ups and downs.

How to Nurture Your 401(k)

Managing an individual 401(k) account can be straightforward and painless: Consider the following six steps and apply the same principles to plans you may have with past employers.

Step One
Contribute the maximum. Or at least enough to gain the total employer match, if there is one. In December, Money Magazine reported on a 2005 study by Putnam Funds, which found that if you were making $40,000 in 1990 and started saving 2 percent of your salary, you would have $40,000 in 15 years. But if you contributed 6 percent, your savings would have tripled. Contributing the "max" won't reduce your paycheck as much as you might think. The amount you save is not a dollar-for-dollar loss in pay, since the money goes into the plan before taxes. Ask your payroll department to see if you can increase your income-tax exemptions to further reduce the bite and still not owe additional tax at the end of the year.

Play catch-up: For 2006, the maximum tax-free annual contribution to a 401(k) is $15,000, but it rises to $20,000 for people over age 50. This change allows people closer to retirement to recover from contributing too little in the past or from the stock market downturn in 2000.

Step Two
Diversify and allocate. Experts recommend that you diversify and allocate your savings,—that is, spread them among a variety of "asset classes," such as stocks and bonds and then decide what proportion of your assets to assign to each one. This can help limit losses, because as one area of the investment market goes down—as tech stocks, especially, did in 2000—others may be going up. This technique is not a guarantee against loss, however. How much to invest in stocks, bonds and other asset classes depends on your age, years to retirement and ability to tolerate risk (the market's ups and downs).

How do you decide? Even financial experts are far from agreeing when giving general advice. In October of last year, the editors of Money Magazine recommended that if you are still more than 10 years from retirement, you should aim for growth with a mix of 86 percent stocks and 14 percent bonds. But this is a very aggressive strategy, which may not be advisable for you. (If stocks sank, so would 86 percent of your portfolio.) Consult a financial advisor to design the retirement savings approach that best suits your goals and circumstances.

Step Three
Rebalance. Check once a year or so to see if your percentages still hold. If you decided on 75 percent stock and 25 percent bonds and then the stock market surged, your stock portion might drift to 85 percent. You could return it to 75 percent by transferring money from stocks to bonds.

Step Four
Update your beneficiaries. What if you got divorced, later became engaged to someone else and died suddenly without having added your fiancé(e) as a beneficiary? Your fiancé(e) wouldn't see a penny. Even if the people you've designated remain the same, check each year to see if you need to update information on them—when a daughter marries, for example. Remember to name a contingent beneficiary in case your primary beneficiary dies.

Step Five
Become informed. If your employer offers financial education meetings and newsletters, take full advantage.

Step Six
Look into combining multiple plans. You may have a few retirement plans from past employers. By combining them, you can simplify your finances, receive one consolidated statement, and be able to see at a glance how much money you have and how it's invested.

If you transfer money from other employer plans to that of your current employer, you gain a unique advantage—if you are planning to work into your later years. "Normally, the IRS requires you to start taking retirement plan payments after you reach age 70½" says retirement law specialist Ian Davies at financial services firm TIAA-CREF. "But if all your money were in your current employer's plan, you wouldn't have to begin any payments until after you retired."

By rolling money from past employer plans into an IRA, you may be able to reduce your administrative expenses. But consider an investment company with no sales charges and low management fees, which would otherwise eat into earnings.

Note: Avoid having the money sent to you directly because you will owe income tax on it for that year. Don't try this on your own. Fees, charges or taxes could apply, so consult the benefits professionals at your current and past employers and speak to your accountant or tax advisor before making a decision or taking action.

Ann Webre, based in New York City, writes about investment issues.

The information provided is for general guidance only, and does not constitute the provision of legal advice, tax advice, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, legal, or other competent advisers. AARP cannot recommend that you purchase shares of a particular fund or any security because AARP is not a registered investment adviser or broker-dealer.