Avoid These 4 Big 401k Mistakes in 2020
One of the biggest factors in your long-term financial success is avoiding the big mistakes. Unfortunately, we see many of the same common errors that—over a person’s career—can cost thousands if not hundreds of thousands of dollars. Try to avoid these 4 big mistakes in your 401k in 2020
Watch: Avoid These 4 Big 401k Mistakes in 2020
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Mistake 1: Not Maximizing Your Match
Many employers will match your 401k contribution. If you put money in your account, your employer will too. We typically see that amount range between 3% and 6% of your pay.
Unfortunately, we see people who won’t maximize their employer’s match. Not only are you not receiving all the pay you should, the long-term impact on your nest egg can be huge.
Mistake 2: Not Saving Enough
Most financial planners suggest you should try to save between 10-15% of your pay for your future. In fact, the amount you save is the biggest factor in your long-term success.
Unfortunately, we see people who limit their savings level well below that. Often times, people will cap their savings in their 401(k) at the point where they maximize the employer match. For most of us, this probably won’t be enough to have the type of retirement we want.
Mistake 3: Not Pursuing Growth
A Nobel Prize winning economist once did a study that showed financial losses feel twice as bad as financial gains feel good. As a result, many people get more conservative with their savings than they should. This means they don’t put enough money in stocks.
Not being aggressive enough can lower your returns over time. This actually adds more risk to your long-term plans.
Mistake 4: Withdrawing Money From Your 401k
Whether you change jobs or take an in-service distribution, withdrawing money from your 401k gets very expensive.
Most times we see this when people change jobs. Instead of rolling their balance to an IRA or their new employer’s plan, they withdraw the money. This results in taxes, early withdrawal penalties, and the loss of future compounded growth.
If your plan allows for in-service distributions, the costs will be similar. Most of those distributions will be taxed and penalized. The penalty applies when you are under age 59 ½.
How Much Will These Mistakes Cost?
How much will these mistakes cost you? The numbers can be shocking. The longer you have until retirement, the bigger the cost. We have a special webinar where we illustrate the potential cost of these 4 mistakes. Click on the button to watch.
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About the Author
Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors He typically works with people who are planning for retirement. Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio. Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.