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15 Retirement planning mistakes to avoid for grand golden years

Retirement planning mistakes to avoid include late-start savings, unplanned investing, and more. Find all of our do’s and don’ts for your plan here.

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January 30, 2024

7 min. red

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Key takeaways:
  • The biggest retirement planning mistakes include waiting too long to start, investing without a strategy, and passing up the tax advantages from retirement accounts. 
  • Saving early and making consistent contributions to your retirement accounts can double your retirement nest egg with compound interest. 
  • Don’t leave free money on the table from HSAs, employer-match plans, and more. 
  • Avoid withdrawing from your retirement accounts early, which can negatively impact your savings growth, federal benefits, and retirement lifestyle.  

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      Retirement seems like a long way away, but the years roll by quickly. Each month without contributions largely impacts your final savings – especially if you’re young. 

      Whether you’re just opening your first 401(k) or you’re updating your wealth-building strategy, avoid these retirement mistakes to build a strong and secure nest egg for your golden years. 

      1. Skipping a financial plan

      It’s difficult to plan for the future without a clear financial roadmap. If you haven’t visualized how you want your retirement to look, how will you know how much you’ll need to save and invest to get there?

      You can always adapt your plans as your lifestyle and goals change, but it’s easier to lay the groundwork for your retirement early.

      Hiring the right certified financial planner (CFP) or qualified advisor is a worthwhile investment, even when you’re young. It can help you identify your retirement goals to create a plan of action that considers:

      • Retirement age 
      • Retirement lifestyle
      • Estimated future expenses
      • Inflation safeguards
      • Savings goals
      • Investment strategies

      They’ll also know how to avoid these other retirement planning mistakes. 

      Playbook Tip: If it’s difficult to picture yourself at retirement age, your elders are a gold mine of experience and wisdom. Ask your parents or people close to retirement age about their own retirement planning. Are they on track? Is there anything they wish they did differently? What weren’t they prepared for?

      2. Delaying your retirement contributions

      Bottom line – you’re leaving money on the table every month you delay investing since you miss out on the huge growth opportunity compound interest provides. 

      Retirement investments are long-term, so early investments have decades to grow tax-free with compound interest. Every dollar invested today will have a much larger impact than you realize. Not convinced? We’ll show you how:

      Chart shows growth on a median-income earners 4% investments over 40 years, broken down by principal and interest.

      The median American contributes about 4% of their income to an employer-provided retirement plan. Using 2022’s $40,480 median personal income, let’s assume a 25-year-old and a 35-year-old begin contributing to a 401(k) with the same income percentage at the same return rate of 4.9%

      The younger investor would have saved $96,207 (about 78%) more than the 35-year-old investor by their individual retirement ages of 67. And almost 70% of the 25-year-old’s nest egg is earned interest.

      3. Missing out on company-match maximums

      Many jobs offer company-match retirement benefits, and contributing less than the company match is another way you might leave free money on the table. 

      Employees who participate in employer-match retirement programs receive an extra 4.5% of their annual income via employer contributions. In our example above, that would double each employee’s retirement savings before boosting their contributions to maximize employer-match benefits. 

      Employer-match plans vary, but Vanguard, for examples, matches up to 50% of your first 6% of invested income. It’s a huge benefit, but only 55.5% of workers have access to employer-provided retirement plans, and even fewer receive matching contributions. 

      This is a major barrier for lower-income individuals and families to jumpstart their long-term savings. If you’re serious about retirement, look for career opportunities and employers that offer these plans. 

      4. Investing poorly without strategy

      Investing without considering your short-term and long-term financial goals, risk tolerance, and needs like healthcare and housing is like throwing darts at a board while blindfolded. You may occasionally hit your target, but you’re more likely to miss.

      Retirement investments, in particular, tend to focus on safe, long-term investments, but this also depends on age, your financial situation, and retirement goals. You should identify and explore these considerations to customize your investment strategy.

      When you’re young, your longer-term horizon means there are untapped opportunities for you that older investors might avoid. You have more time and flexibility to take chances on riskier investments with potentially higher payouts. You also have more time to recover if the calculated bets don’t pay off. 

      On the other hand, a 50-year-old is much more serious about unnecessary risks, with only a decade or two until retirement. It’s important that they focus on secure, passive income investments to build their retirement funds. 

