Retirement: Don't make these 3 big savings mistakes

If you don’t use your employer’s 401(k), you’re committing one of the worst retirement mistakes possible, according to Cameron McCarty, president of Vivid Tax Advisory Services.

“What I want viewers and our clients to do is to contribute as much as they can,” McCarty told Yahoo Finance recently.

The days of pension plans are fizzling out. Instead, workers are offered 401(k)s — employer-sponsored retirement plans that allow employees to contribute a portion of their paycheck before taxes to retirement savings. These contributions are invested and, over time, grow into a nest egg you can tap when you retire.

To nudge workers, a third of employers auto-enroll their employees into a 401(k) plan, a two-fold increase from a decade ago, according to a recent analysis from Fidelity Investments.

Tara Valcimond, a Boston resident who works at a startup, receives advice from instructor Steven Taylor during his class, The Basics of Investing: Level I at Society of Grownups headquarters. (Photo: Ann Hermes/The Christian Science Monitor via Getty Images)

But simply signing up doesn’t merit a pat on the back, McCarty said. Younger workers should max out their annual contributions, if possible, and not doing so is the second mistake McCarty sees.

For 2019, that means you should contribute as close to the $19,000 annual limit as you can. The limits, determined by the Internal Revenue Service, typically change every year, and are usually announced in November for the upcoming tax year.

The third mistake to avoid, according to McCarty: Not taking the money your employer will contribute to your retirement.

Some companies will match your annual 401(k) contributions up to a certain amount. The average employer match is 4.7%, according to Fidelity.

“I don’t want my clients or your viewers to be the 20% of Americans that make this big mistake,” said McCarthy in a conversation with Yahoo Finance. “And that’s taking advantage of the free money your employer is giving you.”

Dhara is a writer for Yahoo Finance. Follow her on Twitter @dsinghx.

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