After three straight years of losses in the stock market, many 401(k) participants are getting discouraged. Why save at all if you're only going to lose it? But now--more than ever--you need to resist that kind of thinking and, if anything, increase the amount you are saving in your company retirement plan.

If you find that you are now "behind" in your retirement-planning process, there's good news from the tax-law front. You can contribute even more in 2003. Here are six steps to making the most of your 401(k)--and securing your financial freedom in retirement.

1. Focus on Your Goal
Just what is it that you want your retirement dollars to do? As you get closer to your retirement goal, you may want to work on preserving your portfolio. As a result, you may find you no longer want to take on a lot of risk. So think about what you want your investments to do. And if you are now in a position to preserve your wealth, don't be afraid to shift more of your investments to bonds or cash.

If your retirement is at least 15 years away, you can probably afford to keep more of your retirement plan in stocks. Focus on solid growth investments, such as large-cap stocks. True, the market is full of wild ups and downs, but you have time on your side. Just don't panic when the inevitable downs come your way (as they have over the past three years). Keep socking it away.

2. Contribute Money NOW
Most of us have thought at one time or another, "I just don't have the extra money right now to contribute to my plan." Don't believe it! Even if you start by contributing just 1% of your pay, you must make your financial future a priority.

This is even more important if your employer matches part of your contribution. Let's look at an example. Say you earn $35,000 a year and you are contributing 10% of your income to your retirement plan. If your employer matches 100% on the first 4%, your total contribution to the plan is $4,900. That's $3,500 from you and $1,400 from your employer. Due to the positive effects of compounding, over 10 years' time, that $1,400 could really add up--to more than $20,000, in fact. And don't forget the tax benefit. Your $3,500 contribution can shave almost $500 off your tax bill. All in all, a 401(k) plan is a powerful way to build a nest egg.

So start contributing now. Contribute as much as you possibly can. And if you can start with only a 1% or 2% contribution, promise yourself to increase your rate every year until you max out. For 2003, you can contribute up to $12,000 per year to a 401(k) plan, or $14,000 if you’re age 50 or older.

3. Choose Investment Options Wisely
What do people do when they don't know which investments to pick in their plans? They choose them all. Bad idea. This isn't like a smorgasbord where you can try a little of everything. It's important that you understand your investment choices and choose the ones that are right for you.

Let's talk specifics. If you want growth, start with a stock fund that invests in large U.S. companies. You probably don't need more than one or two large-cap funds to build the core of your portfolio. Don't fall into the trap of trying to pick the next home-run investment. When it comes to saving for retirement, consistent, positive growth wins.

If you want stability in your plan, take a look at the stable-value or fixed-income choices. It's true that interest rates are probably at a low right now, but if you choose a stable-value fund that invests in fixed contracts, you should be able to protect your principal.

Bottom line? It's all about balance. By choosing a mix of growth stocks and fixed income, you can limit the overall risk you are taking.

4. Think about Your Plan When You Change Jobs
Most of us change jobs about every four or five years. There are a lot of things to consider when starting a new job. How much will I make? What insurance coverage will I have? Should I drive or take the train? But too frequently people forget to think about how a new job will affect their retirement plan. Even worse, some people just tell their previous employer to give them the cash in their 401(k) account. Big mistake.

It used to be that we could look forward to a pension when we reached age 65. No more. Your 401(k) is your pension (for most of us). If you blow your retirement savings on a new car when you change jobs, it's like landing on the "Go to Jail" square in Monopoly. You'll have to pay penalties. You'll have to pay income tax. You lose all that compounding of returns. In short, you never fully recover. So when you change jobs, think carefully about what to do with your nest egg--even if that egg is only a few thousand dollars.

If your previous employer had good investment choices in its plan and you've invested more than $5,000, you can just leave the money where it is. If your new employer has better investment options in its plan, you can roll the money over into the new plan. Or, if you want to open up even more investment choices, you can roll the money into an IRA account. Most big investment companies will even allow you to choose funds not only from their family of offerings but also from those of their competitors.

5. Don't Borrow from Your Plan
The ability to take a loan from your retirement account is often touted as a great feature of some 401(k) plans. But except for extreme circumstances, it's generally a bad idea. First of all, you are derailing your savings plan. With less money in the account, there is less that is compounding for your future. And if you are paying back your loan, it's going to be a lot harder to pay the loan and maintain your current contribution rate. Finally, you actually end up paying tax twice on the money you put back in your account.

If you have to borrow at some point in time, try to find other alternatives. Maybe you can borrow from your insurance policy instead, or take out a home-equity loan. Just remember to preserve your retirement account, if at all possible.

6. Keep Beneficiary Information Up to Date
One of the things we always do in financial planning is review your beneficiary designations. And that goes for your 401(k), too. People sometimes wind up with deceased parents, friends from college, or ex-spouses listed as current beneficiaries. Frequently this happens with accounts that were opened when the person was very young.

So do yourself a favor. Call your human resources representative and ask to see your current beneficiary designations. Don't waste all that hard work socking money away only to have it go to someone who's no longer a part of your life.

What this all boils down to is controlling your own destiny. If you haven't started to contribute to your plan, do it today. If you have started, increase your contribution level. Research your retirement plan's investment options. Make those dollars count. And try not to derail your plan by pulling money out early.

Retirement is taking on a whole new meaning today. It's a time of life that is full of new choices. You may choose to still work, but at a more leisurely pace. You may be able to try something new you've always wanted to do. But reaching that stage of financial freedom takes forethought. It's worth taking the time today to make smarter investment decisions for tomorrow.

A version of this article originally appeared March 14, 2002.