3 Ways to Derail Your 401k Retirement Dreams

Many people have 401k retirement dreams that involve living a comfortable life for many years. However, many people sabotage their retirement in a number of different ways. Here are a few ways that you can potentially derail your 401k retirement dreams.

1. Withdraw Money

One of the biggest and most common mistakes that people make is withdrawing money from their 401ks before they reach retirement age. This type of account is not meant to be withdrawn from until you reach the age of 59 1/2. However, that does not stop many people from doing so anyway. When you take money out of your 401k, you will have to pay a 10 percent early distribution penalty on the total amount that you withdraw. In addition to that, the money that you take out will be taxed as regular income for the current year. Therefore, a good percentage of the money that you take out will go back to the government in taxes.

In addition to losing money in taxes, you are potentially losing a lot more money in lost investment returns. When you take money out of your account, this limits the amount of money that you can invest in the market. Therefore, your investment returns will be much smaller by comparison. It will also take you a significant amount of time in order to build the account back up to the point that it once was.

2. Not Contributing Enough

Another common mistake that many people make with their 401ks is to not contribute enough money on a yearly basis. You are allowed to contribute as much as $16,500 to your retirement account. However, many people do not get anywhere near that number when saving for their retirements. They may contribute a lower amount to their accounts because they cannot afford to save any more. However, even if you max out your contribution to the account every year, you still may not have enough to retire comfortably. Therefore, if you make less than the maximum contribution on a regular basis, your odds of being able to retire comfortably decrease significantly. This means that you need to try to max out your retirement contribution on every single paycheck.

3. Risky Investing

When you are young, a certain amount of risk in your portfolio is to be expected. You have plenty of time before you can retire, and therefore, you have time to make up for mistakes. If you choose the right investments, you could potentially build a very large portfolio by the time you retire. However, many people mistakenly choose to take on a very high amount of risk in their retirement accounts. In most cases, you will want to limit the amount of risk that you take on. Retirement dollars are not something that you want to gamble on a risky investment. If you are simply speculating with a regular investment account, there is nothing wrong with doing this. However, the money in your 401k is the money that you will one day live on. This means that you should not risk it any more than you have to.

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