The Worst 401k Mistakes You Can Make
If you have a job that offers you a 401k then, providing you’re using it correctly, you would be on a very good path to having exactly what you need when you retire. There are, however, a few serious mistakes that you need to ensure you are avoiding in order to properly maintain your retirement nest egg. Here are some of the most obvious ones that many people make:
Not Saving Enough or Starting Early Enough The common rule is that the earlier you start saving for retirement the better off you’ll be. So while it might be difficult to get used to setting aside a percentage of your paycheck, come retirement time you’ll be grateful you did. It’s also important to ensure that you’re saving enough of your paycheck. If your employer has set a default savings rate don’t just stick with it because you think they will know best. They don’t know all the specifics of your situation, so really think about what percentage would be best for you and your future.
Not Paying Attention to the Fees It’s important that you understand exactly what’s happening to your money when it’s sitting in your 401k plan, and an important aspect of this is knowing exactly what fees you are paying. Whether they are administrative or investment all 401ks come with some sort of fees. Your fees will differ depending upon which investments are offered under your plan and which ones you choose. By law you are allowed to know exactly what fees are coming out of your 401k, but many people don’t know what fees they pay because they don’t think it’s important or they don’t know how to find out. Ask for your annual summary report and thoroughly go through what the fees are costing you. If your company offers index funds choose them as part of your investments as they tend to come with lower fees.
Contributing Below What the Company Will Match If the company you work for offers a program where they match up to a certain percentage of what you contribute to your 401k then you need to make sure that you are contributing up to that percentage. Failing to do so would mean losing out on an important bit of money that you’re entitled to as an employee. It would be like refusing to take part of your salary every year. However, with that being said, don’t just contribute up to the percentage that your employer has agreed to match. It’s unlikely that that percentage will be enough for you to live on in your golden years.