Costly 401(k) Mistakes Investors over 50 Are Making

For 401(k) investors over 50, retirement is around the corner. And, with the market volatility over the past year, many are wondering how to best protect their savings and ensure they have enough for retirement. 

If you’re nearing retirement and want to do what you can now to maximize your 401(k) savings and set yourself on a path to a comfortable retirement, make sure to avoid these costly 401(k) mistakes.

#1 Not Contributing Enough

One of the most significant 401(k) mistakes people over 50 make is not contributing enough. 

Not only should you be maxing out contribution limits, but you should also be taking advantage of the 401(k) catch-up contribution for investors over 50.

Employees with 401(k)s, 403(b)s, most 457 plans, and federal Thrift Savings Plans can contribute up to $22,500 in 2023. 

For those ages 50 and older, the 401(k) catch-up contribution is $7,500 – for a total of $30,000.

How much you can realistically contribute to your 401(k) depends on how much you earn and the amount of debt you carry, among other factors. 

Do what you can to save as close to the 401(k) contribution limits as possible: Cut monthly spending, postpone discretionary large purchases, or pick up a side hustle.

#2 Being Too Conservative

Many 401(k) investors over 50 become more conservative with their investments as they approach retirement. It’s totally understandable because you want to protect your hard-earned savings. 

However, being too conservative may be a mistake.

If you play it too safe, you may miss out on potential growth that could make a significant difference in your retirement savings.

For example, if you’re invested too much in bonds for stability and to protect your retirement savings, an overly conservative portfolio can hurt long-term growth. 

Instead, consider a mix of stocks, bonds, and other asset classes to help with growth potential. 

Another reason being too conservative may be a mistake is inflation. 

If you’re not earning enough on your investments to keep up with inflation, your savings lose purchasing power over time. 

This can be especially problematic for 401(k) investors over 50 because they’re likely to be retired for longer than younger investors, which means they’ll need their savings to last longer.

#3 Failing to Rebalance

Market fluctuations can cause your portfolio to become unbalanced over time, with some investments outpacing others. 

The investments you initially chose to help you meet your retirement goals – whether that was 2 years ago or 2 months ago – may no longer be the best alternatives for you now or be aligned with your retirement goals. 

This is why it’s important to regularly review and rebalance your portfolio. 

Rebalancing is the process of realigning the weightings of the assets (your investments) in the portfolio. This can involve periodically buying and/or selling assets in the portfolio in order to maintain the initial desired level of asset allocation. 

It’s not enough to just simply rebalance. With professional help, consider rebalancing based on the current economic and market trends rather than just realigning allocations.

Check out our 401(k) Calculator to see how professionally managed help may impact your 401(k) balance in retirement. 

#4 Pulling Money from Your 401(k)

When you withdraw from your 401(k) before retirement, you’re depleting your savings and missing out on potential growth. 

Plus, it can be an expensive mistake if you withdraw money before you reach 59½. 

Not only will you face an early withdrawal penalty, but you’ll also have to pay taxes on that money as ordinary income. 

Whether you need the money for a medical emergency or to pay down debt, consider alternatives before tapping into your retirement nest egg. Get a home equity loan, refinance your mortgage loan, take out a personal loan, or use a 0% APR credit card.

[Related Read: 401(k) Hardship Withdrawals – What You Need to Know]

#5 Underestimating How Much You Actually Need 

Many Americans have a disconnect between what they think they will need during their retirement years and the actual cost of retirement.

Underestimating your retirement needs can lead to financial difficulties, forcing you to rely on Social Security or other sources of income to make ends meet later on in life. 

We are living longer, which means retirement is lasting longer for many. Yet, healthcare, transportation, housing, and long-term care costs continue to rise. 

It’s critical to revisit your retirement plan and get crystal clear on how much money you need. Then, do what you can to save as much in your remaining working years as you can. 

Check out our 401(k) Calculator to see how professionally managed help may impact your 401(k) balance in retirement. 

#6 Not Getting Professional Advice

If you’d like to take control of your financial future and potentially have more income at retirement, we strongly suggest getting third-party advice. 

If you’re hesitant to reach out for advice because you think your account balance isn’t big enough, or you think you’re too close to retirement to get help, don’t let that stop you! 

401(k) Maneuver provides professional account management with the goal to help you grow and protect your 401(k).

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

There are no time-consuming in-person meetings and nothing new to learn, and you don’t have to move your account. 

Simply connect your account to our secure platform, and we regularly review and  rebalance your account for you, when necessary. Check here to learn more about how it works. 

If you have questions about your 401(k) or if you need help, we’re here for you. Click below to book a complimentary 15-minute 401(k) Strategy Session.