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Young Retirement Investors Can't Keep Making This Huge Mistake

A recent look from Fidelity Investments revealed that last year's jumps in the Dow Jones Industrials  (DJINDICES: ^DJI  ) and the S&P 500 (SNPINDEX: ^GSPC  ) have helped retirement investors enjoy big gains in their 401(k) accounts. But it also showed that young investors are making a huge mistake that could cost them in the long run.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the survey and its findings that 41% of those ages 20 to 39 who left their jobs in 2013 cashed out of their 401(k) plans, with an average balance of $16,000. Dan notes that it's tempting to take that money and use it for immediate needs, but the negative impact on your finances can be huge. Not only could you pay taxes and penalties of around $5,000 on a withdrawal of that size, but Fidelity also found that you'll miss out on an estimated $471 in monthly retirement income. Dan concludes that young investors have to have the discipline to roll over old 401(k) balances to new retirement accounts or to leave them alone to avoid this huge mistake.

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  • Report this Comment On February 16, 2014, at 5:11 PM, wesam wrote:

    It is a great suggestion: buy share in solid investment and keep them for long time. BUT, greedy market players left nothing for those young people. There are plenty of solid companies there and we know them but the valuation is nothing short of a disaster.

    Some correction in this crazy market is needed

  • Report this Comment On February 17, 2014, at 5:48 PM, Venom991 wrote:

    I'm interested to see if Fidelity followed up with these people to find out what it is exactly they spent their money on. I for one am looking to cash out, pay off my student loans where i'm getting charged 10% interest and then reinvest the monthly payments into stocks. There is no guarantee that the government won't find someway to take money out of your 401K plan nor do you know what the income tax rate will be 40 years from now when you can take out the money without paying a penalty. I'd rather take the money out now and pay the 31% (5,000/16,000) now than possibly have to pay 50%-70% 40 years from now.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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