5 Ways to Sabotage Your Nest Egg

US News

There are many things you can do to optimize your 401(k), other retirement accounts, and overall retirement strategy. Then there are a few things you just shouldn't do.

Here are five ways to sabotage your own retirement nest egg:

1. Not saving enough.

No amount of good investing can make up for a total lack of saving. There are two components in the not enough money self-sabotaging routine.

Not saving early enough is the first no-no. Don't squander your paycheck during your 20s and early 30s rather than investing in your retirement. During the first 15-to-20 years of your career, you may not be able to make large contributions. But your mantra during this time should be every little bit counts. Small contributions made early can still grow significantly through compounding.

Contributing too little is the second slip-up. Make every effort to maximize your contributions at any given time. So you could only contribute a little when you were younger? That doesn't mean you can continue that low rate as you progress in your career. You have to keep increasing your contribution rate. Don't get carried away by taking on additional expenses each time you get a pay raise. You're responsible for your retirement savings, so act responsibly!

2. Taking early withdrawals or loans.

This is a really quick and easy way to deplete your retirement savings. Early withdrawals face taxes and, possibly, an IRS penalty. Loans subject you to extra taxes. (When you take a 401(k) loan, you must repay yourself with interest. But, while your initial contributions could have been made pre-tax, your repayments must be made from after-tax money. Despite that, you will still pay taxes on that money and its gains when you take retirement distributions.)

On top of that, every moment your money isn't invested is a moment you're not able to take advantage of compound growth. Remember how every little bit counts? If you take a loan or withdrawal now, you're simply stealing from the 65-year-old you.

3. Blindly using your employer's default investing option.

When you begin contributing to an employer-sponsored retirement account, you may not be required to choose your own investment lineup. In these cases, your contributions will be placed in a default investment. Some default investments are good while others may likely leave you short of your retirement goals, but you won't know unless you do a bit of research. If you're going to use the default investment make sure it fits within your risk tolerance and investment strategy.

4) Not rebalancing.

If you've taken action to create a retirement investing strategy, you've worked hard (hopefully) to choose a good portfolio lineup. You've established your risk tolerance, created a timeline to retirement, selected an appropriate asset class allocation, and chosen the optimal funds to fit in your asset class allocation. Don't let all that go to waste!

Over time, gains in some sectors and losses in others mean your allocation percentages become skewed. You have too much money in the areas that have been the hottest and too little money in the cooler asset classes. That means you no longer have a portfolio tailored to your risk tolerance and retirement timeline. You may have too much risk, or you may be sitting in an overly conservative position. Rebalancing fixes the problem instantaneously.

Additionally, rebalancing causes you to follow the age-old investing axiom of "buy low, sell high." As you rebalance, you sell a portion of your portfolio that's been hot (selling high) in order to buy from an asset class that's been slower (buying low). Over time, in combination with dollar-cost averaging, this strategy can help provide a track record of effectiveness.

5) Over-trading.

Trading often is risky by definition because it requires that you attempt to time the market. In the case of your retirement savings, the risks are too high. This is your one and only chance to save and invest for retirement. You don't get a redo. You can't get retirement scholarships or loans. You can't rent your retirement for a little while so you can replenish your savings. Nope. You have to protect your retirement savings with a wise investing strategy. Rather than trading a lot, use dollar-cost averaging and rebalancing in a thoughtfully allocated, diverse investing lineup. And, incidentally, fees can eat your gains pretty quickly if you treat your retirement account like a day-trading account.

Don't sabotage your efforts to save for retirement. This list is easy to avoid with planning and patience.

Scott Holsopple is the president of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.



More From US News & World Report

Rates

View Comments (48)

Recommended for You

  • More lenders are offering student-loan consolidations

    Dear Liz: I have four private student loans that I would love to consolidate so that I can have one medium-size monthly payment instead of four large ones. Answer: If you have good credit and sufficient income — or a willing co-signer — several lenders now offer private student loan consolidation.…

    Los Angeles Times
  • Everyone's Past Exposed on this New Website!

    A new site has made it simple to find the truth out about anyone online. It's as easy as typing in a Name and selecting a State!

    AdChoicesInstant CheckmateSponsored
  • CyberArk IPO Gets Boost as Breaches Trigger Industry Gain

    The data breaches that have rocked corporate America in recent weeks couldn’t have come at a better time for CyberArk Software Ltd . The Israeli data security company, which is seeking to raise as much as $80 million in an initial public offering in the U.S., is marketing its shares to investors…

    Bloomberg
  • 'No Good Deed' defeats 'Guardians' at theaters

    'No Good Deed' defeats 'Guardians' at theatersLOS ANGELES (AP) — It took a murderous Idris Elba and a pair of dolphin buddies to defeat "Guardians of the Galaxy" at movie theaters.The Sony thriller "No Good Deed," which stars Elba as an escaped convict

    Associated Press
  • Morgan Stanley Seven-Year Curse Spells Decline: Australia Credit

    Morgan Stanley says Australian bonds, the worst-performing government debt in the past month, have further to decline as investment-grade securities globally will stagnate for the next seven years. Australian sovereign debt due in more than a year lost 0.7 percent in the month ended Sept. 12, the…

    Bloomberg
  • Hundreds of workers on strike at Lear Corp. plant

    Hundreds of workers protesting what some are calling fast-food-like wages walked off the job Saturday at a Lear Corp. plant in northwest Indiana that makes automotive seats, beginning a strike that could affect a major Ford assembly plant in Chicago. The plant, about 28 miles southeast of Chicago…

