Top 10 Mistakes People Make When Handling a 401(k) and Choosing a Retirement Plan

As you entertain the notion of saving for retirement, one of the options that possibly comes to mind is a 401(k) plan. Granted, a 401(k) plan comes with attractive benefits such as tax-deferred earnings, a variety of investment options, and convenience. However, before you hastily choose a retirement plan, desperate to begin saving early for your future, you must consider for a moment the mistakes you may make. Below are the top 10 mistakes people make when handling their 401(k) and choosing a retirement plan.

1. Waiting to Invest

Now is the best time to invest. The earlier you plan for retirement, the better. If you start later, you will need to save a larger amount of your earnings to compensate for lost time. For example, a 40 year old planning to retire at 65 with a current principal of $20,000, a monthly addition of $500, a 25-year growth, and an interest rate of 7% would have a total of $488,042 after 25 years. In contrast, A 50 year old planning to retire at 65 with the same principal, monthly addition, and interest rate, but with a 15-year growth will only have $204,954 worth of savings after 15 years. The bottom line is you need to begin investing today.

2. Failing to Maximize Your Employer’s Contribution

Different employers have different ways of contributing to your 401(k). Some companies match your retirement contribution, while others simply offer the plan. The easiest way to double your money and grow your retirement is by making sure you are contributing the maximum amount your employer will match.

3. Relying on Social Security

Many Americans have left their retirement and financial protection in the hands of Social Security. According to the Social Security Administration, it is estimated that, on average, Social Security will only provide 39% of an elderly person’s income. Additionally, as the elderly live longer and as Americans produce less children, there will not be enough workers in the future to fund Social Security. Because of this predicament, more experts predict that it would be unwise to rely on Social Security for your financial needs.

4. Borrowing from Your 401(k)

Borrowing from your 401(k) may seem like a good idea to help avoid credit card debt or finance a new business. However, this can often come with high penalties if you fail to make expeditious payments. Avoid borrowing from a 401(k) unless you are 100% sure you can repay the amounts on time.

5. Failing to Diversify Your Investments

Thirty-seven percent of long term investors believe they can avoid stocks altogether, according to ThinkAdvisor. However, your retirement savings will not likely grow quickly if you only rely on bonds, certificates of deposit, and traditional deposit accounts, especially at today’s low rates. For your retirement portfolio to be truly diversified, you will likely want to include stocks.

Including investments such as physical gold and silver into your retirement may add protection in the case of a devastating market crash. Remember to choose the right investments based on your risk profile so your retirement portfolio can survive stock market fluctuations and volatility. Review your investments and allocate your assets as you see fit to diversify your retirement portfolio. Speak with a financial advisor to find out just how much stock your portfolio can handle.

6. Forgetting about Inflation

It is important to remember that inflation can decrease your money’s purchasing power over time as it increases the cost of goods and services.  Fidelity found that a car that costs $50,000 today can cost as much as $82,030 in 25 years with a 2% inflation rate and  $133,292 with a 4% inflation rate. Evidently, inflation places your retirement income at risk. To battle inflation, choose investments such as stocks, mutual funds, real estate securities, or gold.

7. Underestimating Your Future Cost of Living

Majority of current retirees underestimated their future costs. Some believed they would not spend as much money after they retire—this is not true. According to Bill Losey, author of the Retirement Intelligence newsletter and a certified financial planner, people’s current lifestyle habits are less likely to change in the future. In fact, retirees have more time to enjoy and indulge in activities. The more you anticipate your future costs for medical bills and vacation plans, the better you can prepare for an easy, problem-free retirement.

8. Paying High Fees

Before you invest in a 401(k), consider for a moment how much your 401(k) provider charges you every month. That’s right: your 401(k) services do not come for free. In fact, these companies deduct a portion of your investment to refund their services, impacting the size of your returns. When investing into a  401(k), make sure to read the prospectus statement you receive every year to know exactly the amount your 401(k) provider charges you.  

9. Miscalculating Your Retirement Length

Because you can ever know your life expectancy, you must err on the side of over-planning lest you outlive your retirement funds. Although life expectancy for 2016 is currently at 79 years, stories of individuals living to their 100s is not unheard of. Take, for instance, Man Kaur, a 100-year-old Vancouver resident who finished a 100 meter race. You never know. Perhaps you will live as long as Man Kaur.

10. Not Planning for Medical Expenses

Very few Americans consider medical expenses when planning for retirement. Often they worry about vacation plans, food and home expenses. However, as individuals age, their health deteriorates—it is inevitable. Thus, it is imperative to save for medical expenses, especially with the future health complications that comes with old age. For example, a couple retiring in 2015 were expected to spend approximately $245,000 on healthcare expenses throughout retirement. This number is $25,000 more than the predicted health care costs from 2014. Factor in medical expenses when budgeting for retirement.

After reading this list, you may feel hopeless, anxious, and worried about your retirement. If you can’t rely on social security, on 401(k)s, on the economy, then what can you rely on? Who can you trust? You can control your future by controlling your retirement savings and investments by opening a self-directed Gold IRA through American Bullion. Contact American Bullion today.

Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.