5 Blunders You’re Making With Your Retirement Fund

What's Hot

2 Types of Black Marks Might Vanish From Your Credit File SoonBorrow

6 Ways the Obamacare Overhaul Might Impact Your WalletInsurance

7 Dumb and Costly Moves Homebuyers MakeBorrow

This Free Software Brings Old Laptops Back to LifeMore

Obamacare Replacement Plan Gets ‘F’ Rating from Consumer ReportsFamily

Beware These 12 Common Money MistakesCredit & Debt

21 Restaurants Offering Free Food Right NowSaving Money

17 Ways to Have More Fun for Less MoneySave

House Hunters: Beware of These 6 Mortgage MistakesBorrow

30 Household Uses for Baby OilSave

25 Ways to Spend Less on FoodMore

Nearly Half of Heart-Related Deaths Linked to These 10 Foods and IngredientsFamily

5 Surprising Benefits of Exercising Outdoors in WinterFamily

10 Ways to Save When You’re Making Minimum WageSave

Boost Your Credit Score Fast With These 7 MovesCredit & Debt

7 Painless Ways to Pay Off Your Mortgage Years EarlierBorrow

The Most Sinful City in the U.S. Is … (Hint: It’s Not Vegas)Family

The True Cost of Bad CreditCredit & Debt

10 Companies With the Best 401(k) PlansGrow

This Scam Now Tops ID Theft as the No. 2 Consumer ComplaintFamily

6 Stores With Awesome Reward ProgramsFamily

6 Ways to Save More at Lowe’s and The Home DepotSave

6 Healthful Treats for Your DogFamily

New Study Ranks the Best States in the U.S.Family

Thousands of Millionaires Moving to 1 Country — and Leaving AnotherGrow

Strapped for College Costs? How to Get the Most From FAFSABorrow

6 Overlooked Ways to Save at Chick-fil-AFamily

Ask Stacy: What’s the Fastest Way to Pay Off My Mortgage?Borrow

Where to Sell Your Stuff for Top DollarAround The House

8 Ways to Get a Good Price on a Shiny New AutoCars

Ask Stacy: How Do I Start Over?Credit & Debt

Secret Cell Plans: Savings Verizon, AT&T, T-Mobile and Sprint Don’t Want You to Know AboutFamily

30 Awesome Things to Do in RetirementCollege

14 Super Smart Ways to Save on TravelSave

The Rich Prefer Modest Cars — Should You Join Them?Cars

You’ll Soon Pay More to Shop at CostcoSave

10 Ways to Save When Your Teen Starts DrivingFamily

Unless you want to work until you die, you might want to avoid these five common retirement fund mistakes.

The news on retirement is not good.

It seems like every day there’s a study breathlessly sharing the stark reality of our retirement prospects, or lack thereof. In case you’ve missed them, here’s a sampling.

So uplifting, right?

Of course, starting early and saving as much as possible helps. So too does buying long-term-care insurance or a life insurance policy with a long-term-care rider.

However, you could do all that and still find yourself running short of money in your golden years. Here are five common blunders people make with their retirement funds.

1. Not using an account with tax benefits

Not all savings accounts are created equal.

Putting your retirement fund in a high-yield account, CD or under your mattress isn’t going to cut it. Using the latter approach robs you of all that glorious compound interest, while the first two options mean your gains may take a serious tax hit.

Instead, look for specific retirement accounts with tax benefits. A 401(k) offered by your employer or an IRA are the two most common options. However, each comes in two forms: traditional and Roth. To learn the difference, read this article by Money Talks News finance expert Stacy Johnson.

2. Missing out on your employer match

IRAs are fabulous, but if your employer offers a 401(k) match, you need to start there.

According to a survey by American Investment Planners, nearly 60 percent of employers offered matching funds for employee 401(k) accounts in 2011. A more recent study completed by Aon Hewitt found the most common match was dollar for dollar, up to 6 percent of an employee’s income.

That means if you earn $50,000 and put $3,000 into your 401(k), your employer will deposit $3,000 too. Other companies might match a different percentage of income or give you 50 cents on the dollar. Regardless of the details, it’s free money. Why aren’t you taking it?

3. Keeping all of your money in one fund

The 55th Annual 401(k) and Profit Sharing Survey, published by the Plan Sponsor Council of America, reports that the average plan has 19 fund options.

With so many choices, there is little reason to leave all of your eggs in one basket. What’s more, avoid investing all of your retirement funds only in your company’s stock.

Diversity is the name of the game. Spread your money across several mutual funds so in the event one of them tanks, your entire retirement fund doesn’t go with it.

That said, you want to read about the next common mistake before selecting which funds get your money.

4. Ignoring fund fees

Too many workers seem to think their 401(k) is a free investment fund. It’s true you’re not paying out-of- pocket, but it certainly does come with a price tag.

While fee disclosures are getting better, you may have to hunt for the details in the statements of your 401(k) plan. Once you find the fee amounts, you may think they sound small, but watch Stacy Johnson’s video to see how much they can impact your bottom line. For example, if you opt for the fund with the 0.5 percent fee rather than the one with the 2 percent fee, you could have an extra $135,000 at retirement.

In addition to management fees, you probably incur charges every time you transfer money from one mutual fund to another. That’s one of many reasons to avoid changing your investment allocations every time the market hiccups.

5. Using your retirement money like an emergency fund

Finally, it’s a HUGE mistake to think of your retirement money as an emergency fund. Yes, it’s such a big mistake I had to yell.

The 401(k) and Profit Sharing Survey reports that 89 percent of plans allow loans. When your car breaks down or the roof starts leaking, it can be tempting to turn to your retirement fund for cash. After all, you’re paying interest to yourself when you repay the loan. That’s such a smart money move, right?


The New York City Office of Labor Relations put together a chart demonstrating how a loan will impact your retirement savings. Compound interest is a powerful thing, and when you withdraw money, you are potentially losing out on tens of thousands of dollars or more.

Even more concerning for your immediate future is what happens if you have a loan and then leave or lose your job. You need to pay back the balance immediately. If you don’t and you’re younger than 59½, you’ll not only pay income tax on the money but a pricey penalty too. I speak from experience: That’s not a bill you want to pay.

Instead of seeing your retirement account as a Plan B for emergencies, open a separate savings account and fill it with enough to pay for three to six months’ worth of living expenses if needed. Then, you can be strictly hands-off when it comes to your retirement fund.

How is your retirement fund looking? Share your best savings tips in the comments or on our Facebook page.

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!


Read Next: Ask Stacy: What’s the Best Way to Borrow?

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 2,060 more deals!