Four Critical Retirement Mistakes

With more employers dropping pensions in favor of 401(k)s, 403(b)s, SEP or SIMPLE IRAs, and profit-sharing plans, it is critical employees make the most of these accounts. Making one or two mistakes can potentially derail your financial security for retirement. Here are the most common mistakes people make, and what you need to do to avoid them.

1) Cashing out when changing jobs. According to the U.S. Department of Labor, the average baby boomer from age 18 to 46 has had 11.3 jobs, with 5.4 bouts of unemployment. For Millennials, the average time at a company is only 2.6 years, meaning they will have close to 15 to 20 jobs over their working lifetime! It is common to cash out your retirement account with your old job. In fact, recent data from Fidelity found 35 percent of plan participants cashed out their 401(k) last year. The average amount was $14,300, a sizeable chunk if you consider that over 30 years at 10 percent, that amount would grow to $250,000! If you were to put in $5,000 every year, that same amount would become $1.1 million! Instead of taking the money, roll it over into your new retirement account or open up a rollover IRA. Do what you can to continue contributing to it as well.

Making one or two mistakes can potentially derail your financial security …

2) Leaving money on the table. Most employers will either match contributions you make or distribute profit-sharing contributions based on your salary. Claim this free money! If you have to contribute to get the free money, do what you can to scrape up that amount, as this can double the size of your retirement account. Once the year is up, you can’t go back to claim that free money. Also, some companies require you to be vested, or stay with the company for certain time period. Unless it is a job you can’t stand or you want to pursue something else, do what you can to meet the vesting requirements. Once you do get the contributions, they are yours to keep! Go to to see the contribution limits.

3) Paying too much in fees. Depending on the type of plan you have, check to see the expenses you are paying, especially if you can choose the funds you invest in. The average actively traded mutual fund has an expense ratio of 1.4 percent, while the average exchange traded fund (ETF) or index fund hovers around 0.6 percent. That 0.8 percent difference over 30 years for a $100,000 portfolio at 10 percent is close to $300,000! Research what you are paying for your investments.

4) Ignoring your retirement account. Some people may do a great job at socking away money, keeping their expenses low and taking advantage of what their employer will contribute. But if you don’t periodically review your asset allocation (what you are invested in and how much), it potentially can cost you in returns and/or expose you to too much risk. I had a client who held everything in cash during one of the greatest market runs, forgoing close to $100,000 in one year. On the other side, if you are close to retirement and have too much exposure to risky investments, a market downturn could squash your dreams of retirement. Make sure your investments fit your goals, risk tolerance and timeline. Rebalance your portfolio when you need to, and ask a financial professional if your work retirement accounts are invested wisely.