The 401(k) Mistake I Wish I Hadn’t Made Years Ago

Dear Me: A letter to myself reconciling past financial missteps and mapping out positive steps for a secure and happy future. Don't worry, we can fix this.

(Image credit: Getty Images)

Dear Me: This letter is going to sting a little bit.

It was Kierkegaard who said, “Life can only be understood backwards; but it must be lived forwards.” With that, I feel it is my duty to tell you (Me) that you may have wasted a big portion of your financial youth. You always thought you had time on your side, but time is not your friend when you don’t respect it.

For instance, why did your past self cash out of that 401(k) when you switched jobs early in your career? Oh, that’s right, you used the money to buy a car. Whatever happened to that car? Gone. And that long lost tax-deferred savings growth? An empty gas tank.

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No, Me, I’m not going to call you a total financial failure, because you did not totally self-implode. You did some important things right. You paid off your student loans, you paid back your parents and you did eventually buy that first house. And yes, you’ve learned from your mistakes. But when you go back in history to the big issue — time, money and your 401(k) — it’s a problem that has made the road to retirement a little more challenging for your present self, today.

Remember, there are clear advantages of saving early and overcoming procrastination. In fact, with the power of compound interest, time is one of the most significant benefits a young investor has. Just take a look at the tale of these two hypothetical selves: Self Starter and Self Inflicted.

Suppose Self Starter immediately began saving for his 401(k) in his 20s and invested $10,000 per year for 10 years, then stopped. Compare that to Self Inflicted, who shot himself in the foot by putting saving off for 10 years but then played catch-up — investing $10,000 per year for 25 years. Assuming a hypothetical return of 8% for both, Self Starter will have more money than Self Inflicted, despite investing significantly less money up-front, in significantly less time.

Swipe to scroll horizontally
Header Cell - Column 0 Age 21-30Age 31-55Total InvestmentValue at age 55
Self Starter$10,000 per year$0 per year$100,000$1,071,477
Self Inflicted$0 per year$10,000 per year$250,000$789,544

This chart is hypothetical and for illustrative purposes only. The hypothetical rates of return in this chart are not guaranteed and should not be viewed as indicative of the past or future performance of any particular investment.

So, Me, as you can now see, when it comes to growing a retirement nest egg, a fast start has more firepower than a strong finish … but let’s not discount either one.

As for the here and now, you don’t have the keys to a time machine, so the best thing you can do is learn your lesson and move on. But you can also pass this lesson on to young investors — please listen and learn from the financial mistakes of Past Me.


Present Me

PS: While I wish you had invested more money and left me with more hair, I forgive you.


Dear Future Me,

At this point in my life, I’ll have to admit, I’m somewhat reluctant to meet you. But with all this talk about my past and present, I at least owe you that much.

So, Future Me, I am doing as much as I can to make up for a late start caused by Past Me [sigh]. And while there may be some regret about yesterday, there might be worries about tomorrow, too. The best way to help alleviate that is to prepare and plan.

That’s why I already have a vision in mind for both of us when we finally get together:

  • For starters, we should see a financial planning professional.
  • When planning, we should err on the side of longevity and protect our retirement income for the possibility of a long life, considering life expectancy is higher than ever thanks to medical advances.
  • Lastly, we should be absolutely sure we enjoy retirement, sallying forward with a sense of purpose and playfulness.

On that note, if there is really going to be a Future Me, I need to get reacquainted with my treadmill and probably eat more salad. I’ll start that on Monday, it’s a promise.

PPS: It felt surprisingly good to write these notes to my past and future selves, but it reminded me of the importance of “being there” in the present. While it is only natural to dwell on the past and imagine the future, don’t let me forget to always seize the day, starting today.

Jackson is the marketing name for Jackson National Life Insurance Company (Home Office: Lansing, Michigan) and Jackson National Life Insurance Company of New York (Home Office: Purchase, New York). Jackson National Life Distributors LLC.

PR3261 11/19

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Phil Wright, Certified Fund Specialist
, Jackson National Life

Phil Wright is Vice President of Marketing Communications at Jackson National Life Distributors LLC (JNLD) and an award-winning financial writer. He started with the company in 1994 and focuses on the development and creation of marketing business content. He is a Registered Principal and Certified Fund Specialist (CFS®).