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The common investing mistake that could cost your retirement

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You’ve started a new job, made it through orientation, and even signed up for your company’s 401(k) plan. But if a new survey is any indication, you may want to double-check that last point.

It turns out that some workers may be misinformed when it comes to their retirement preparedness. In fact, 59% of those not currently contributing to their 401(k) or other workplace retirement plan think they are, according to a recent survey from Principal Financial Group. More than 75% of those employees believed they started saving as soon as they became eligible to contribute.

Principal’s Amy Friedrich, head of benefits and protection, says the company is conducting additional research into why there’s such a disconnect. But one reason could be that 40% of employees have had more than one job in the past five years, and while they may have been auto-enrolled previously, their new job may require manual enrollment. They could also be procrastinating enrolling or paying down debt in lieu of making retirement contributions.

Friedrich also says the change from physical paychecks to digital could also be causing confusion: Workers now have to look harder for a breakdown of their pay.

“Employees are facing a patchwork of inconsistent standards for auto features, which has unfortunately led to inaction and misunderstanding around retirement benefits,” says Friedrich.

Whatever the reason, the trend is worrying and could hinder many workers’ wealth accumulation. That’s especially true for younger workers, who stand to benefit the most from investing earlier.

That said, Principal’s survey finds the generation most likely to say they’re investing for retirement when they’re not is Gen X—and that’s notable, given the oldest Gen Xers are just a few years away from the traditional retirement age. Previous surveys have found Gen Xers have the largest wealth gap of any generation—meaning the biggest discrepancy between how much they have saved for retirement and how much they think they will need—and over 60% of non-retired Gen Xers are not confident in their ability to retire comfortably.

Principal notes that the confusion means many workers will have to play catch-up with their savings if they intend to retire comfortably.

If this article has you second-guessing whether you’re actually investing for retirement, there are a number of ways to check. One is to look at your most recent paystub, and another is to call your account provider or check your online account.

Once you’ve confirmed you’re setting aside something, you may also want to consider if you’re setting aside enough. The correct amount will, of course, vary depending on a person’s age, goals, etc. But financial advisors say to aim for 12% to 15% of your salary. That includes any sort of employer match, so if your boss will match up to, say, 6%, you’re in good shape.

If you don’t have access to a retirement account at work, you can start your own. Called an individual retirement account, or IRA, these accounts are tax-advantaged like 401(k)s and allow you to invest up to $7,000 per year or, for those 50 and older, up to $8,000.

Something else to doublecheck is that are you actually investing the money you are contributing to your 401(k) or IRA. It’s not uncommon for workers, particularly young ones, to start setting aside a percentage of their pay each month without selecting the actual investments, often stock- or bond-based funds.

All of that said, Friedrich says employers must also step in and take a more proactive approach to helping their employees understand their benefits, through increased education and communication.

“Not only can this help alleviate financial stress,” she says, “it can also help employees engage and focus on doing their best work.”

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