As an Accredited Investment Fiduciary Analyst, Keel Point’s Director of Corporate Services, Scott Copeland, has advised 401(k) plans for more than 15 years. Working with Sponsors, Investment Committees, participants, and their families provides Scott a unique perspective.
For National 401(k) Day, he’s shared his take on the common mistakes that can sabotage a participant’s success.
Six Common Mistakes to Avoid for 401(k) Success
1. Don’t be vague or general
This is the classic “I need to save for retirement” statement. It’s typically followed with “one day”.
Successful participants are more concrete in their goals.
Someone with an attitude like “I’m going to defer 5% into my 401(k) starting with my next paycheck” has a much higher success rate.
2. Be wary of peer pressure
We’re all competitive by nature, but it can often harm returns.
Over the years, I’ve listened to countless stories recounting an ‘outstanding return’ or ‘hot tip’. Rarely do I hear ‘I made a mistake’.
When you begin to question yourself, remember that people often show you their trailer but rarely the full documentary.
3. Avoid unrealistic expectations
“It’s March. If I lose 75 pounds by June, I’ll look great at the beach”. You scoff at the statement, but 401(k) participants often think the same way.
When looking at a solid savings plan of realistic projections, someone will ask, “But what if my return is 3 times the market return? How soon can I retire?” Please, come back down to earth. It’s hard to see clearly when your head is in the clouds.
4. All or nothing mentality is toxic
AKA- Go big or go home.
Once a month, I have someone walk in and sign up to save 30-50% into the 401(k).
I appreciate enthusiasm when discussing 401(k) savings but let’s be realistic.
These are the same participants that usually drop back to zero very quickly. The see-saw approach is harmful to your account balance. You might be missing the match! Start slow and build on a good foundation.
5. Don’t tell everyone!
Yes, you’re saving for retirement, and it’s wonderful! It seems most everyone has an opinion and critical opinions are given more freely.
Enlist a close group of friends and support each other.
6. If you want to lose, chase a number
I can hear the next question before the first syllable has been uttered.
“How soon until I have 1 million dollars?”
If I were to pick a single damaging question, it would be one with a final, ‘I made it’ target. Your 401(k) plan does not exist for you to hit a number. It’s there to fund your chosen lifestyle during retirement. When defining your goals, avoid a numerical target. Define retirement in experiences and dreams. Your advisor can quantify those dreams into a savings rate today.