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5 Signs You're Mismanaging Your 401(k) - And How to Fix It!

5 Signs You're Mismanaging Your 401(k) - And How to Fix It!

December 20, 2023

As a financial planning expert and a parent myself, I understand the juggling act that comes with managing work, family, and trying to plan for the future. I know many of you are in your 40s and 50s and have started looking towards retirement. It's an exciting time, but also one that can bring up a lot of anxiety and questions. Are we saving enough? Are we investing wisely? Will we be able to maintain our lifestyle after retirement?

One of the key components of your retirement plan is likely your 401(k), a powerful tool that, if managed correctly, can help secure a comfortable retirement. But how do you know if you're on the right track? Today, I want to share with you five signs that might indicate you're mismanaging your 401(k) and provide some tips on how to get back on track. After all, it's never too late to take control of your financial future.


Sign #1: You're Not Contributing Enough

One of the most common mistakes I see as a financial planner is not contributing enough to a 401(k). It's easy to fall into the trap of thinking that small contributions won't make a difference, or that you'll start saving more when you earn more. But the truth is, every little bit counts, and the earlier you start, the better.

Let me share a personal story. When I first started working, I was overwhelmed by all the bills and expenses. Saving for retirement seemed like a distant concern. So, I put the absolute minimum allowable contribution into my 401(k), thinking I would increase it down the line. Years later, when I finally took a closer look, not only did I realized I had missed out on a significant amount of potential savings and growth, but I missed out on contributions from my employer too. Double Whammy!

The general guideline is to aim for contributing 15% of your pre-tax income to your retirement accounts, including your 401(k). Of course, this might not be feasible for everyone, especially if you're dealing with other financial commitments. But try to contribute at least enough to take full advantage of your employer's matching contributions, if they offer them. This is essentially free money that you don't want to leave on the table.

If you can't hit these targets right now, don't panic. The key is to start somewhere and increase your contributions gradually. Even a 1% increase can add up over time. Remember, it's not just about the money you put in, but also about the compound interest that accumulates over the years.


Sign #2: You're Not Regularly Reviewing Your 401(k)

One of the most common mistakes people make with their 401(k) is adopting a "set it and forget it" mentality. It's understandable; life gets busy, and retirement seems far away. However, this approach can lead to missed opportunities for growth and adjustments based on changing financial circumstances or market conditions.

My experience as a financial planner with Capital Choice, a premier financial planning service in Arizona, has shown me the importance of regular 401(k) reviews. At Capital Choice, we offer structured review schedules to keep our clients informed and confident about their retirement plans. This process allows us to identify any significant changes that may affect your 401(k), such as shifts in the market or alterations in your employer's contribution match.

Regularly reviewing your 401(k) allows you to adjust your contributions and investment choices based on your current financial situation, lifestyle changes, and market trends. For instance, if you receive a pay raise or bonus, you could increase your contributions. Similarly, if market conditions change significantly, you may need to rebalance your portfolio to maintain your desired risk level and asset allocation.

So, how often should you review your 401(k)? At Capital Choice, we recommend at least once a year. However, if there are significant changes in your life (like a new job or a pay increase) or drastic movements in the market, more frequent reviews may be beneficial.

If you're feeling overwhelmed by the idea of regularly reviewing your 401(k), remember that you don't have to do it alone. At Capital Choice, we offer personalized financial advice and solutions, including retirement planning, debt management, and college planning. We have office locations in Phoenix and Mesa, Arizona, and can meet online too, and we're always here to help you navigate your financial journey.


Sign #3: You're Overly Invested in One Type of Asset

Another common mistake that I often see is being overly invested in one type of asset. This approach can lead to a lack of diversification in your portfolio, which can increase your risk. A diversified portfolio spreads the investments across different types of assets (such as stocks, bonds, and cash), sectors, and geographical regions, which can help to mitigate risk and potentially enhance returns.

Let's take the example of American Funds, a company that has been helping investors pursue their financial goals since 1931. They offer a range of fund options for different types of investors, from individual investors to institutions or consultants, and employers or plan sponsors. By exploring these diverse options, you can build a well-rounded portfolio that aligns with your financial goals and risk tolerance.

When you're reviewing your 401(k), take a moment to consider your current asset allocation. Are you heavily invested in one type of asset or sector? If so, it might be time to reconsider your strategy. As American Funds advises, it's important to consider investment objectives, risks, charges, and expenses before investing. Reading fund prospectuses and summary prospectuses can provide valuable information to aid in this decision-making process.

Remember, though, investments are not FDIC-insured and may lose value. That's why diversification is crucial—it can help manage risk while still providing opportunities for growth.

