These 7 401(k) Moves Could Ruin Your Retirement

A 401(k) is one of the most important parts of a good retirement plan, so it’s important not to mess it up. One of the first lessons to learn when investing in your 401(k) is what kinds of moves have the potential to ruin your retirement. Then, you can avoid those things. It’s the classic advice of legendary investor Charlie Munger, who famously recommended that investors discover what leads to investing failure — and then absolutely don’t do those things.

Here are seven 401(k) moves that are all but certain to derail your retirement.

1. Selling during a rough market

One of the fastest ways to get your 401(k) off-track is to start selling when the stock market turns rough, as it did in early 2025 or early 2020. Thinking they can avoid further losses, investors hit the sell button, getting out of the market and derailing their ability to compound their assets. 

“Some inexperienced investors panic when the stock market is falling,” says Steve Azoury, ChFC, owner of Azoury Financial in Troy, Michigan. “They end up selling low and getting back in once the market recovers. In turn, they’ve ended up making two wrong moves — sold low and re-bought high.”

“The best thing an investor can do when the market is in turmoil is to sit on the sidelines until it settles down,” he says.

2. Trading in and out of your 401(k)

Closely related to panic-selling is trying to trade in and out of your investments instead of investing for the long term. Trading is one of the fastest ways to underperform the stock market, partly because you’re facing off against well-informed and computer-powered expert traders. The pros’ job is to fleece other traders, especially unsophisticated individuals, and take their money. 

Research routinely shows that passive investing beats active investing over time. So investors who buy a broad-based index fund, such as one based on the Standard & Poors 500 stock index, beat more than 90 percent of investors over time, even the professionals. 

3. Not understanding your investments

The returns in your 401(k) depend on what you’re invested in, so it’s vital to understand the plan’s investments. If you don’t know what you’re investing in, you can’t possibly know how your 401(k) could perform and how those investments make sense for your needs.  

“Teach yourself about fund investing by going to Morningstar and reading the info on the funds you are considering or invested in by looking at the performance of the fund,” says Rick Miller, investment advisor at Miller Investment Management in Manassas, Virginia. “Review the offerings and focus your contributions on the lowest-cost index funds inside the plan.”

Some individuals set up their 401(k) without understanding that it must be invested in specific funds. So, their money may sit in the account for years, returning little. 

4. Investing too conservatively or too aggressively

Closely related to not knowing your plan’s investments is not understanding whether they make sense for your needs. Your investments need to match your risk tolerance — how much risk you’re willing to take — and your time horizon — when you’ll need to withdraw your money. 

When advisors talk about being aggressive or conservative, they’re talking about how much you have invested in stocks compared to bonds (or cash). A high percentage of your 401(k) in stocks is aggressive, while a high allocation to bonds is considered conservative. Invest in a bond fund and your 401(k) will chug along, but not very fast. On the other hand, your performance will likely be better over time with stock funds, but your 401(k) is apt to be much more volatile in the short term.  

Those with a long time until they need their 401(k) can afford to invest aggressively, but those with just a few years to retirement should consider allocating more money to bonds to protect their 401(k). If the market plummets right before they need to withdraw funds, it could hurt their retirement for decades, reducing the amount of money they’ll be able to withdraw later on. In contrast, if they invest too conservatively when young, workers could amass too little money for their needs. 

5. Not taking your full employer match

The most foolish mistake 401(k) savers make is not receiving their full employer match, says John Gillet, CEO and financial advisor, Gillet Agency in Hollywood, Florida.

Many employers will offer to match your 401(k) contributions, offering an immediate return on your money with no risk. Often, you can receive as much as 4 or 5 percent of your salary if you contribute to the plan, and experts routinely advise savers to take all the freebies. For example, if you contribute 5 percent of your salary, your employer may kick in another 5 percent — offering you a guaranteed 100 percent return on your contribution. 

“You’re literally not taking advantage of free money,” says Gillet. “Imagine a guy down the street from your house who set up a booth to give everyone in the community free money. How long do you think the line around that booth would be?”  

6. Not taking advantage of catch-up contributions

A 401(k) plan allows savers age 50 and older to make catch-up contributions each year — up to $7,500 in 2025 — which can be a great way to make up for lost time. It gets better for those ages 60–63, who can add as much as $11,250 in 2025. Both those amounts are in addition to the regular maximum contribution of $23,500 that anyone can save in their 401(k) plan this year.

These extra amounts can help those who haven’t saved enough to supercharge their 401(k). The earlier you start, the better. You’ll give your money more time to compound.

7. Using your 401(k) for anything but retirement

“One of the worst actions someone can take in their 401(k) plan would be to take unnecessary loans against their 401(k),” says Gillet.

A 401(k) plan lets you take an emergency withdrawal and even a loan against your balance. Using the money for anything but a vital purchase can seriously hurt your retirement. While a loan may be a somewhat better option, since you avoid the taxes and penalties associated with an early withdrawal, you’ll need to pay it back, and it will still hurt your long-term returns.  

“Of course, there are emergencies like natural disasters or some other well-warranted emergencies where the 401(k) resource can be a real saving grace,” says Gillet. “Otherwise, you need to let your 401(k) grow uninterrupted to serve its true purpose in retirement.”

Best ways to invest in your 401(k), according to experts

Those are some of the biggest 401(k) mistakes you can make, but what should you be doing with your 401(k) plan instead?

Here’s what experts routinely say: 

• Match your investments with your needs: If you have more than five years until retirement, you can afford to invest more aggressively by allocating more to stocks, since they tend to return more over time than bonds. If you need to tap your funds sooner, experts advise a higher allocation to conservative investments such as bonds.
• Invest regularly over time: A 401(k) plan is great because it takes money straight from your paycheck and invests it regularly, taking advantage of dollar-cost averaging, helping reduce your risk. “When the market is lower, you get more shares bought, and when the market is higher, you purchase less,” says Azoury.
• Focus on the long term: Your 401(k) is a long-term plan, and you need to invest accordingly. That means sticking to a regular investment plan and not getting thrown by the market’s regular ups and downs. “Investors must look at the long-term performance and not the short-term swings,” says Azoury.
• Take full advantage of your employer match: “One of the smartest things you can do with your 401(k) is to contribute enough to get the match, if one is offered,” says Miller.

In other words, find a long-term investing plan that works for your needs and then stick to it through the good times and the bad, say financial advisors. And grab all that free money. 

Bottom line

By avoiding the worst 401(k) mistakes, you can help your 401(k) to thrive over time and maybe even become one of the many 401(k) millionaires in the U.S. With some concerns about the future of Social Security, it’s more important than ever that your 401(k) plan is rock solid.