by Sidney J. Ruth, CPA/Financial Advisor*
When it comes to securing a long and comfortable retirement, you can’t get a much better savings vehicle than an employer-sponsored 401(k) plan. Unfortunately, too often employees don’t properly use their plan, and miss out on the tremendous opportunities they provide. Here are some common mistakes to avoid:
Not Investing in the Plan at All
It’s easy to get caught up in our day-to-day spending. The temptation for shortsightedness in saving can leave you working far longer than you intended. If your company offers matching contributions, there is simply no reason not to participate.
Missing Out on the Full Company Match
No matter how generous your company’s match, it makes sense to take advantage of what is essentially free money.
Contributing No More Than the Company Match
While it’s important to take full advantage of the company match, it’s even more important to contribute as much as you can to the plan. Experts suggest that you’ll need to save 10-15 percent of your annual pre-tax pay to afford retirement.
Improper Asset Allocation
Studies have shown that asset allocation contributes to over 90 percent of your investment portfolio results. Investors too often have a habit of being on one extreme or the other — too conservative or too aggressive — as well as making investment selections based on what fund performed the best last year. Don’t pay attention to what’s hot, but rather, select a diversified portfolio of stocks, bonds, and cash and stick with it for the long term.
Cashing Out
Next to not signing up, cashing out of your 401(k) when you leave a job is one of the worst moves you can make. The combined income tax and penalties could result in you forfeiting a quarter to half of your plan balance.
Taking a Plan Loan
A plan loan is a convenient way to pay for a big expense, but it’s not free money. You have to pay back the principal and interest and, more importantly, loans reduce the amount of money that’s available to compound and grow for your retirement years.
If your employer’s plan provides a financial advisor as a resource, don’t hesitate to sit down and discuss your options before making any major changes to your retirement plan. Or you can call FIFS at 267-384-5300 to discuss how to best make your 401(k) work for you.
*Investment advisor representative of Investment Advisors, a registered investment advisor and a division of ProEquities, Inc. • Securities offered through ProEquities, Inc., a registered broker-dealer. Member NASD and SIPC. 1110 North Main Street , Goshen , IN 46528 (574) 533-9511 . FIFS is independent from ProEquities, Inc.
FIFS Connection, Fall 2005, Vol.2, No. 4
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