401k Advice

Americans tend to be very bad at saving for the future.

In 2016, 43% of workers had less than $10,000 put away for retirement, according to the Employee Benefit Research Institute.

While it’s certainly understandable why people put off thinking about and saving for the future—it feels so far away!—maximizing your retirement savings is one of the greatest gifts you can give yourself and your family.

If your employer offers a 401k plan, it should be even easier to save for retirement. Are you guilty of one of these common 401k blunders?

401k Advice

1. Not saving at all. This often happens when you put off the decision process about enrolling. When you first start a job, you’re inundated with information about everything in your new career, including how to start saving for retirement through the company 401k. Oftentimes, the retirement information is put aside for when you have time to think about it. But for many, that time never comes. Don’t miss out on the opportunity to invest with pre-tax dollars—and defer taxes on the earned interest! You’re just cheating yourself otherwise.  This free 401k calculator allows you to see just how big of an impact this can be.

2. Not saving enough to earn the company match. Many employers offer matching money for a percentage of your savings. This is basically free money. And not only are you getting the actual dollars that your company is matching, but you are also get to watch that free money grow with the magic of compound interest. There is no reason to leave that employer match money on the table. If you are concerned about the hit on your paycheck, step up your contributions gradually so that you can become accustomed to the slightly lighter pay periods.

3. Not thinking long term. If you are one of those individuals who likes to keep a close eye on your portfolio, it can be easy to become disheartened by the regular ups and downs of the market. For those who only ever want to see numbers go up, it can be very tempting to try to chase after the hottest investments and “sure things.” It’s important to remember that your 401k is a long term investment, and chasing after the ideal that your portfolio should always go up up up is a sure way to make yourself crazy. There will be some downturns sometimes, but as long as your investments are generally going up and are in line to take care of you after retirement, then there’s no need to worry. As a closet control freak myself, I limit my detailed perusal of retirement accounts to no more than twice a year. That gives me some insulation from the scary but transitory trends, but allows me to keep on top of things that might end up hurting my investments in the long run.

4. Not keeping the money in there until retirement. If you hit a rough patch financially, it can be awfully tempting to take a hammer to the retirement piggy bank. All that lovely money is just “sitting” there, while you’re struggling with bills. But not only is the money NOT just sitting there (it’s earning compound interest!), it will also cost you big to raid the account. If you withdraw funds from your 401k prior to age 59½, you will pay 10% excise tax on however much money you withdraw, on top of the deferred tax you will owe on the amount. Do you really want to hand over that much of your money to Uncle Sam?

5. Not rolling that money over when you change jobs. Switching jobs can be stressful. With all the details you need to remember, it can be easy to forget about the money you left behind in your old job. You can roll that money over into your new employer’s 401k or into a Roth IRA—and that way you make sure you’re still in charge of all of your retirement funds.

Don’t let your retirement be tomorrow’s worry. If you take care of it today, you’ll be able to enjoy your golden years, not worry about them.

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