Smart SpendingSmart Spending

5 mistakes you're making with your retirement fund

Unless you want to work until you die, you might want to avoid these five common retirement fund missteps.

By MSN Money Partner May 2, 2014 1:10PM

This post comes from Maryalene LaPonsie at partner site Money Talks News. 

Money Talks News on MSN MoneyThe news on retirement is not good.

401k © Photodisc, SuperStockIt seems like every day there's a study breathlessly sharing the stark reality of our retirement prospects, or lack thereof. In case you've missed them, here’s a sampling.

So uplifting, right?

Of course, starting early and saving as much as possible helps. So too does buying long-term-care insurance or a life insurance policy with a long-term-care rider.

However, you could do all that and still find yourself running short of money in your golden years. Here are five common blunders people make with their retirement funds.

1. Not using an account with tax benefits

Not all savings accounts are created equal.

Putting your retirement fund in a high-yield account, CD or under your mattress isn't going to cut it. Using the latter approach robs you of all that glorious compound interest, while the first two options mean your gains may take a serious tax hit.

Instead, look for specific retirement accounts with tax benefits. A 401k offered by your employer or an IRA are the two most common options. However, each comes in two forms: traditional and Roth. To learn the difference, read this article by Money Talks News finance expert Stacy Johnson.

2. Missing out on your employer match

IRAs are fabulous, but if your employer offers a 401k match, you need to start there.

According to a survey by American Investment Planners, nearly 60 percent of employers offered matching funds for employee 401k accounts in 2011. A more recent study completed by Aon Hewitt found  the most common match was dollar for dollar, up to 6 percent of an employee's income.

That means if you earn $50,000 and put $3,000 into your 401k, your employer will deposit $3,000 too. Other companies might match a different percentage of income or give you 50 cents on the dollar. Regardless of the details, it's free money. Why aren’t you taking it?

3. Keeping all of your money in one fund

The 55th Annual 401k and Profit Sharing Survey, published by the Plan Sponsor Council of America, reports that the average plan has 19 fund options.

With so many choices, there is little reason to leave all of your eggs in one basket. What's more, avoid investing all of your retirement funds only in your company's stock.

Diversity is the name of the game. Spread your money across several mutual funds so in the event one of them tanks, your entire retirement fund doesn't go with it.

That said, you want to read about the next common mistake before selecting which funds get your money.

4. Ignoring fund fees

Too many workers seem to think their 401k is a free investment fund. It's true you're not paying out-of-pocket, but it certainly does come with a price tag.

While fee disclosures are getting better, you may have to hunt for the details in the statements of your 401k plan. Once you find the fee amounts, you may think they sound small, but watch Stacy Johnson's video to see how much they can impact your bottom line. For example, if you opt for the fund with the 0.5 percent fee rather than the one with the 2 percent fee, you could have an extra $135,000 at retirement.

In addition to management fees, you probably incur charges every time you transfer money from one mutual fund to another. That's one of many reasons to avoid changing your investment allocations every time the market hiccups.

5. Using your retirement money like an emergency fund

Finally, it's a HUGE mistake to think of your retirement money as an emergency fund. Yes, it's such a big mistake I had to yell.

The 401k and Profit Sharing Survey reports that 89 percent of plans allow loans. When your car breaks down or the roof starts leaking, it can be tempting to turn to your retirement fund for cash. After all, you're paying interest to yourself when you repay the loan. That's such a smart money move, right?


The New York City Office of Labor Relations put together a chart demonstrating how a loan will impact your retirement savings. Compound interest is a powerful thing, and when you withdraw money, you are potentially losing out on tens of thousands of dollars or more.

Even more concerning for your immediate future is what happens if you have a loan and then leave or lose your job. You need to pay back the balance immediately. If you don't and you're younger than 59½, you'll not only pay income tax on the money but a pricey penalty too. I speak from experience: That's not a bill you want to pay.

Instead of seeing your retirement account as a Plan B for emergencies, open a separate savings account and fill it with enough to pay for three to six months' worth of living expenses if needed. Then, you can be strictly hands-off when it comes to your retirement fund.

