How to Avoid 6 Major Retirement Mistakes

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Not everyone has the time or inclination to get into the weeds of retirement planning. There are so many types of accounts, changing contribution limits, and odd regulations—seriously, there are a lot of weird retirement rules. The good news is that by avoiding a few major mistakes, you’ve done 90% of the work to optimize your retirement. 

Contribute enough to get your full employer match

Matching retirement contributions from your employer are part of your compensation so don’t leave money on the table. Sometimes the language of employer match policies is confusing so if you have any doubt about how much you need to contribute to get your full match, ask your HR department.

If you are fortunate enough to be able to max out your 401(k), ensure that you are not maxing it out early. Because these are “matching” contributions, you don’t receive a match when you are not contributing so if you front-load your contributions and max out by July, you are giving up six months of matching contributions. 

Know your 401(k) vesting schedule

While your contributions to your 401(k) always belong to you, matching contributions are sometimes subject to a vesting schedule. A vesting schedule establishes limits around how much of your matching contributions you can keep if you leave your current job depending on how long you’ve worked there. For example, if your matching contributions vest 100% after two years but you leave your job after working there for one year and 11 months, you forfeit all of your employer’s contributions. When you make decisions about moving to a new job and negotiating compensation, you should take that into consideration.

Explore options outside of your 401(k) 

Even if you have an employer-sponsored retirement plan like a 401(k), you may still benefit from having a Roth IRA, which you can set up on your own and contribute to directly if your income falls within certain limits. These are especially handy if you want to make lump sum contributions with a windfall from a bonus or tax refund since you can only contribute to a 401(k) through paycheck deductions.

Even if your employer does not offer a retirement plan, you can still save for retirement through an IRA (either Roth or traditional if you meet the requirements). And if you earn any type of non-W-2 income as a side hustler, freelancer, or business owner, you can set up your own retirement account. Options include a SEP IRA, SIMPLE IRA, or solo 401(k). 

Keep track of old retirement accounts

Early in your career, you may switch jobs every 1-3 years and leave behind modest retirement balances: $500 here, $1,000 there. It doesn’t seem like much at the time, but it can really add up. Plus, that’s money you earned! While that money is always yours, many people lose track of their old accounts and have difficulty tracking them down later on. In most cases, it makes sense to roll over your old 401(k) into an IRA when you leave your job. This can be a monotonous task, but it’s worth it!

Understand your investment fees

While investment fees usually sound minimal, due to the compounding nature of investments, they can have a significant impact on your total returns over time. These fees include management fees (paid to an advisor to make investment decisions for you), expense ratios (paid to the mutual funds or index funds you’re invested in), and recordkeeping fees (paid to the investment company administering your 401(k)).

Know your asset allocation

Your asset allocation (i.e. your split of stocks and bonds) is the biggest determinant of how you can expect your money to grow in the long-term. This makes it critical to choose investments that correspond with your timeline for retirement. If you are many years from retirement, ensure that your retirement money is not sitting in cash! 

Need to avoid mistakes with your retirement? To get started, schedule a free 20-minute consultation call to speak to a member of our team. We will ask you a few basic questions to get to know you more, walk you through our financial training program steps, and answer any questions you may have.