Growing your retirement plan contributions into a mini-fortune that can sustain you throughout your retirement requires more than simply stuffing contributions into your account. It requires your time and attention.

Mistake #1: Thinking That Someone Else Cares about Your 401(k)

Let's break it down, shall we? First and foremost, it is essential for you to realize that your 401(k) is not a magical solution whose sole purpose is to look after you in your retirement. It is not! Your next wake-up call is to grasp that your 401(k) is not being managed specifically for you. The company you work for is not watching your portfolio's investments carefully to ensure you avoid any risky situations should the stock market collapse.

When I talk to most people about their 401(k) accounts, I love it when they say, "Oh, my job has people for that. I don't need to worry about it—it's all taken care of." Umm...NEWSFLASH: it is not! No one at your job has "people" looking over your account, and nothing is being taken care of the way you think it is! What your company has are several general staff members who handle general account tasks (you know...the really important things, like printing statements and sending you reports), and that is all! All accounts are treated the same regardless of your personal circumstances. Whether you're twenty or fifty, single or married, have children or not—nobody gives a hoot. They have zero idea about what your retirement goals are, what kind of lifestyle you would like, or when to warn you that your allocations are too risky for your age. Your 401(k) account is one of many, and as such, it is treated with the same lack of interest as everyone else's.

So if you want your 401(k) to work for you, you've got to accept the fact that making sure that it is on track is all up to YOU! You need to watch your magic bean, nurture it, and protect it from the ogre; you need to watch it like a hawk (a ninja hawk who's been trained in martial arts!) and question its allocation and growth; you need to find out whether you are contributing the right amount and whether that amount is being invested appropriately for your circumstances. Only your actions can make a difference, and the sooner you start taking steps to keep your financial future on track, the sooner you will be in control of your retirement.

Mistake #2: Confusing accumulation with growth

It is imperative that you learn how to read your 401(k) statements. I am not just talking about gazing nonchalantly at the numbers and thinking, "Wow! They look good—I'm sure they've increased since the last statement..." I'm talking about reading and understanding the growth (the return on your investments) and being able to differentiate it from a simple increase in your account balance.

Think about it this way: Your 401(k) can grow in only two ways: from your contributions (and your employer's matching, if you're lucky!) and from the growth in the value of the investments in your portfolio over time. There isn't any magic to it at all. Now, out of these two things that affect your accumulation of wealth, you can only directly control the first one—the amount of your contributions. The second force, growth, is only partially controlled by you, and like a moody boyfriend, it can be unpredictable at times. So when you're looking over your 401(k) statement and you see that your account balance has increased from the last time you checked, it's incredibly important to understand how much of that increase came from your contributions and how much of that increase came from your investments growing in value.

When you look at your 401(k) statement, you should expect the account balance to be higher than the previous statement because you've been contributing money into it on a regular basis. But what you need to understand and focus on is the actual capital growth on your hard-earned principal investment (i.e., how much your investments have increased in value). You need to look at the growth on the contributions, and don't forget to subtract any fees you may be paying. Sometimes it is not obvious that you're losing money, because the contributions made by you and your employer are masking a drop in value of your investments—the account balance will increase even though there is zero or even negative capital growth. This means you don't necessarily notice the big drops in value as much as you should, because at first glance, your account balance is up.

Mistake #3: Not Taking the Time to understand the risks in Your 401(k)

Let's go back to the beginning. Once upon a time you started a great new job somewhere; you were excited, filled out the new-hire paperwork, and by the time you got to the benefits applications, the process probably went something like this:

Human Resources Representative: So, welcome aboard. Just a few more forms to fill out—here is your 401(k) paperwork. The company matches up to 3 percent of your contributions, if you'd like to take advantage of that. You just need to put down how much you'd like to contribute from each paycheck and select your investment allocations.

The new hire then looks over the paperwork and thinks about how much money she can "afford" to set aside; and I use quotations because I want to tear my hair out when people say, "I can't afford to set that much money aside." Then, after devoting about three minutes to reviewing her options, which is probably less time than you spend on choosing what to order at a restaurant, she selects a few mutual funds from the incredibly limited number of investment options offered by the company.

Most women make their 401(k) retirement portfolio selection without taking the time to understand what it is they are investing their money in. Most men do the same thing for that matter, even though they won't admit it—because they're great at faking confidence. Even fewer of us will try to understand what these funds invest in or the risks involved. Think about the implications; the funds you choose will directly impact two things about your portfolio: growth, or how quickly your investments could appreciate, and risk, or the possibility that your investments will lose money at some point, which could be a lot, as we saw with the meltdown of 2008. And because most women don't know much about the funds they're putting their hard-earned contributions in, or the risks associated with those funds' strategies, they throw a Hail Mary and pray for the best.

Mistake #4: Setting Your 401(k) on autopilot

Now this part is what really gets me: After setting up their 401(k) account, some women will set it on autopilot and won't bother to adjust their contributions or investments as time passes. Think about how silly that is. As you move along in your career, you probably received a promotion or a raise or moved to a better-paying job, and of course you increased your 401(k) contributions in line with your increase in pay, didn't you? Well, if you're smart, you will always deposit the maximum amount possible; but if you have more of a "set and forget" mentality, then your contributions to your 401(k) account are probably not the highest priority in your life.

If you haven't looked over your 401(k) recently or haven't increased your contributions in years, ask yourself, "Why not?" Perhaps you forgot to increase your contributions or maybe you decided to buy a brand-new car, upgrade your kitchen, or take an exotic vacation instead. For most people, their contributions usually remain the same as they were when they first started working. Since no one ever comes along to take your hand and let you know that you should be investing more money and investing it into different allocations, you remain blissfully unaware that you may be aimlessly adding your contributions to a black hole.

Whatever your point of view when you started cultivating this 401(k) bean, you were certainly younger and less concerned about funding your retirement. As you get older, it’s important to make sure that you’re making the necessary changes to avoid major mistakes. Think about it: As the years have gone by, you have updated your fashion, you have changed your style, your hair color, maybe even your taste in music to match your sophisticated age. So why are your 401(k) contributions and investment allocations stuck in the late 1980s, wearing power shoulder pads and huge, poufy hair?

Money Confidence This is an adapted excerpt from Money Confidence: Advice for Women to Take Control of Their Financial Freedom Now by Crystal Oculee. Crystal Oculee is a personal finance expert, a national financial motivational speaker, and a Personal Money Trainer™.


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