If you have a 401k, you are likely off to a great start. However, simply having this type of account does not necessarily mean that you are prepared for retirement. There are several things that a person can do wrong with their 401k account that may do more harm than good. You must know what mistakes to avoid to get the most out of your account.
Prioritizing Short-Term Needs Over Long-Term Plans
When you have an immediate need, it is easy to develop tunnel vision and feel like the pressing matter is the only thing that matters. However, before you tap into your 401k to make a deduction, make sure you consider your long-term goals. For example, once you consider the penalty that comes with the withdrawal as well as the loss of growth, you might discover that it would have been much better for you to pull the money from your emergency savings or another account.
Considering a Penalty as the Only Problem
Some people develop a no-penalty no-problem mindset when it comes to their 401k accounts, but this practice is another mistake. Sure, there are instances when you can deduct money from your account without a penalty, but it does not mean that you are getting off free and clear. First, there will always be taxes to pay, regardless of whether or not a fee was charged. Second, the amount in your account will be reduced. The less money in the account, the less chance for substantial growth.
Keeping Contributions Lower
You should never contribute so much to your account that it puts you in a financial burden. However, you should not contribute much less than you can afford to. It is always a good idea to evaluate your budget to see if you can contribute more money. Remember, the more you contribute today, the more money you can have in the future. Additionally, you should also make sure you maximize your contribution if your employer will match the contribution, as this step will further maximize your opportunity for growth.
Speak With a Professional
The main goal of having a 401k account is to build money for retirement. To ensure everything you do is in line with this goal, seek the help of a financial advisor. A financial advisor can review your account to help you determine if you are making any long-term costly mistakes and even help you determine whether or not another saving strategy is better suited for your retirement goals.
Make sure you avoid these mistakes to get the most benefit out of your retirement account.Share
14 September 2020
I still remember the day that my wife and I bought our first home. We were excited about filling the place with new furniture and looking for great area rugs. Unfortunately, before we knew it, we found ourselves deeply in debt. It was difficult to dig our way out, but over the course of the next several years, we were able to make things right. I want to teach other people how to manage finances so that they can avoid the turmoil that we went through. Financial planning might seem impossible, but with a little practice, I know it can become second-nature.