ChatGPT's Brutally Honest Take on 5 Common 401(k) Mistakes
Callously managing your 401(k) can cost you. Over time, even one seemingly small mistake can make a major dent in your balance.
MoneyLion asked ChatGPT to highlight five common 401(k) mistakes and the consequences of making them. As expected, the chatbot delivered a no-nonsense response filled with valuable information. Here's what it had to say.
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1. Not Contributing Enough To Get Full Employer Match
In 2024, half of Vanguard plans offered an employer-match contribution, according to the Vanguard "How America Saves 2025" report. The average value of the match was 4.6% of the employee's pay.
"You're effectively turning down part of your compensation," the artificial intelligence (AI) chatbot said. "Over time, this can mean tens of thousands of dollars in lost retirement savings, since you miss both the match and the compound growth on that money."
2. Starting the Savings Process Too Late
As of 2024, only 54% of employees younger than 25 years old participated in Vanguard defined contribution plans, according to the same Vanguard report. Conversely, more than eight in 10 employees between ages 35 and 54 participated in their employer's plan.
"You lose the power of compounding, which is most effective over long periods," ChatGPT said. "Even a delay of five to 10 years can result in significantly less money at retirement, forcing you to either save more later or retire later."
3. Following the Wrong Investing Style
Taking an investment approach that's either too conservative or too aggressive can largely impact your 401(k) balance.
Investing too conservatively could mean your money doesn't grow enough to keep up with inflation, the chatbot said. On the other hand, taking an overly aggressive stance might put you at risk for major losses — especially if you're nearing retirement age.
4. Opting Not To Roll Over When Changing Jobs
If you get a new job, don't cash out your 401(k) plan. Assuming you're under age 59 and a half, doing so will likely trigger income taxes and a 10% early withdrawal fee, the chatbot said.
"More importantly, you lose future growth on that money, which can create a large long-term shortfall," ChatGPT explained.
5. Ignoring Fees
Fees associated with your 401(k) typically fall into one of three categories, according to the U.S. Department of Labor, Employee Benefits Security Administration. This includes plan administration fees, investment fees and individual service fees.
Over the course of decades, even small fees — i.e., 1% versus 0.2% — can compound and consume a large chunk of your returns, the chatbot said. This can add up to tens or even hundreds of thousands of dollars, so read the fine print carefully.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice. It was created with the assistance of artificial intelligence and reviewed by our editorial team for accuracy. However, AI-generated content may be inaccurate, incomplete or outdated. You should independently verify important information through reliable sources before making any decisions based on this content.
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