Good article on Zacks.com today that reviews five common 401(k) mistakes that could cost you a bundle over the long haul:
Not funding a 401(k)
About a third of eligible participants fail to enroll in a retirement plan. A huge majority of these people are younger workers. Of those who are making contributions, a large number are playing catch-up because they did not start saving for retirement until later in life. Why is this? The solution is as simple as picking up the phone and talking to your human resources group."
Not Contributing Enough
It is critical to sit down with a financial planner, or at the very least access a retirement calculator, to figure out how much you need to save in order to draw out a certain income after retirement. Here's a basic guideline. If you are making $50,000 annually, multiply that by 25. This means you will need to have saved $1,250,000 in your retirement account."
Taking Loans or Cashing Out
Don't do this! Many people take out loans while they are still employed with their firm and this is a very bad idea. Yes, when you take out a loan, you do pay yourself back with interest. However, when you take out the loan, your borrowed money is not working for you."
Putting all your contributions into company stock
Sometimes, disasters such as what happened at Enron or Worldcom can occur and wipe out your whole retirement savings plan in a heartbeat. What if you own a stock in a hot sector and you are about to retire? What if the sector turns cold and your savings of $1,000,000 turn into $500,000? All of a sudden you have to change gears and take less out of your savings or continue working into your 70s."
Allocation, Allocation, Allocation!
I’ve seen too many people piled into the hottest sector funds or hottest areas in the market only to get burned. These days this mistake commonly happens with commodity and energy funds. Don’t try to “get rich quick” because in all likelihood you will lose money very fast."
Shameless plug: If you think your 401(k) could use a little professional help, try MAXadvisor's 401(k) Planner. You tell us the mutual funds in your 401(k) plan, the MAXadvisor 401(k) Planner will tell you which funds you should consider, and the percentage of your company-sponsored retirement plan's contribution you should allocate to each fund. So we'll tell you how much to allocate to what, and we generally avoid company stock - thus eliminating two of the five problems mentioned above!
401(k) Flubs
Good article on Zacks.com today that reviews five common 401(k) mistakes that could cost you a bundle over the long haul:
Not funding a 401(k)
About a third of eligible participants fail to enroll in a retirement plan. A huge majority of these people are younger workers. Of those who are making contributions, a large number are playing catch-up because they did not start saving for retirement until later in life. Why is this? The solution is as simple as picking up the phone and talking to your human resources group."
Not Contributing Enough
It is critical to sit down with a financial planner, or at the very least access a retirement calculator, to figure out how much you need to save in order to draw out a certain income after retirement. Here's a basic guideline. If you are making $50,000 annually, multiply that by 25. This means you will need to have saved $1,250,000 in your retirement account."
Taking Loans or Cashing Out
Don't do this! Many people take out loans while they are still employed with their firm and this is a very bad idea. Yes, when you take out a loan, you do pay yourself back with interest. However, when you take out the loan, your borrowed money is not working for you."
Putting all your contributions into company stock
Sometimes, disasters such as what happened at Enron or Worldcom can occur and wipe out your whole retirement savings plan in a heartbeat. What if you own a stock in a hot sector and you are about to retire? What if the sector turns cold and your savings of $1,000,000 turn into $500,000? All of a sudden you have to change gears and take less out of your savings or continue working into your 70s."
Allocation, Allocation, Allocation!
I’ve seen too many people piled into the hottest sector funds or hottest areas in the market only to get burned. These days this mistake commonly happens with commodity and energy funds. Don’t try to “get rich quick” because in all likelihood you will lose money very fast."
Shameless plug: If you think your 401(k) could use a little professional help, try MAXadvisor's 401(k) Planner. You tell us the mutual funds in your 401(k) plan, the MAXadvisor 401(k) Planner will tell you which funds you should consider, and the percentage of your company-sponsored retirement plan's contribution you should allocate to each fund. So we'll tell you how much to allocate to what, and we generally avoid company stock - thus eliminating two of the five problems mentioned above!
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