Seven Common 401(k) Mistakes
This Sunday on the radio show, I spend some time reviewing common 401(k) mistakes being made by folks still in the workforce. I thought I’d lay them out here as well. And while this discussion is written around 401(k)s, don’t think you’re immune because you have a 403(b). You can make the same mistakes with those that you make with a 401(k).
So enough about what applies where, what are the mistakes?
1. Saving Too Little
For a worker to retire with $1 million dollars, they would need to save an average of $1,000 a month, each month, for 30 years. And that’s assuming a 6% return.
2. Saving Too Late
Saving $1,000 a month is difficult, make no mistake. But the earlier you start, the less you need to put back each month to reach that $1 million target.
3. Mixing Up The Max
A lot of folks only contribute up to their employer maximum match, which is usually 3%. Saving 3% of their annual salary usually doesn’t come close to the $18,000 they’re allowed to contribute each year, not including the extra $6,000 they’re allowed to contribute (total of $24,000) once they hit 50. And don’t forget, the maximum contribution limit does not include anything contributed by an employer.
4. Putting Saving Second
There are always extra things that can be bought with a boost in income, but not saving for retirement is literally not paying yourself in the long run.
5. Staying Out Of Touch On Taxes
This one is pretty simple: 401(k) contributions are pre-tax. The more you save now, the less taxes you will pay each year.
6. Making No Moves
A lot of folks set up their 401(k), pick a fund (or funds), and never look at their investment strategy again. Some don’t ever change off the default investment, which are usually “target-date” funds offering little risk but little return.
7. Refusing To Rebalance
A lot of 401(k)s have sophisticated tools to manage their funds and rebalance to keep risk in check, but they mostly go unused.
If you’re still working, remember your 401(k) or 403(b) are investments like any other. They should be monitored and managed. Have any questions about what you should be doing? Give us a call at 215-657-9200 and let’s set up a time to take a look.