6 Ways to Screw Up Your Retirement Plan

Contributing to an employer-sponsored retirement plan is an important step toward a secure future, but like any other financial asset, it takes oversight as well as common sense to reap its benefits.

Avoid these six critical mistakes to improve your chances of having a successful retirement.

Mistake No. 1: opting out - One of the biggest mistakes is to decide not to participate.

Do not opt out if your company offers automatic enrollment. It will also automatically select an investment option for you -- often a target-date fund. Once you're in the plan, take time to acquaint yourself with all its investment options so you can determine if the preselected fund is the best choice or if there's one that better meets your goals, time horizon and risk tolerance.

Mistake No. 2: borrowing from your plan - Your company retirement plan is not a piggy bank. Treating it like one has very expensive consequences.  It could cost you as much as 40 cents on the dollar -- and that is money you never recover.

Mistake No. 3: cashing out in a job change - Cashing out at 59 ½ years of age or younger carries a 10 percent penalty.  Of course, this would be in addition to the taxes you would owe.

This also doesn't take into account the returns you forfeit by not staying invested. Even small amounts cashed out when you're young can prevent you from amassing a large nest egg. For example, if you had kept $5,000 in your retirement account 20 years ago instead of cashing it out, that amount could have grown to nearly $14,590 today, assuming a 5.5 percent annualized return.

While the last 10 years or so have been a challenge for investors, the stock market's historical returns have rewarded them.

Mistake No. 4: leaving the account in limbo - Just leaving your retirement account with a former employer is also a bad option.  It's better to take your 401(k) with you and mix it in with your new employer's plan -- or roll it into an individual retirement account of some type so you can manage it a bit better. If you do an IRA rollover, make sure it's a trustee-to-trustee transfer.

Mistake No. 5: too much company stock - Financial advisers caution you should have no more than 10 percent of your retirement account in your employer's company stock. If you're concentrated in a single security, you get hit with a double whammy if your company hits hard times and you lose your job.

Having company stock in a 401(k) plan is good for the company in a few ways, but it's a bad idea for the nonowner employees in many ways.  If you're thinking, 'What about the Facebook or Google employees who are now millionaires because of their stock?' don't confuse luck with skill. On the streets of this nation, there are many former employees of Enron, PanAm, WorldCom and others who also believed in their company's stock.

Mistake No. 6: ignoring the big picture - Your employer-sponsored retirement plan is just one leg of the proverbial three-legged stool of a retirement plan. The term "retirement plan" should refer not just to tax-qualified plans such as IRAs and 401(k)s, but also other sources of income such as Social Security, company pensions, part-time work and other money saved up -- your overall plan for how you're going to get through the remainder of your life.

Source:  Marilyn Bowden, Bankrate

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

The Jacksonville Business Journal has ranked D2 Capital Management in 

the top 25 of Certified Financial Planners in Jacksonville

D2 Capital Management is a Member of the Southside Businessmen's Club and the Beaches Business Association