      That said, evaluating these criteria and organizing them into a long-term plan isn’t easy. Everyone benefits from a financial advisor, and personalized guidance is especially valuable if you’re an inexperienced investor or could use more financial education. 

      Robo-advisors can help you get started with investment or tax strategies, while human advisors are better for long-term planning. 

      5. Letting your portfolio stagnate

      Everything requires a little upkeep, and your portfolio ratios can fall out of balance if you ignore them for too long. Portfolio rebalancing is a great way to maintain your investments and ensure they still align with your priorities. 

      Rebalancing means reconsidering your current investments and how they align with your goals and risk tolerance outlined in an investment plan. This translates into what percentage of your investment assets are in stocks, bonds, and cash. 

      Let’s say you planned to invest 30% in bonds and 70% in stocks. After six months of strong market performance, your stock value increased to 90%. Your portfolio isn’t appropriately balanced anymore, and you have to determine if you should sell some stocks to balance your assets.

      Alternatively, you might decide the increased returns are a priority and accept the higher risk tolerance instead of adjusting to your initial ratio. In either case, rebalancing only affects a small percentage of your portfolio. 

      6. Disregarding inflation

      Cost of living typically increases yearly, and ignoring the inflation trend means you may underestimate how much you need to retire comfortably.

      Inflation increased an average of 2.51% annually between 2013 and 2022, and the last few years, in particular, saw huge inflation rises. Retirement savings growth generally outpaces annual inflation, but also consider how inflation impacts your retirement budget. 

      The cost of living is going to be very different in 40 years. You can’t know exactly how much your medical expenses will be when you’re 70, but you can assume you’ll need more care and that costs will increase.

      Graph in the shape of a dollar decreases from a $100 value in 2000 to a $22.77 value in 2023.

      Financial advisors, particularly those that specialize in retirement planning, already know to account for long-term inflation, and they’ll help you regularly review and adjust your savings strategy. 

      7. Investing without a tax strategy

      Tax flexibility is one of the huge perks of retirement savings, and you may lose money to taxes if you don’t plan accordingly. 

      Playing the long-term retirement game can benefit your wallet today if you use these tax-advantaged accounts to diversify when and how you pay taxes. 

      Account type Tax implications Best for Examples
      Tax-deferred accounts
    • Pre-tax contributions reduce taxable income while saving
    • Conitrbutions taxed as income when withdrawn for retirement
    • People who expect to be in a lwer tax bracket after retirement
    • Traditional IRA
    • 401(k)
    • Roth accounts
    • Tax paid prior to contribution
    • No taxes owed at withdrawal
    • People who expect their tax bracket to increase at retirement
    • Roth IRA
    • Roth 401(k)
    • Taxable accounts
    • Tax paid prior to contribution
    • Accessible pre-retirement
    • Income from investments sold are subject to capital gains taxes
    • Early retirees who want penalty-free access
    • High risk tolerance investors to diversify
    • Traditional bank savings
    • Brokerage accounts
    • Health savings account (HSA)
    • Pre-tax contributionsreduce annual taxable income
    • Tax-free growth
    • No taxes owed for medical withdrawals
    • Tax-free cash for retirement medical costs
    • Alternate retirement income source (taxes as income for nonmedical purposes)
    • HSA
    • This versatility is a great opportunity to spread out your tax payments, reduce current liabilities if you’re a high earner, and diversify your retirement income. 

      You can consult a qualified tax advisor or retirement professional to create a personalized financial plan and tax strategy. 

      8. Increasing your debt unnecessarily

      Retirement income goals are usually less than your current salary, so your spending power decreases in your golden years. Going into debt for large, unnecessary purchases close to retirement can increase your liabilities and further limit your income. 

      Debt like mortgages or a new RV payment to travel the U.S. will take a huge chunk of your monthly cash. Some of these are important, like a primary residence that builds equity and provides housing security. However, now’s not the time to buy a new vacation home or luxury car.

      The less debt you have in retirement, the stronger your financial security is. So, really weigh the implications of new debts as you approach your last working decades. 

      Bonus: The less you pay in debt today, the more you can contribute to your retirement accounts. You’ll be thankful for your wise credit spending when you see that would-be sports car payment quadruple with compound interest. 

