5 Crucial 401(k) Mistakes to Avoid in 2024

Decades in the 401(k) space have made it easy for us to identify common 401(k) mistakes investors make.

Obviously, the biggest 401(k) mistake is not contributing enough (or not even having a 401(k) plan).

But even those who set up a 401(k) plan and contribute to it regularly make costly mistakes.

We see it time and time again.

Today, we’re covering 5 crucial 401(k) mistakes you need to avoid. 

Trust us, your future self will thank you for reading this article.

#1 Not Staying Engaged with Your 401(k)

It’s fairly common for people to sign up for a 401(k) without “reading the fine print.”

This could be because people tend to think 401(k) plans are all the same, or at least very similar. 

In reality, 401(k) plans vary. 

It’s important to know your particular plan’s rules, such as the company match, the vesting schedule, and the fees.

Look over your plan agreement carefully.

If you can’t find the information or don’t understand, ask your plan representative or contact your Human Resources department.

In addition to knowing how your 401(k) works, engaging with your savings is critical if you want to retire comfortably.

This means educating yourself, reading your 401(k) statements, and making changes as needed.

According to Empower’s second annual research study, Empowering America’s Financial Journey – How People Save, Invest and Get Advice, “Engaged participant savings rates are 56 percent higher than rates for unengaged participants. They are also more likely to take full advantage of their plan’s employer match.”¹

#2 Not Getting the Company Match

If there is one thing we always recommend, it’s to contribute enough each paycheck to get the company match.

The company match is FREE money – meaning you get even more money toward your retirement simply for contributing.

Look at your plan and see what percentage you need to contribute to receive the same amount back into your retirement plan from your employer.

For example, if your company matches 100% up to 6% of your pay and you make $40,000 a year, you could put in $2,400 (or 6%) for the year, and you would get $2,400 of free money toward your retirement!

One of the biggest 401(k) mistakes couples make is not allocating their funds to get the best company match.

For instance, a couple may be contributing more heavily to the partner’s 401(k) plan, which provides a lower company match.

Instead, couples should reallocate their contributions to the 401(k) plan that offers better employer-matching contributions.

#3 Failing to Rebalance Your 401(k)

Another one of the 401(k) mistakes is people thinking they can set their retirement savings and forget it.

They mistakenly believe all they need to do is enroll and contribute. 

This belief may leave you with less savings than you planned in retirement. 

Here’s why: The investments you chose when you first set up your 401(k) may not be the best ones to maximize your savings today.

Your goals and risk tolerance change over time. So do the investments you selected.

This is why it is critical to rebalance your 401(k) investments.

Rebalancing is the process of realigning the weightings of the assets (your investments) in your portfolio to stay in line with your risk tolerance and your timeline for retirement.

It involves buying and selling assets in your portfolio to protect it against losses and maximize savings. 

Rebalancing also provides an opportunity to take advantage of growth during good markets.

It allows you to stay in what’s working, and out of what’s not.

#4 Staying in Target Date Funds

Vanguard’s How America Saves 2023 report states, “71% of [plan participants] had their entire account invested in a single target-date fund in 2022.”²

This is likely because investors are automatically enrolled in them – and because they make 401(k) investing easier. 

But that doesn’t mean they are right for you.

Target date funds (i.e., 2020, 2030, 2040, 2050 funds) are based on the expected date of retirement.

They are designed as a “one size fits all” plan. The problem is, investors are not the same size.

Your age, career, lifestyle, and retirement goals may look quite different from your colleagues.

These factors, as well as your location, salary, and risk tolerance, are NOT taken into consideration. 

The reality is that target date funds will often underperform in good markets and do a poor job of managing downside risk during down markets.

Target date funds also do not take into consideration changes in the economy, tax policy, trade, earning reports, or investment trends – and may not make adjustments for any of these driving factors that affect investment performance.

If these adjustments are not made, you may not stay on course to reach your retirement goals.

Are you currently in a target date fund? Do you want to boost 401(k) savings? 

We suggest moving away from the target date fund and better utilizing the options available in your workplace retirement plan.

#5 Not Seeking Help with Retirement Savings

One of the crucial 401(k) mistakes people make is not seeking help.

According to Empower’s study, Empowering America’s Financial Journey — How People Save, Invest and Get Advice, “People who are engaged and leverage educational content; seek out advice or guidance; and/or aggregate or consolidate accounts have higher savings rates than people who are not engaged.”³

Fortunately, this is an easy mistake to correct.

All you have to do is ask for help from qualified professionals.

401(k) Manevuer’s mission is to solve all 5 of these retirement damaging problems.

We provide professional account management to help you grow and protect your 401(k) account. 

Our goal is to increase your account performance over time, manage downside risk to minimize losses, and reduce fees that harm your account performance. 

Our done-for-you virtual service allows you to keep your 401(k) right where it is while we review and rebalance your account based on your risk tolerance and current market conditions.

Click below to book a complimentary 15-minute 401(k) Strategy Session.

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