8 Factors that Determine Your Final 401(k) Balance

Savings and investment choices aren’t the only things that influence the size of your next egg

February 22, 2010 RSS Feed Print

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Fees. 401(k) fees and expenses cut into investment returns. "If you're paying an extra 1 or 2 percent in fees in addition to investment costs, that's going to play a huge role in your overall investments over time," says Garcia. In extreme cases, fund expenses can even cancel out your growth. "If there are 3 percent fees, you could actually be going backwards," says Sarenski. "The higher the fees, the less growth you are going to have on your 401(k) plan money."

[See 6 Ways Employers Will Change 401(k)'s in 2010.]

Early withdrawals. 401(k) withdrawals before age 55 come with a 10 percent penalty in addition to income tax on the amount withdrawn. These early withdrawals can have a devastating effect on your final retirement account balance. For example, consider a 401(k) account holder born in 1970 who consistently saves 6 percent of pay annually from age 21 to age 65 and who gets a 3 percent employer match. If that person cashes out his or her balance once at age 35, it will result in $183,618 less in retirement than someone who didn't take any early withdrawals, according to Government Accountability Office calculations. To maintain the tax-deferred benefits of an old 401(k) account, leave it with an old employer, roll the balance over into an IRA, or transfer your savings to a new employer's 401(k).

Tags:: 401(k),; retirement

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Stock market and bank performance and fraud. I did all of the above and had a significant amount of money sitting in what appeared to be a well-diversified and safe portfolio when I retired in January 2008. Six months later, my 401K was down by 40% and it certainly hasn't recovered. Accumulation over the long term can go away very quickly. There is no such thing as a truly safe asset allocation in todays highly volitile market controlled by a wealthy few unless you cash every thing out and hide it in a box. Even that won't work because the government will take a hefty sum through taxes.

johnrt of LA 10:54PM April 30, 2010

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Hotels Munster of 5:24AM April 07, 2010

I started my daughter on a ROTH-IRA as soon as she began working at 16. The first few years she did not make very much maybe $1000 a year, so not much could be purchased --- 25 shares of McDonalds (MCD), 35 shares of Coke (KO), etc. I matched whatever she made up to the federal limit of $5000. One year she only made $800. Well, she is graduating college this May and now has over $11,000 and she is 21. Those stock purchases are set up so that dividends are automatically reinvested. Can you imagine what they will be worth in 40 years when she is getting ready to retire?

TJ of VA 9:31PM March 26, 2010