401k © Tom Grill, Corbis

More workers are putting money into their 401k's, but nearly half don't know what their best investment options are, and one-third are stressed out about it, according to a study released this week by Charles Schwab.

The study finds that 57% of 401k participants wish there was an easier way to figure out how to choose the right) investments. More than half find explanations even more confusing than explanations of their health-care benefits. That confusion could have serious consequences for workers down the road.

"The big risk is that they end up with a nest egg that's far short of where it needs to be to fund their retirement," says Jack VanDerhei, a research director at the Employee Benefit Research Institute. That's troubling, considering that 61% of those surveyed by Schwab report that their 401k is their only or their largest source of retirement savings.

The 401k account is one of the best ways for employees to save for retirement. You can't beat the tax breaks, and if your company offers an employee match, that's free money. This year, workers can stash up to $17,500 in the accounts, and those over age 50 can put away an additional $5,500.

But employees are largely responsible for determining how to invest that money, and that's where the potential problems lie. VanDerhei says novice investors make two major mistakes when it comes to their 401k's: Not having an asset allocation appropriate for their age, and putting too much of their 401k into company stock.

Employers are also aware that their workers are overwhelmed by their 401k choices. A Towers Watson study released last year found that only one in five large companies believe their employees generally make informed decisions about retirement savings, and only 26% believe their workers have realistic expectations about what defined contribution plans can provide.

"We all know that there's a problem [with employee confusion about 401ks] but fixing the problem is an issue," says Robyn Credico, a senior retirement consultant at Towers Watson. "Most employers feel that they're giving people the tools, but the employees aren't using them."

Two-thirds of companies offer some sort of investment advice along with their 401k plan, according to a study by the Society for Human Resource Management. The organization found that 55% of employers offered online advice, 44% provided one-on-one advice, and 41% offered group sessions. Another 39% of companies gave advice specifically about retirement.

If your employer offers such a benefit, take advantage of it. The Schwab survey found that investment confidence nearly doubles, when workers have the help of a financial professional.

VanDerhei recommends that investors overwhelmed by choices and unsure of how to appropriately invest should consider putting their money into a target-date fund (offered by about two-thirds of plans), which corresponds to the year in which an investor plans to retire and shifts assets from stocks to bonds as that year approaches. (Target-date funds are no guarantee that you'll be set in retirement. After the market crash in 2008, some investors suffered big losses because their target-date funds were inappropriately allocated.)

If you're selecting funds on your own, look for index funds, which tend to be cheaper and less risky than actively managed funds. Use the investor profile tool offered by your benefit provider (or this one by Vanguard) to get a suggested asset allocation based on your risk profile and goals.

Then plug potential funds into Morningstar.com to look find their expense ratio. For stock funds, you'll want an expense ratio that's below 1%, says Michael Kimmel, a wealth manager with WealthStream Advisors.

"The underlying costs are really important," Kimmel says. "People don't realize that they're paying money to the mutual fund companies, because it just comes out of their returns. But with high expenses, that's just one more hurdle to clear when it comes to returns."

When it comes to meeting your retirement goals, the amount you save is even more important than how you invest it. To that end, the workers surveyed by Schwab appear to be on the right track. More than half have increased their savings rates in the last two years, and 70% say their 401k is in better shape now than ever before. Three-quarters of those surveyed say their 401ks have recovered from the financial crisis about as fast or faster than expected.

Still, workers are far from where they need to be when it comes from retirement savings. At the end of last year, workers age 55 and older those closest to retirement had an average $255,000 in their 401k balances. That may seem like a large sum, but it may not cover all of their post-work expenses, a separate Fidelity study found that out-of-pocket healthcare costs for a typical retired couple total more than $200,000 alone.

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"There are a lot of people out there who think they are a heck of a lot richer than they really are," VanDerhei says.

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