NCPA - National Center for Policy Analysis


March 27, 2009

Personal retirement accounts are a valuable tool in building a retirement nest egg.  The recent fall in the stock market has caused some savers to cash out their savings.  This is unfortunate because the stock market has rebounded after every fall, and those who are not in the market at the bottom will lose out as it rises.  There are other practices that can derail even the best laid retirement plans, says Pamela Villarreal, a senior policy analyst with the National Center for Policy Analysis.

For example:

  • Don't make saving a habit -- young workers may think they have plenty of time to save later, but setting aside a little bit of money on a regular basis throughout one's working years produces a greater nest egg than setting aside a large amount later on.
  • Leave matching funds on the table -- not taking advantage of an employer's matching contributions to a 401(k) account is like turning down a raise; an employee who turns down a dollar-for-dollar 401(k) account match of up to 5 percent of his salary is passing up a 5 percent bonus paid with untaxed dollars.
  • Borrow against 401(k) savings -- this is a surefire way to set back one's retirement plan by thousands of dollars through lost compound interest; a $25,000 loan today can cost more than $175,000 in lost retirement interest income over 30 years!


  • Cash out 401(k) savings -- cashing out a 401(k) account when changing jobs means that more than one-third of the balance can be eaten up in taxes and penalties.
  • Jump in and out of the market -- in 2008, 401(k) plans lost an estimated $2 trillion in value, but this "loss" would have been on paper only, were it not for the fact that many workers essentially locked in their losses by selling their equity funds during the recent downturn.

Source: Pamela Villarreal, "Ten Ways to Wreck Your Retirement," National Center for Policy Analysis, Study No. 320, March 26, 2009.

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