Why Common 401(k) Beliefs Can Quietly Hold Back Your Retirement Savings
Most 401(k) mistakes don't come from carelessness. They come from advice that sounds reasonable: contribute just enough to get the match, keep everything in the safest fund, or pause your savings when the market gets rocky. Each of these feels responsible in the moment, but each can quietly reduce what you have when you retire.
In this educational video, we break down five of the most common 401(k) myths we hear from plan participants, and what to do instead.
These myths connect to broader retirement planning decisions. You may also find our video on the power of starting early and our video on your 401(k) rollover options helpful for seeing how these decisions fit together over time.
Myth 1: "I Only Need to Contribute Enough to Get the Match"
The employer match is best thought of as the minimum you should contribute, not the goal. Capturing the full match means you're receiving every dollar your employer offers toward your retirement, but your own contributions are what drive most long-term growth.
Aim to go above the match as much as you can reasonably afford, while still covering your bills each month without feeling stretched. Many plans offer an automatic annual increase feature, which raises your contribution by a set percentage each year so you save more without feeling it. Raises and bonuses are also natural moments to bump your rate up by a percent or two.
Myth 2: "The Safest Choice Is Keeping Everything in the Money Market Fund"
Money market funds can help protect your principal, and there's a reasonable argument for holding more of them as you get closer to retirement. But growth in a money market fund is typically very limited, which can be a real cost over a long time horizon.
A better starting point is aligning your investments with your time horizon. The further you are from retirement, the more risk you can generally afford to take, and diversification helps balance risk and reward across your account.
Myth 3: "I Should Stop Contributing When the Market Is Falling"
Pausing contributions during a downturn is one of the most common reactions, and one of the most costly. When you keep contributing every paycheck, you're buying shares at a mix of higher and lower prices, an approach known as dollar cost averaging. Over time, that steady habit has historically been more effective than trying to pick the right moment to buy.
Dollar cost averaging doesn't guarantee a profit or protect against loss in a declining market, but the consistency of saving and investing is the real advantage. For most people, setting contributions and letting them run is the strongest strategy.
Myth 4: "I Should Sell Before the Market Falls Further"
Selling when markets drop assumes you can also know when to buy back in, and that's extremely difficult to do, even for professionals. Investors who sell after a decline often miss part or all of the recovery, locking in losses instead of waiting them out.
Research has repeatedly shown that time in the market tends to matter more than timing the market. A more useful habit is periodically reviewing your risk tolerance and time horizon and rebalancing if needed, rather than reacting to headlines.
Myth 5: "Borrowing From My 401(k) Is No Big Deal"
A 401(k) loan is allowed by many plans, but it comes with trade-offs that are easy to overlook. The money you borrow stops growing while it's out of the market, you repay it with after-tax income, and changing jobs before it's repaid can make the balance due right away.
If a loan isn't repaid on time, the unpaid balance may be treated as a distribution, which can mean income taxes and a 10% additional tax if you're under 59½. The better protection is a separate emergency fund outside your retirement account, so a surprise expense doesn't force you to dip into long-term savings.
The 5 Myths at a Glance
Here's a quick reference you can save or share: what people often believe, and what to do instead.
| The Myth | What to Do Instead |
|---|---|
| 1Contributing only up to the match | ✓ Treat the match as a minimum and raise your rate as your income grows |
| 2Staying only in money market funds | ✓ Align your investments and diversification with your time horizon |
| 3Stopping contributions in a downturn | ✓ Keep contributing consistently through market ups and downs |
| 4Selling when the market falls | ✓ Stay invested and rebalance based on your risk tolerance and time horizon |
| 5Borrowing from your 401(k) | ✓ Build a separate emergency fund so retirement savings stay untouched |
Three Things to Keep in Mind Before You Make Your Next 401(k) Move
Get the match, but don't stop there. Contribute as much as you comfortably can, and nudge your rate up whenever your income does.
Match your risk to your time horizon, and stay invested through market cycles. The farther you are from retirement, the more risk you can generally take, and the closer you get, the more thoughtful you'll want to be about lowering it.
Keep emotions and loans out of your 401(k) as much as you can. Fear-driven selling and borrowing against your balance are two of the easiest ways to slow your progress.
Frequently Asked Questions About 401(k) Myths
Is contributing up to the employer match enough?
The match is a good starting point, but it's best treated as the minimum. Contributing above the match, as far as your budget reasonably allows, can meaningfully increase your retirement savings over time. Many plans offer an automatic annual increase feature to make this easier.
Is it safe to keep all my 401(k) money in a money market fund?
Money market funds can help protect principal, but growth is typically very limited. For most people, especially those with many years until retirement, a diversified mix aligned with their time horizon and risk tolerance is a more common approach.
Should I stop contributing to my 401(k) when the market drops?
Generally no. Continuing to contribute through market ups and downs means you buy shares at a range of prices, which is known as dollar cost averaging. It doesn't guarantee a profit or protect against loss, but consistent investing has historically been more effective than pausing and trying to time a return.
Should I sell my investments when the market is falling?
Selling after a decline often means missing part of the recovery. Research has repeatedly shown that time in the market tends to outperform trying to time the market. Reviewing your risk tolerance and rebalancing is usually a better response than selling in reaction to a drop.
Is it okay to borrow from my 401(k)?
Many plans allow loans, but borrowing reduces long-term growth potential because the borrowed money isn't invested while it's out. Repayments come from after-tax income, and leaving your job before the loan is repaid can make the balance due quickly. An unpaid loan may be treated as a taxable distribution, with a possible 10% additional tax if you're under 59½.
What should I do instead of borrowing from my 401(k)?
Building a separate emergency fund outside your retirement accounts is the most common recommendation, so unexpected expenses don't force you to tap long-term savings. If you're facing a situation where a loan seems like the only option, it's worth talking through the alternatives with a financial professional first.
Not Sure Your 401(k) Strategy Is on Track?
The team at Bayntree Wealth Advisors can help you separate what's true from what just sounds true, and build a plan that fits your situation.
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Investment advice is offered through Bayntree Wealth Advisors, LLC, an SEC-registered investment adviser. Insurance and annuity products are offered separately through Bayntree Planning Group, LLC. Bayntree does not provide, and no statement contained herein shall constitute, tax or legal advice. You should consult a tax or legal professional on any such matters. Opinions expressed herein are solely those of Bayntree Wealth Advisors. All content is for informational purposes only and is not intended to provide the basis for any financial decisions.
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