The key takeaway here is that while it's essential to invest in what you know and trust, it's equally important to spread your investments across various assets. Diversification can help cushion against market volatility and put you on a path to a more secure financial future.


Sign #4: You're Withdrawing or Borrowing Against Your 401(k) Prematurely

One of the most common, yet costly, mistakes that individuals make with their 401(k) plans is withdrawing or borrowing against them prematurely. While it might be tempting to tap into these savings during times of financial stress, doing so can significantly impact your long-term retirement goals.

When you withdraw from your 401(k) before the age of 59.5, you're likely to incur a 10% early withdrawal penalty, plus you'll have to pay income taxes on the amount withdrawn. This can eat away at your savings and leave you with less money for retirement.

Borrowing against your 401(k) isn't much better. Although you're essentially borrowing from yourself and will pay the interest back into your account, there are still risks involved. If you fail to repay the loan within the specified time frame, it could be considered a distribution and subject to taxes and penalties. Plus, the money you borrow won't be growing through investments during the repayment period.

At Capital Choice, we partner with Pontera to provide comprehensive 401(k) management. We advise against premature withdrawals or loans unless absolutely necessary. Instead, we work with you to develop a financial plan that meets your current needs while keeping your retirement goals in sight.


Sign #5: You're Ignoring the Impact of Fees

One aspect of retirement planning that often gets overlooked is the impact of fees on your 401(k). While they may seem small and insignificant, over time, these fees can eat into your investment returns and significantly affect the growth of your retirement savings. This is why it's crucial not to ignore them.

Fees are associated with all financial products or services, be it annuities, investment accounts, or even your 401(k) plan. They come in various forms, such as management fees, expense ratios, transaction fees, and more. While some of these costs are inevitable, many can be reduced or avoided with careful planning and consideration.

When choosing funds for your 401(k), it's important to review the prospectuses carefully. These documents will provide a detailed breakdown of the fees and expenses associated with each fund. If you find the information overwhelming or confusing, don't hesitate to consult with a financial professional. They can help you understand the costs involved and guide you in making informed decisions.

Remember, even a slight reduction in fees can result in significant savings over time. For instance, a 1% reduction in fees could potentially save you thousands of dollars over the course of your career. Therefore, it's well worth taking the time to understand and minimize the fees associated with your 401(k).

By paying attention to fees and making an effort to minimize them, you're not just saving money - you're also maximizing the potential growth of your retirement savings. And ultimately, this could make a big difference in achieving your retirement goals.



Investing in a 401(k) is one of the most effective ways to save for retirement, but it's not without its challenges. From not regularly reviewing your plan to being overly invested in one type of asset, ignoring the impact of fees, or not taking full advantage of your employer's match, there are many potential pitfalls to navigate.

This is where a financial planning service like Capital Choice comes into play. Capital Choice helps its clients optimize their retirement plans and achieve their financial goals through personalized and holistic planning. The firm offers services such as retirement planning, debt management, structured review schedules, and educational savings plans.

The testimonials from clients express satisfaction with the services provided by Capital Choice, emphasizing the personalized attention, comprehensive planning, and continuous support that sets the firm apart from large financial institutions.

But it's not just about retirement planning. Capital Choice also provides a dedicated advisor, on-demand booking, and budget assistance to ensure all your financial needs are met. Whether you're a resident of Arizona or living outside the state, Capital Choice is committed to helping you navigate your financial journey.

In conclusion, while managing your 401(k) might seem daunting, remember that you don't have to do it alone. With the right support and guidance, you can avoid common mistakes, optimize your savings, and pave the way to a secure and comfortable retirement.


Take the Next Step Towards Your Ideal Retirement

Capital Choice is proud to partner with Pontera to offer you safe, compliant, and top-quality 401(k) management. We understand that every individual's financial journey is unique, and that's why we are dedicated to providing personalized solutions that align with your retirement goals.

Our team of experienced professionals is committed to upholding the highest standards of care when managing your 401(k). We leverage Pontera's advanced tools and resources to ensure your retirement savings are optimized for growth while adhering to all compliance regulations.

But it doesn't stop there. We believe that a successful retirement plan extends beyond managing your 401(k). It involves developing a comprehensive financial plan that takes into account all aspects of your financial life. And at Capital Choice, we're here to do just that.

Whether you're just starting to save for retirement or are already well on your way, we invite you to work with us. Our experts will guide you through the process of developing a financial plan that suits your needs, goals, and risk tolerance.

Don't wait to start building your ideal retirement. Schedule a time today to discuss how Capital Choice and Pontera can help you navigate your financial journey with confidence. This is more than just a meeting; it's your first step towards a secure and comfortable retirement.

Click the "Schedule My Call" button bellow to schedule your discussion now. Together, let's build a retirement plan that empowers you to live your best life in your golden years.