Myth 1: I’ll Start My 401k When I Can Afford It
Reality: Starting at 25 with $200/month vs. 35 with $400/month: the 25-year-old has $524,000 at 65; the 35-year-old has $481,000. The late starter invested twice as much per month and still ends up behind. 'When I can afford it' often translates to 'never' because lifestyle always expands to fill income.
Myth 2: The Default 401k Fund Is Fine
Reality: Many employers auto-enroll participants into a stable value or money market fund — not a growth-oriented option. Default funds often carry higher fees and lower expected returns than low-cost index funds available in the same plan. Never assume the default is optimal.
A survey found that 40% of auto-enrolled 401k participants stay in the default fund — often a money market earning 2–4%. The same contribution in an S&P 500 index fund over 30 years at 7%+ produces 2–3× more wealth. The default fund is rarely the best option.
Myth 3: 401k Investments Are Too Risky
Reality: The risk in a 401k depends entirely on what funds you choose. A money market 401k has zero investment risk (but high inflation risk). A target-date fund appropriate for your retirement year has calibrated risk. Short-term market volatility in a 30-year-horizon account is irrelevant — the market has never failed to recover over any 20-year period.
Myth 4: I Should Stop Contributing During Market Downturns
Reality: Market downturns are when 401k contributions buy the most shares. If you contributed $500/month in February 2020 and continued through March 2020 (33% crash), you bought units at 33% discount. By August 2020, those units had recovered and then risen further. Stopping contributions during crashes is buying high and selling low in reverse.
Myth 5: The 401k Loan Is 'Borrowing From Yourself'
Reality: Yes, you repay with interest to your own account. But the borrowed balance earns no market return while outstanding. On a $20,000 loan for 5 years at 7% market return: that $20,000 would have grown to $28,000 while you were repaying it. The 'interest to yourself' rarely compensates for lost compounding.
Myth 6: Maximum Contribution Is Only for High Earners
Reality: On $65,000 salary, the $23,500 max represents 36% of gross income — extremely challenging. But on $100,000+, it becomes achievable with planning. Many middle-income earners in their 50s, having paid off significant debt and with grown children, can suddenly maximize. It’s not only for $200K+ earners.
Test the Myths Against Your Real Numbers
Enter your salary and years to retirement — see what each myth has cost or could cost your retirement balance.