How is your retirement fund looking?

More from Money Talks News

May 2, 2014 3:01PM
The ones who needs this advise the most., probably aren't reading this article....
May 6, 2014 11:39PM
Beware of financial planners. They're there to help mostly because they want some of your money.
May 6, 2014 9:03PM
If I hadn't used my "retirement" savings as an emergency fund, I'd be dead right now.  Had to use it for food, clothing and shelter when I was out of work, and now working at a much lower paying job.
May 11, 2014 11:36AM
May 2, 2014 2:16PM
Retirement investing mistakes...

1) Blindly buying what your Financial Planner spews at you.
2) Buying stocks because everyone else is.
3) Buying bonds because everyone else is.
4) Buying real estate to rent it to ????
5) Not looking up Derivative Debt Exposure in Wikipedia and reading how screwed we are. 
May 2, 2014 4:25PM
I saw one huge mistake folks I worked with made that were near retirement. When the market starts crashing or "correcting", get your money out of the risky business and put in in safer low yield funds. Those that rode it out lost big and ended up working several more years to make it up. It took a toll on the health of some.  Don't bet more than you can afford to lose, especially when your ready to retire.
May 7, 2014 8:06AM
For the best chance to retire on your terms start retirement planning and saving/investing early in life, be consistent, take advantage of any employer matching plan, max out contributions when possible, eliminate debt, avoid risks with your nest egg and plan for multiple streams of income once retired (social security, pensions, dividends, part time work, etc.).  There is a great deal of information about retirement available on the web.  I use several sites including the site Retirement And Good Living which provides information on finances, health, retirement locations, part time work and also has a great blog of guest posts about a variety of retirement topics. 

May 6, 2014 8:49PM
Brilliant article, Maryalene LaPonsie! This is basically no brainer stuff you posted. Do you MSN writers pull these meaningless articles out of a bottom drawer somewhere, where it got dropped because it missed the round file? Good Grief you guys write a bunch of worthless trash!
May 7, 2014 3:02AM
Don't wait too long to retire.  Fifty-Eight is too late!
May 11, 2014 7:51PM
You might do better to spnd your retirement while you can.  If you keep it, the government is probably gonna get most of it.  It is yours!  As the economy gets weaker, they are gonna get more of what you have worked for.  Look at Obamacare.  What purchases will they force on you next?  Cars? they already made a weak attmep with the cahs for clunkers junk.  What will be next? Forced car purchase?  Televisions? Microwaves? cell phones?  the list could be endless until they get your last penny.
May 11, 2014 11:50AM
it's just another boring sunday morning coming down story...Happy Mothers Day...
May 11, 2014 5:15PM
Blow your life, paycheck, retirement and anything else you have by living in America where the clowns in washington (yes, little "w") throw away truck loads of money on a stick in the sky, crabby, building they call a "washington monument" (little letters intended) while a lady who lost her husband fighting wildfires can't get help.  Katrina victims wait forever for help, and other natural disasters leave victims helpless.  I don't care if that pile of rocks fall straight to the ground if it doesn't hurt anyone.  When a pile or rocks get more care than people, I denounce the clowns in control.  Every one of them use the bathroom like all the rest of us and they all smell like shittt when they do.
May 11, 2014 9:35PM
I suppose if you can burn toast and make plated pennies the possibilities are endless.
May 7, 2014 3:09AM
401K loans aren't always bad.  If you borrow $1000 from your $10,000 account balance and earn any interest on it while paying it back, you come out ahead if the remaining $9000 looses half it's value in an ensuing market crash.  Not only did you not loose half the value of the $1000 you took out, you pay it back with interest probably long before you earn back the $4500 you lost while waiting for that "compound interest."
May 11, 2014 6:54PM
Monely is not a problem for Julianne R.  In a few more weeks, she should be able to buy AF1 and put Obama walking.
Sep 7, 2014 9:15PM

I spent all my money on a trailer and property now im  more poor than the homeless

May 12, 2014 11:48PM
If I know this much at 35 imagine what I would know at 65....Never mind I already asked the koots about making diamonds.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.