Two Moves I’d Never Ever Make With My Retirement Money

Like many people, I have money invested for my retirement. Most of my savings is in a 401(k) or another tax-advantaged account, and I’ve worked to make sure that I’m investing enough to have financial security as a senior.

In addition to depositing enough and taking advantage of tax breaks, there are also certain things I’m avoiding. In particular, there are two moves I won’t be making.

1. Making an early withdrawal

Accessing my retirement money early is the number one move I’ve committed to avoiding. And there are a few reasons for that.

First and foremost, as I mentioned above, I’m primarily investing for retirement using IRAs and 401(k)s. If I took money out of these accounts before 59 1/2, I’d be hit with early withdrawal penalties. These total 10% of the withdrawn funds. I’d also have to pay ordinary income taxes on withdrawals, and my tax rate is pretty high right now. I would end up losing a lot of the money, leaving me with far less to work with than the total amount I took out.

As if this wasn’t reason enough for me not to make an early withdrawal, I also know that doing so could mean missing out on decades of returns. I’m at least 20 years away from retirement. So if I took $10,000 out of my retirement accounts now, my balance would end up around $67,000 smaller than it would have been if I hadn’t made that withdrawal (assuming the $10,000 would have earned 10% average annual returns over the next 20 years).

I don’t want to shortchange my future self in exchange for early access to my money — especially since I’d lose a lot of what I took out. That’s why I’ll be leaving my invested funds alone.

To make sure I can do that, I only invest money I don’t anticipate needing until retirement, and I maintain an emergency fund in a savings account I can turn to if times get tough. I realize not everyone can do that, and for those who can’t, minimizing the withdrawn amount and considering a 401(k) loan instead of a distribution could limit the damage.

2. Maintaining the wrong asset allocation

Another big mistake I’ll definitely avoid with my retirement funds is maintaining the wrong asset allocation. This would mean having my money invested in the wrong things.

To make sure I have the right mix of assets, I’ve carefully considered the level of risk I’m willing to tolerate. I have a long time until retirement, and I’m investing more than I need, so I have a little bit more than the recommended percentage of my money in stocks. I also do that because I’ve chosen S&P 500 index funds for the bulk of my portfolio, so my equities investments don’t present as much risk as they would if I bought shares of individual companies.

I also rebalance my portfolio each year to account for changing risk tolerance. That way, I don’t take on too great a chance of losses that could doom me to future financial insecurity.

Maintaining the right asset allocation with your retirement investing is something everyone can do, and there’s no excuse not to do it. If you aren’t sure how to figure out the right investment mix, there are resources online to help, or you could consider a target-date fund that takes the work out of your hands.

Avoiding these moves reduces the chances I’ll face a shortfall in retirement — and anyone with retirement savings may also want to steer clear of early withdrawals and make sure their nest egg is invested wisely too.

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