    Associated Press
  • Global Banks' Lending Returns to `Substantial' Growth

    Cross-border lending by global banks rose by $580 billion in the first quarter, the first “substantial” increase since 2011, the Bank for International Settlements said. Cross-border claims of banks reporting to the BIS rose 2 percent to $29.4 trillion in the three months through March, the Basel,…

    Bloomberg
  • Scottish Independence Could Be Boost for London Property

    London ’s property market could benefit if Scotland votes for independence and some financial institutions decide to relocate to the U.K., according to Rightmove Plc. London would be a “logical destination, creating extra employment and knock-on demand for homes,” Rightmove said in its monthly…

    Bloomberg
  • Tired of Living Paycheck to Paycheck?

    New website reveals how to save $1,000's when you're living paycheck to paycheck. See exactly how.

    AdChoices Media ForceSponsored
  • Play

    The Perils of Our Lopsided Income Growth

    The Fed's latest U.S. consumer finance report showed decent income growth overall--but not across the board.

    Morningstar
  • Hedge Funds Cut Bullish Crop Bets to Lowest Since January

    Hedge funds cut bullish wagers on agricultural commodities to the lowest since January before the U.S. Department of Agriculture said Sept. 11. Three months of rain and mild weather created almost ideal growing conditions, spurring price declines that drove the Bloomberg Commodity Index to a…

    Bloomberg
  • If a Company Won’t Talk, Its Former Employees Will

    The Haggler has striven in recent months to get someone at Conn’s, a Texas-based chain that sells appliances and furniture, on the phone. What kind of place is Conn’s, and how does it operate? One of the customers is Justin Raizk of Tucson, Ariz., who last year walked into a Conn’s in his hometown…

    The New York Times
  • Central banks in driving seat this week

    Three central bank meetings will likely top the agenda for Asian markets this week, with particular focus on the U.S. On Wednesday, the Federal Open Market Committee ends its two-day review and traders are bracing for an increasingly hawkish tone from Fed Chair Janet Yellen. Last week, global…

    CNBC
  • SABMiller rebuffed by Heineken

    SABMiller has considered a possible combination with rival beer maker Heineken, in a deal that would have brought together two of Europe's biggest brewers and help it fend off a takeover bid from rival AB InBev. Dutch-listed Heineken has been sought after by rival beermakers for years but remains a…

    Financial Times
  • China's Alibaba sets new path with US IPO

    China's Alibaba sets new path with US IPO New York (AFP) - With a possible record-breaking stock offering, Chinese online giant Alibaba is set to boost its role as a global company with a massive expansion potential. The initial public offering (IPO), expected to raise between $19 billion and $24…

    AFP
  • American Express® Cards

    Earn Cash Back, Travel, or Points. Find the Card That's Right For You!

    AdChoicesAmerican Express®Sponsored
  • Gold Industry Needs ‘Cleansing’ of Weakest, Fidelity Says

    The gold industry, recovering from the worst slump in prices in 30 years, needs more mergers to help improve investor returns and eliminate unprofitable mines, Fidelity Investments said. About a third of gold production is probably money-losing when the price of the metal is lower than $1,250 an…

    Bloomberg
  • Are You Prepared for a Market Correction?

    When a bull market is roaring, preparing your portfolio for a correction or bear market might seem like closing the storm shutters on a sunny day. Although you don't need a financial adviser to do any of this, you will want to take a page from their book by building in some protection and sticking…

    Morningstar
  • Treasury Auctions for the Week of Sept. 15

    Treasury Auctions for the Week of Sept. 15 The Treasury’s schedule of financing this week includes Monday’s regular weekly auction of new three- and six-month bills and an auction of four-week bills on Tuesday. At the close of the New York cash market

    The New York Times
  • Retirees' big move (or not): What to consider

    Retirees' big move (or not): What to considerShould I stay or should I go? Many people nearing retirement grapple with this decision. Choosing whether to retire "in place" or move to a new location could make or break your nest egg. There are many factors

    CNBC
  • China growth worries rattle Asian stocks, Aussie dollar

    By Ian Chua SYDNEY (Reuters) - Asian stocks stumbled to a five-week low on Monday after a batch of disappointing data out of China raised the specter of a sharp slowdown in the world's second-biggest economy. The Australian dollar, considered a liquid proxy for China plays, also took a hammering…

    Reuters
  • Texas Windstorm Insurer to Offer $500 Million: Muni Deals

    Texas Windstorm Insurance Association this week is offering $500 million in unrated municipal debt as the Austin-based group girds for the hurricane season through November. The association, created by the Texas legislature in 1971 to be the windstorm and hail insurer of last resort, is selling the…

    Bloomberg
  • Often Overlooked Method to Pay Off Mortgage

    If you own a home and pay for a mortgage, you could reduce your payments by an average of $4,100 a year. Here is how it works.

    AdChoicesRateMarketplaceSponsored
  • How Ferrari Fits Into the Plan for Fiat Chrysler IPO

    Luca Cordero di Montezemolo, chairman of iconic Italian automaker Ferrari, will leave his job on October 13, the day that the combination of Fiat and Chrysler is expected to begin trading as Fiat Chrysler Automotive on the New York Stock Exchange. Montezemolo has been Ferrari’s chairman for nearly…

    24/7 Wall St.