One of your primary goals for 2024 may be to take steps to better your long-term financial picture. And to that end, it pays to focus on retirement savings. But you’ll want to avoid these big blunders in the course of pursuing that goal.
1. Forgoing a match in your 401(k)
Maybe you’re not such a big fan of your employer’s 401(k), and that’s understandable. One big drawback of 401(k) plans is that they don’t give you as many investment choices as IRAs.
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With the latter, you can typically choose to invest your savings in different stocks. With a 401(k), you’re commonly limited to a handful of funds that don’t give you complete control over your portfolio and may not align with your preferred strategy. Also, some of those funds might come with hefty fees that eat away at your returns.
As such, you may decide not to participate in your employer’s 401(k) this year. But if your company offers a match, then it makes sense to contribute just enough to its 401(k) to get your free money for retirement. From there, you can invest the rest of your funds in the account of your choice.
Let’s say you’re eligible for up to $3,000 in employer matching dollars in your 401(k) this year. If you’re 40 years away from retirement, and you’re able to generate an average annual 8% return in your 401(k), which is a bit below the stock market’s average, forgoing that $3,000 will mean missing out on a total of about $65,000 in retirement money. That’s a large sum to give up.
2. Limiting yourself to a 401(k) only
If your employer offers a 401(k) and you’re reasonably happy with that plan, you may decide to participate and put all of your savings into it this year. But in doing so, you might forgo the opportunity to save in other useful accounts.
Let’s say you can afford to part with a total of $5,000 in earnings this year and you put all of that money into your 401(k). In doing so, you may have to pass on contributing to an HSA. But giving up an HSA could mean losing out on multiple tax breaks. So before you commit all of your money to your employer’s 401(k) plan, explore your options and consider whether splitting your contributions across different accounts makes sense.
3. Not checking your portfolio to see if it’s well-balanced
The value of the assets you’re invested in can shift over time. And that has the potential to lead to an imbalance in your portfolio.
Let’s say a single stock in your IRA soars in the course of a year and gains a ton of value. That’s a good thing in theory. But what if means that 20% of your retirement portfolio is now invested in a single company? That’s not optimal. As such, take the time to review your investments and make changes as needed to ensure that you’re striking a good balance.
It’s a great thing to focus on retirement savings, and doing so could set you up for a financially sound future. Just make sure to avoid these mistakes in the course of your savings efforts this year.
