This is a guest post by Scott Holsopple. Scott is the president and CEO of Smart401k, offering easy-to-use, cost effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including CNBC, FOX Business, USA Today and The Wall Street Journal.
Planning for your retirement future should not be an intimidating task. By reviewing your retirement plan a few times a year, you can become more confident in handling your personal finances. However, many employees bypass using the employer-sponsored 401(k) and miss out on the benefits of long-term saving. With the fluctuating markets and sluggish economy, you may want to consider getting proactive about your financial situation by avoiding these common 401(k) mistakes:
Not Getting Started
Make sure to participate in your company-sponsored 401(k) plan. This might seem like the simplest and most obvious step, but the number of people that say they have not saved for retirement is staggering, particularly with the younger generations. There are several decisions you will need to make when you begin to save for retirement, but none of them are so difficult you should put off signing up for this benefit. Treat the retirement plan like you would your medical coverage and sign up immediately.
Guessing at a Contribution Amount
Many 401(k) investors choose an arbitrary contribution amount, and less than 50 percent of employees calculate how much they should save by the time they retire. Make sure to contribute enough to at least receive the full company match. Calculate your own retirement needs and choose an amount based on reaching that number. Increasing your contribution rate on an annual basis will also help you achieve your desired retirement number.
Not Knowing What Type of Investor You Are
When it comes to investing, knowing your personality is the key to maintaining any strategy. Picking investments based solely on what your peers are using is not typically a smart idea. You may have a different risk tolerance and different retirement goals than your peers. To pick the best funds for you, first decide if you are a conservative, moderate or aggressive investor. Then, map out a plan that takes into account your investing personality.
Not Asking For Help
No one expects you to be an expert on investing (unless that’s part of your job). If you need help, ask for it. Your company may offer services to advise you on your options or they may be able to direct you to more education and guidance.
Ignoring Your Account
Your job isn’t done after you’ve set your contribution amount and picked out your funds. You should review your account at least once a year to make sure you are appropriately invested based on your needs. With the market volatility, certain portfolio sectors could increase or decrease, destabilizing a carefully crafted investment mix. Set a date to review individual fund balances and re-allocate your portfolio to stay in-line with goals, risk and market movement.
There are plenty of ways you can start taking control of your retirement future. If you continue to invest in your retirement plan and stay away from the common 401(k) mistakes, you will be on your way to achieving your desired retirement lifestyle.
Have you made any of these mistakes? If you could go back and do it again, is there anything you would change about how you are saving for retirement?