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Young Retirement Investors Can't Keep Making This Huge Mistake

By Dan Caplinger - Feb 16, 2014 at 1:04PM

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This costly mistake could cost young investors a big chunk of income in retirement. Find out what it is here.

A recent look from Fidelity Investments revealed that last year's jumps in the Dow Jones Industrials (^DJI 0.09%) and the S&P 500 (^GSPC -0.12%) 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.

Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$32,832.54 (0.09%) $29.07
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$4,140.06 (-0.12%) $-5.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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