Everyone who can, should definitely contribute to a 401k. Skipping this can lead to regrets when you’re older and less willing or able to work. This guide will discuss the main mistakes people make with their 401k plans that could hurt their retirement.
First off, many people don’t fully understand their employee benefits when they start a new job. It’s crucial to thoroughly read the employee handbook and talk to HR about all the benefits available, especially the 401k plan details like the company match and vesting period.
One of the biggest missteps is not maxing out your 401k contributions each year. Starting your career with this habit can make a significant difference in the long run, especially as your salary increases, making it easier to save more.
Another common error is not paying attention to your investments. The financial markets and your personal needs change over time, so it’s essential to regularly review your 401k portfolio to ensure it matches your financial goals and risk tolerance.
Trading too often within your 401k can also be detrimental. It’s generally shown that frequent trading can lead to underperformance compared to the market. It’s better to focus on your job and career progression, which are more likely to increase your earnings significantly over time.
Borrowing from or withdrawing early from your 401k is another mistake to avoid. These actions not only incur heavy penalties and taxes but also impact the compounding growth of your retirement fund. Always try to keep your retirement savings intact to benefit from potential market growth.
Additionally, not continuing to contribute to a retirement plan after changing jobs can disrupt your long-term savings plan. If you become self-employed or start a new job that doesn’t offer a 401k, look into setting up an IRA or a solo 401k to continue saving.
Joining a company that doesn’t offer a 401k or similar benefits can also impact your retirement savings potential. Always consider the full range of benefits, including 401k profit sharing, when evaluating job offers.
Lastly, overpaying 401k fees can eat into your returns. Keep an eye on the fees you’re being charged and consider lower-cost funds to maximize your retirement savings.
By avoiding these common mistakes and making informed decisions about your 401k, you can significantly improve your financial security in retirement.
