7 Ways to Keep Your Retirement Funds From Disappearing

More than one-third of Americans have no retirement savings.

This shocking figure should provide a wake up call and set you on your course to better prepare for retirement. Even if you haven't started yet, it's never too late. (See also: This Is the Basic Intro to Having a Retirement Fund That Everyone Needs to Read).

No matter the size of your retirement account, here are seven effective strategies to help you keep your retirement account from disappearing.

1. Borrow as Little as Possible From a Retirement Fund

Sometimes finding good financing options can be difficult. That's when you may start eyeing your 401(k) for a loan. While you may think that it is easy to pay those funds back, statistics show that's not the case. Every year Americans default on about $37 billion in 401(k) loans.

If you are unable to pay back your 401(k) loan within five years, you're hit with a double whammy:

  • The unpaid balance becomes an early withdrawal from your 401(k), receives a 10% early distribution tax penalty from the IRS, and becomes taxable income as well.
  • You cannot make up for those contributions to your retirement account. Every year you have a contribution limit, and if you don't use it, you lose it!

There are very, very few instances in which you should borrow from your retirement fund. One of those few instances is when you need a down payment for a home purchase. (See also: This Is When You Should Borrow From Your Retirement Account)

2. Set Up an Emergency Fund

26% of Americans have no emergency savings.

This is a major reason retirement disappears. You need to plan ahead and have enough saved up to cover your income for at least six months. In 2014, only 40% of Americans are able to save enough to cover at least three months. Don't become part of that statistic and start saving today towards a rainy day.

Having an emergency fund does away with the need to tap your retirement accounts. Your nest egg should be your very last resort for money before retirement. However, don't just stop with maintaining an emergency fund: Create a detailed plan of action for when disaster strikes. (See also: Emergency Plan: Better Than an Emergency Fund)

3. Avoid Early Withdrawal Penalties

In 2010, penalized 401(k) withdrawals hit a record high of almost $60 billion. Taking early withdrawals (also known as distributions) puts a heavy toll on your nest egg. Not only are you responsible for the applicable income taxes, but also you have to pay the 10% additional early distribution tax.

Fortunately, the IRS does provide some exceptions to the 10% additional tax on early distributions. For example, you can withdraw early without penalty:

  • From eligible IRA, SEP, Simple IRA, and SARSEP plans for qualifying higher education expenses for your spouse or immediate family members;
  • From eligible retirement plans, including 401(k) plans, for unreimbursed medical expenses exceeding 10% of your income; and
  • Up to $10,000 from eligible traditional IRA plans for first-time home purchases or substantial home improvements.

While there exceptions to the 10% additional tax, there are no exceptions to applicable income taxes, including capital gains. Consult your financial advisor before attempting any early withdrawals from your retirement accounts.

4. Minimize Management Fees

Talking about retirement plan managers, you need to check how much you are paying in plan management fees. According to an AARP study on 401(k) participants, about three in five Americans are unaware of how much they are paying in fees for their retirement accounts, and almost one in three is unsure of the impact of fees in their retirement savings.

A good rule of thumb is that your total expense ratio should be no more than 1%. For example, if you have $30,000 in retirement savings, your total management expense should be no more than $300. If you're getting charged more than that, it is time to dump that plan and look for more reasonable alternatives.

If you have several retirement accounts from previous employers, evaluate if it makes sense to roll over all those balances into your retirement account with the smallest management fees. Before initiating the rollover, review all applicable fees and eligibility rules.

5. Stop Playing the Market

When you hear about "a hot stock tip," you should walk away. Like Benjamin Franklin said, the only sure things in life are death and taxes. Nearly half of 401(k) plan owners don't know what their best investment options are.

There are several problems with playing the market on your own.

  • Most retirement plans charge fees for every transaction that you make. Remember that you want to minimize fees.
  • Trying to juggle your day job and the stock market may cause a lot of unneeded stress.
  • The average actively managed mutual fund returns approximately 2% less per year than the stock market. And these are the pros that do it for a living!

Keep in mind at all times that getting to your retirement goal isn't a sprint; it's a marathon.

6. Participate in Employer-Sponsored Plans

If you have the option of signing up for an employer-sponsored retirement program, do it. Nine in 10 Americans participating in employer-sponsored retirement plans actually save for retirement. Trying to save on your own is much harder and requires a lot of self-discipline. This is why only two in 10 Americans are able to have a nest egg without an employer-sponsored plan.

There are two additional benefits to participating in employer-sponsored plans. First, some of them match your contributions. The average employer match is 4.5% of pay to a retirement account. Don't leave free money on the table. Second, more than half of companies offer some type of investment advice. This is valuable and free information to make more informed decisions about your retirement strategy.

7. Consider Annuities


  • Some types of annuities guarantee a steady stream of income.
  • Like retirement plans, annuities allow you to defer taxes until retirement.
  • Unlike retirement plans, annuities have no contribution limits.
  • Some annuities offer upside income potential, while guaranteeing your original investment or a minimum return on your investment to your beneficiaries in case of your death.
  • Annuities allow older individuals to make additional catchup contributions.

There are different types of annuities, so make sure to review and understand the applicable rules, such as required initial investments and applicable fees. Talk with your financial advisor about whether or not annuities make sense with your retirement planning strategy. (See also: Don't Know What Annuities Are? You Might Be Missing Out)

What are other useful strategies to avoid a disappearing retirement? Please share in comments below!

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Guest's picture

The key is to start saving/investing early in life and be consistent (save with every paycheck). Taking advantage of a matching 401k plan should be a no brainer. The power of compounding is lost on many people. Also maxing out contributions when possible, eliminating debt, avoiding risks with your nest egg, planning for multiple streams of income once retired (social security, pensions, dividends, part time work, etc.) and making catch up contributions once you reach 50 should all be part of everyone's plan. I found that the site Retirement And Good Living provides information on all these issues as well as finances, health, retirement locations, part time work and also has a great blog of guest posts about a variety of retirement topics

Damian Davila's picture

Exactly! By saving with every paycheck, not only you save for retirement, but also defer taxes until retirement age (when you're more likely to be in a lower tax bracket!).