5 Dangerous 401K Mistakes You Need to Avoid
Contributing to a 401K is one of the most important components of your retirement plan. Unfortunately, many individuals fail to realize their retirement account's full potential. Making ignorant mistakes with your 401K can sabotage your plans for a happy retirement. In order to assist our readers on their path to a healthy financial future, we have compiled a list of common 401K blunders to avoid.
Never Increasing Your Contributions
If you live paycheck to paycheck, it can be tough to increase your 401K contributions. However, any time that you get a raise or move up within your company, you should adjust your contributions to reflect your increased salary. The more aggressively you save, the more your retirement account will outpace inflation.
Not Taking Advantage of Your Employer Match
Employer-matching contributions are contributions that your employer makes to your 401K account when you contribute to your plan from your salary. Depending on the terms of your retirement plan, there may be a minimum contribution requirement to obtain your employer match. Ensure that you are allocating enough funds to receive your match, and if possible, aim to hit the maximum amount that your employer will contribute. Your employer-matching contributions don't impact the amount you can contribute to the plan from your salary. The best part is: these contributions are taxable only when withdrawn from your 401K. Want some extra spending money? This site pays up to $25 per survey.
Panic Selling After a Downturn
Avoid emotional investment decisions at all costs. When the market takes a hit, you might be tempted to pull the stocks out of your portfolio to circumvent additional losses. If you panic sell your assets, you’ll miss out on gains when the market turns around. Focus on diversifying your portfolio instead of trying to time the market.
Neglecting to Monitor Your Investments
Like all investments, your 401K needs to be reviewed on a frequent basis. You’ll need to make sure that your investments are performing well to determine if you need to shift your strategy. Additionally, your retirement strategy should be adjusted as you age. If you are nearing retirement age, your portfolio should be more conservative and diversified than in the past.
Making Unnecessary Withdrawals
You might be tempted to pull money out of your 401K for various reasons. However, you need to be cautious when withdrawing from a retirement account. Pulling out before you reach the retirement age can result in penalties and additional taxes. Unless you’ve exhausted your other options, it’s typically best to refrain from early withdrawals. Build a rainy day fund so that you won’t have to rely on your 401K for emergency expenses.