My Three 401k Plan Mistakes that You Can Avoid

It was my first day of work as a cashier at Wal-Mart, and I was so glad to be there. One of the first things I was asked to do was review and sign a huge pile of paperwork. “Here you go, work on that,” said the HR manager while handing over a tall stack of forms.

I remember staring at the forms, not sure where to start or what to do. I had to make so many decisions on the spot, and I felt scared, overwhelmed, and unprepared to make them. One of the things I had to decide was whether I wanted to start saving for my retirement, using the 401K program.

The post is about three major 401K mistakes I made that cost me thousands of dollars in unearned income and how you can avoid making the same mistakes.


Mistake #1: Failing to learn about the power of 401K plans for retirement planning


My English was weak and reading forms while having to ask basic questions about the 401K retirement plan made me feel stupid. To avoid exposing my weakness, I did not ask questions. Instead, I choose not to participate in the plan. I declined to contribute. I did not realize the cost of my bad decision. I did not know that the 401K plan is a great and simple way to start saving for my future.

There are two primary reasons I did not want to learn more: first I was afraid to fail, and second  I felt it was not my role.

First, I felt that making investment decisions was hard and complicated. I was afraid I would lose everything if I invested in the wrong fund. I was worried about what my spouse and family would think if I failed.

Second, being a woman, I felt it was my husband’s job to take care of the financial decisions concerning our future. I felt unfit, unprepared and not in a position to make decisions. Knowing what I know today, I could not be more wrong.

It took me many years to start learning more. As a part of my education in 2007 and 2008, I took several finance courses that explained the time value of money principle. Looking back, I wish I started learning basics earlier and asked questions to gain more insights.

Do not let your fear of failure to stop you from learning more. Knowledge is power.

Lesson Learned: Start asking questions and learn more, read tips about investing in 401K today

Mistake #2: Losing money by losing time


When I started working at Wal-Mart in 2004, I was 25 years old. The last thing on my mind at that time was my financial well being at 60 years old. Retirement seemed far away and was removed from my thinking. Honestly, I was making $8.75 per hour, working full time, 40-hour week, and putting any money away seemed like a frivolous, unnecessary, and even dumb decision. I figured I had time; I was still so young!

My thinking did not serve me well. I lost precious time.

Looking ahead, I did start investing in 2008, but I lost lots of money because – I forfeited a 320% return on my savings, or $3,860 by making a mistake and waiting to invest.

Let me show you how much money I lost because I waited and did not start in 2004.

Scenario: I started to invest in 2004, contributing 10% of my monthly salary to an employer sponsored a 401K plan, worked at Wal-Mart for one year and left my portfolio growing.


  • My monthly wages= $8.75/hour x 40 hours x 4 weeks = $1,400 monthly
  • My 401k contribution = $1,400 x10% = $140 monthly or $1,680 annually
  • We assumed I worked in Wal-Mart for a year and earned 8% return on savings
  • My portfolio: $1,680 from my own contributions + 8% return ($134.40)= $1,814.40
  • If I left the account untouched for 14 years, today I would have 5,540 dollars

Conclusion: If I had contributed $1,680 to my 401K plan in my first year, today I would have earned a 320% return on my initial investment, and my money would have tripled in 14 years!

Of course, I did not do contribute to my retirement in 2004 and lost that opportunity. You may wonder, what difference does it make over a long haul? In other words, how much money would I have earned by the age of 60, from that first year at Wal-Mart?

Here is the answer: 1,680 dollars invested for 34 years would have yielded me 25,274 dollars, so in reality, I forfeited 23,594 dollars of future earning by not contributing in 2004. Time value of money in action!

Lesson Learned: Start contributing to 401k plan today!  If your employer offers a company-sponsored plan (401K, 403b and such) take the time you need to understand how much you can afford to contribute. Next, walk to your HR manager and sign the forms to start investing today. Please do not delay; it will cost you!


Mistake #3: Failing to understand and take advantage of employer matching


One of the biggest mistakes I made was not understanding the concept of employer matching. I failed to take the free money my employer offered.

What is the 401K match? It is when employers offer you free money that they will contribute to your retirement account (401K) if you contribute a certain amount first. In each case, employers may offer a different matching plan or none.

The most common one is 50% for up to 6% of your salary. What does it mean? It means if you contribute 6% of your annual salary, the employer will give you a free 3% of your salary as a bonus in the form of contribution to your 401K fund.

Let`s review a scenario to see how this looks like?

Scenario: I am working at Wal-Mart, earning $8.75 per hour, or $1,400 monthly or $16,800 annually.

    • If I contribute 10% of my salary to a 401K retirement plan, my employer will “match” my contribution to the maximum of 3%.
    • In other words, employer adds 504 dollars every year to my savings!
    • If I stay there for 5 years and continue contributing 10%, while employer contributes 3%, my total savings will be:
    • Your contribution: $1,680 annually x 5 years, earning 8% interest = $10,355
    • Employer match contribution: $504 annually x 5 years, earning 8% = $3,107



Lessons Learned: Contribute to the maximum 401K match percentage.

Think about matching as FREE money. The match will have a tremendous impact on the size of the retirement savings over time. This one decision will make a huge difference in your quality of life and your lifestyle upon retirement.


Today, I know that 401K is offered only by 14% of all employers in the United States (mostly larger employers) according to U.S. Census Bureau 2017 report, but the majority or over 60 percent of American employees choose not to participate in company-sponsored retirement plans! (Credit: Do not make the same mistake!

As for myself, I started investing in my retirement in late 2008, and since I contributed and earned hundreds of thousands of dollars, managing my own and my spouse’s retirement accounts. Looking back, I am grateful for my mistakes and lessons I learned.

Of course, when I am teaching my 13-year-old daughter about personal finances, I tell her that she needs to take advantage of employer-sponsored 401K plans as soon as possible. She plans to work next summer, and if the employer offers 401k plan, I would love to see her contributing. I know if she starts early and avoids making my mistakes, she will secure a great future.


General Performance Disclosure: Please note, all calculations above are used for informational and illustrative purposes only. The content is not intended to represent actual results that could be considered a recommendation of an investment or investment strategy an investor could rely on to make an investment decision. You are responsible for validating the information used to aid you in your research of investments and the decisions you make. You understand that any investment decisions you make are based on your own needs and tolerance for risk and that the information that you gather before making your investment decision. Past performance is not an indication of future results, and any investment is subject to fluctuation depending on shifting market conditions.

Copyright @ Logio Solutions LLC 2018. All rights reserved.



2 thoughts on “My Three 401k Plan Mistakes that You Can Avoid

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s