Top 5 401(k) Mistakes You're Making and How to Fix Them

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September 29, 2017

Retirement planning is more than just participating in your company’s retirement plan. You have to take an active role to achieve your goal. Here are five retirement planning mistakes you could be making and how to fix them.


  1. Turning Down Money

About 1 in 4 participants don’t take advantage of their employer's maximum match. It’s can be due to confusing policy choices, but be sure you are pocketing the maximum match from your employer. Also, a typical plan should include a 6 percent contribution from your salary. Most auto-enrollment programs default employee’s contribution to 3 percent.


The fix: Even with auto-enrollment, it’s important to check that you are contributing enough of your salary to achieve the maximum match.


    2.  Contributing Too Little

         Studies have shown that you should save around 15 percent of your earnings to have the income you will need upon retiring. Most people are only saving up to 6 percent and even with a matching program from employers, it is still not enough.


The fix: Increase your contribution rate by at least one percent every year if not more. Contributing up to 15 percent is key to a steady retirement fund.


   3.   Turning down the Roth 401(k)

         Half of employers now offer a Roth 401(k) but less than 10 percent of people take advantage of it.


The fix: Focus on the payoff of a Roth 401(k) even though your contributions are made with after-tax dollars.


    4.  Poor Allocation Strategy

         Most people are either too conservative or gamble with no awareness of the downside.


The fix: Most retirement plans offer tools to help you sort through allocation decisions. Try to create an age-appropriate mix of stocks and bonds as well. With all of these allocation decisions, be sure to benchmark it using your expected retirement date.


    5. Staying in an Expensive Plan

        When you leave a company, you have the option to move your money out of that retirement fund. A good test to see if you should find another option is whether or not the plan’s investment options charge an above-average annual expense ratios which could easily be found online.


The fix: If the fees on your current 401(k) are high, it’s time to figure out your next move. Before transferring money into a new plan, check to be sure that the options are low cost. Another option is to move your money directly into an IRA account.


These are very common 401(k) mistakes but following these tips will jumpstart your retirement planning success.