401(k) Mistakes Gen Zers Are Making
Written by
Cindy Lamothe
Edited by
Jenna Klaverweiden
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Between student loans, side hustles and trying to afford rent, it could be easy to put retirement planning on the back burner. This is especially true for Gen Z, who have a ways to go before retirement.
However, according to Newsweek, the Gen Zers who are investing for retirement are ahead of the game compared with other generations. Still, a few common 401(k) slipups could be costing them big in the long run.
As a financial advisor who’s worked with hundreds of young professionals, Andrew Lokenauth, money expert and owner of Fluent in Finance, has seen way too many Gen Zers leave serious money on the table with their 401(k)s. “Like, thousands of dollars. And it drives me nuts because these are such easy fixes,” he said.
Here’s what to watch out for (and how to get it right from the start).
Missing Out on an Employer Match
Let’s be real — turning down free money is never a good idea. But that’s exactly what happens when you don’t contribute enough to get your full employer match. It’s basically like giving yourself a pay cut for no reason.
This is free money, and not contributing enough to get it is like taking an unnecessary pay cut, according to Chris Heerlein, CEO of Reap Financial.
Even starting with a small percentage can have a major impact over time.
Heerlein said one of his clients in their early 20s increased their contribution from 2% to 4% after realizing their employer matched up to 4%. That adjustment can instantly double the value of your retirement savings each paycheck.
Even if you’re just starting out and feel like you can’t afford to save much, contributing just enough to trigger that match is a no-brainer.
Leaving Contributions in Default Cash Positions
Heerlein has observed Gen Zers miss out on early compounding because they never selected an investment option, so their funds stayed in a money market account.
It’s an easy mistake to make — especially when you’re new to the workforce and just happy to have a job with a retirement plan. But parking your money in a low-yield account means you’re missing out on the real power of investing: growth over time.
Choosing a target-date or index fund tailored to their retirement horizon can put those dollars to work immediately. “These small early actions help build financial momentum that compounds for decades,” he said.
Simply put: The earlier you start, the more your money works for you — like while you’re sleeping, binge-watching Netflix or planning your next vacation.
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Sources
- Newsweek, “Gen Z Is Getting a Leg Up on Their Retirement Savings.”
- Andrew Lokenauth, Fluent in Finance
- Chris Heerlein, Reap Financial
