There's no one way to do it perfectly when thinking of retirement planning. However, if you participate in your employer's 401(k), there are some common mistakes you can avoid to get the most out of your plan. This blog discusses the 5 common mistakes that 401(k) participants make and how to avoid them.
Not Starting Early Enough
The most significant mistake participants make is not starting earlier. Time is your biggest asset when providing financial security for yourself. The sooner you get started, the bigger the pot of money at the rainbow's end.
Not Taking Full Advantage of Your Employer Match
A common mistake participants make is not contributing at a level that takes advantage of the full employer match. For example, let's say your employer matches you on the first 6% of deferrals. Why stop at three? You're leaving money on the table.
Not Adjusting Your Deferral Percentage
Speaking of deferrals, don't make the mistake of setting your deferral percentage and forgetting about it. Maybe you start off at 3% when you're younger because you have other expenses. However, if you just let that sit there and never increase it over time, you're never going to get to a sufficient level to provide financial security for yourself in the future.
Poor Investment Allocation
Having a poor investment allocation is another mistake. For example, some participants don't diversify properly by concentrating on US stocks and ignoring international ones. Another example is sometimes participants have three different target dates when those are designed to be a one-stop fund by picking the one closest to your targeted retirement date. It's essential to keep little things like this in mind when managing your 401(k) plan.
Another pitfall to avoid as a participant is not rebalancing your allocations. For example, let's assume you're using individual funds to allocate your investment dollars. Over time, the stock market rises and falls, so your allocations can become outta whack. You always want to set up a rebalancing strategy to return to the initially targeted allocation you had set up. Many plans have an automatic rebalancing feature, and you can either do this on a time basis or do it manually as well.
Want to know more mistakes to avoid? Check out our blog: Common Mistakes 401(k) Participants Make During Market Uncertainty
For more tips on managing your 401(k) plan, checkout our YouTube channel.