Dear Chuck,

My wife and I have a 401(k) savings plan, and we are thinking of pulling out some of the money for home improvements. Our house is one of our major life investments, but do you think that is a good plan? It’s so hard to save up the resources recommended for retirement, but those resources could be useful today.

Rethinking Resources

Dear Resources,

In America today, 401(k) savings plans represent the way that most of us are trying to prepare for our future retirement.  At Crown, we advise that you save 5-10% of your income for the future because you don’t know what you will need to survive. But as that nest egg grows, it can be very tempting to dip into those resources. And too many of us are giving in to that temptation.

A recent report in the Wall Street Journal observed, “Tapping or pocketing retirement funds early, known in the industry as leakage, threatens to reduce the wealth in U.S. retirement accounts by about 25 percent when the lost annual savings are compounded over 30 years, according to an analysis by economists at Boston College’s Center for Retirement Research.”

Although I don’t know your actual age, in my view, it is a mistake to dip into that nest egg for predictable projects like home improvements or a car purchase. By pulling out your money today, you are assuming that in the future, you won’t have similar financial needs to address. And you are literally reducing your available funds because when you withdraw money before age 59-and-a-half, you may need to pay taxes AND pay a 10 percent penalty. That kind of penalty means that no matter the project, you just added a hefty fee to the bottom line. It’s better to handle today’s issues while you are still earning. Of course, your age andthe complete financial picture could alter my counsel but I want to offer some general advice for retirement savings accounts.

But leakage is only one huge mistake that people make when it comes to 401(k) accounts. Top mistakes people make with their savings account include:

1. Not having a savings/retirement account.

Especially as fewer companies offer pensions to care for their employees’ retirement, it’s important to start saving as soon as you are working. Even insects know to save when times are good. “Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler, yet it stores provisions in summer and gathers its food at harvest.” (Proverbs 6:6-8 NIV)

2. Not signing up for a company’s matching program.

Many companies will match some of your savings with company dollars. If you don’t sign up, you’re missing a significant opportunity for getting ahead. “According to data from the Investment Company Institute, about three-quarters of 401(k) plans, covering 90 percent of Americans, have some form of employer matching policy,” so check with your human resources department to see whether you have that option. Put in your company’s 401(k) any amount needed to get the match … they are likely doubling your savings.

3. Not taking an active interest in managing money.

Too many people enroll in a 401(k) and forget about it. But it’s important to take an active role in understanding whether your investment is diversified (spread across multiple investments so that no one loss wipes you out) and to know what kind of fees you are paying. The costs may be higher than you think. “(T)he Center for American Progress estimates that the typical American worker who begins earning a median salary of $30,502 at age 25 and saves 5 percent of salary into a 401(k) is expected to lose a total of $138,336 in lifetime 401(k) fees.” Give your 401(k) a checkup with a reputable financial planner to ensure its good health.

4. Not having accounts in order to prepare for the end of life.

Too many of us have not gotten our accounts and affairs in order in case death comes unexpectedly. All your hard work in saving in a 401(k) will be lost if your heirs don’t know about it. In fact, states, federal agencies, and other organizations are holding more than $50 BILLION in unclaimed cash and benefits. Take the time to read through Crown’s outline for an estate plan and get organized so that all your accounts can be accessed when the time is right.

A strong financial portfolio is built a little every day. Proverbs 13:11 makes it clear, “Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.” You can learn more about how to manage your finances with Crown’s Money Map.

And if you’re looking for a little encouragement in the year ahead, please accept this gift from Crown. You can receive practical principles and daily encouragement from God’s Word in the God is Faithful devotional, sent straight to your inbox to consider what God has to say about our daily life.

Originally posted on the Christian Post May 5, 2017.