4 Ways You Could Sabotage Your Retirement Savings


Saving for retirement should be one of your primary financial goals. After all, almost everyone needs to quit work someday, and Social Security alone isn't enough to support you through your later years. 

Unfortunately, many people inadvertently make mistakes that jeopardize their ability to save up the nest egg they need. Here are four common errors that could leave you with too little to live on in retirement.

Older couple looking at computer.


1. Missing out on an employer match

If you have a workplace 401(k) that provides an employer match, not claiming the full amount of it is a huge mistake. An employer match is literally free money, and it's the only chance you have to earn a guaranteed 100% return on your investment.

An employer match could end up leaving you with hundreds of thousands of dollars in extra money in retirement if you take full advantage of it every year that you work. So find out from your plan administrator what you need to do to earn the full amount and do everything in your power to contribute enough to get it. 

2. Not taking advantage of tax breaks for retirement

Your employer isn't the only one who will help you save for retirement. The government wants to subsidize your efforts as well. In fact, you have options to get assistance from Uncle Sam regardless of whether you have a job that comes with a retirement plan or not.

That's because there are a number of tax-advantaged retirement accounts you can put money into, including a 401(k) or various types of IRAs.

When you invest in a traditional 401(k) or IRA, you get a tax deduction in the year you make the contribution. If you invest $1,000 in one of these accounts, and you're in the 22% tax bracket, your taxable income goes down by just $780. The government essentially gives you the other $220. While you will eventually be taxed on withdrawals, this subsidy makes it much easier to amass the nest egg you need.

You don't want to miss out on it by not putting as much as you can into accounts that come with generous tax breaks. 

3. Failing to track the fees you're paying

The majority of Americans who invest in 401(k)s don't know what fees they're paying on their account. And the lack of knowledge about investment fees isn't limited to just 401(k)s either. It's far too common for people not to pay attention to management or advisory fees for many different kinds of investments. 

Unfortunately, if you pick investments that have high fees, you're cutting into your returns and won't see your money grow as much because of it. And when you're investing a lot of money over a long period — as you do when investing for retirement — unnecessary fees can cost you tens of thousands of dollars. 

If your 401(k) has a high administrative fee or offers only expensive investments, put enough into it to get the match and then invest elsewhere. And when you buy mutual funds, ETFs, or other investments, always pay attention to the expense ratio so you'll know how much your investment will cost you.

4. Not maintaining the right asset allocation

Finally, far too many people are invested either too aggressively or too conservatively. Both are risky, because the former could lead to an outsized chance of significant losses that are hard to recover from, while the latter could mean your returns are too low to build the nest egg you imagined.

You could also end up with the wrong mix of investments, because you don't take your age and investing timeline into account when deciding how to distribute funds across different assets. Or you could end up with the wrong mix because some of your investments perform much better than others and you don't take action to rebalance your portfolio.

You don't want to lose out on returns you should earn, nor take a chance of getting stuck with big losses because you need to sell investments at an inopportune time. Avoid this by checking your asset allocation every year and making necessary adjustments as you grow older and your risk tolerance changes. 

By being on the lookout for these four common pitfalls, you can maximize the chances your nest egg will be large enough to offer the security you deserve in your retirement years.

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