      9. Cashing out early

      It can be extremely tempting to dip into your retirement accounts, especially as you approach those last few working years or if you need a quick loan until the next paycheck. 

      Pro tip: Don’t. 

      There are several reasons to reconsider early withdrawal, including:

      • Taxes: You’ll owe taxes on traditional tax-deferred accounts once you withdraw the money, and your current income tax rate is probably higher than it will be at 67. 
      • Penalties and fees: Retirement accounts are meant to fund retirement, and exorbitant fees to access your funds early are common. These are in addition to your owed income taxes.
      • Reduced retirement income: Not only are you removing an exact amount from your retirement, but you're reducing the amount of cash that earns compound interest each year. Those losses add up, and you might find yourself short of funds by 67. 
      Image lists common retirement savings goals and milestones by age.

      Tapping into your retirement savings should be a last resort, so you shouldn't buy a house with your 401(k). But, we also know that life happens and plans change. Talk to a financial advisor to discuss your options if you’re reconsidering your retirement age or need extra financial support. 

      10. Miscalculating medical and long-term care needs

      Health insurance and care are expensive, and medical needs typically increase with age. Underplanning for these expenses means every medical bill comes out of your monthly spending budget and negatively impacts other necessary purchases. 

      For reference, the average couple retiring in 2023 spends about $12,200 on healthcare in their first year of retirement

      Several online tools are available to help you estimate your future health expenses so you can invest and save appropriately. 

      You should also consider an HSA account, which is available to you if you’re enrolled in a high-deductible health plan. These grow tax-free with pre-tax contributions. You can use the funds at any point for medical expenses without paying income taxes, so it’s a great way to cover surprise medical costs as you age. 

      Once you get to retirement age, you can access the funds as an additional income stream and pay income taxes. 

      11. Quitting your job without a plan

      Many jobs provide several retirement savings benefits, as well as income you can contribute to retirement investments in the first place. Leaving a job without planning ahead means less retirement money and less compound growth.

      Pre-retirement senioritis is real, and the closer you get, the harder it can feel to roll into work every day. We get it! But you know what feels a whole lot worse than your 9-5 at 55?

      Waking up to go to work at 70. 

      Delayed gratification is key, and continuing your retirement plan is way more lucrative than a part-time gig. Quitting your job has big impacts on your retirement:

      • Current budget: Are you able to pay down your debt and continue saving without your job?
      • Retirement accounts: Are you forfeiting an employer-sponsored 401(k) or HSA, or worse, employer-match contributions?
      • Health care: If you lose coverage, will you have to reroute some of your savings to insurance? Will you maintain your medical care or skip annual checkups (which could increase medical needs and costs later)?
      • Future budget: Making reduced contributions now means reduced interest gains and reduced retirement income later. 

      Try to hold out until retirement age or line up another gig if you need a change of scenery. Just be careful not to jeopardize your savings strategy. 

      12. Planning without housing considerations

      Housing needs change over time, especially in old age. Failing to plan for them means the responsibility might fall to your other family members.

      Many adults plan to age in place and stay in their own homes, which is fine for many families in their early retirement years. At the same time, most of us hope to enjoy retirement for 20+ years, and living at home alone at 90 might not be as realistic. 

      It’s smart to weigh the pros and cons of your housing options, including:

      • Keeping your home: Potential to save on rent/mortgage payments, but maintenance is expensive and may be harder with age. 
      • Relocating/downsizing: Opportunity to sell your house and find something suitable for your immediate needs, but you’ll likely have a new housing payment.
      • Long-term care alternatives: Consider if you would benefit from additional care and pre-plan what senior and health facilities would be a good fit if your needs change.

      You don’t have to buy your retirement dream home today, but start thinking about the reality of aging and how your housing situation might evolve. 

      13. Enrolling in SSI too soon

      Social Security benefits provide monthly income payments to retirees and other eligible groups with financial needs.

      Retirees who enroll early at age 62 receive reduced benefits – up to 30% less than full retirement benefits. That eats into your monthly income and decreases the number of years you can afford retirement unless you pre-arranged for this decrease.

      Full retirement age is about 66 for adults born before 1960 and 67 for everyone younger. 

      If you delay Social Security benefits after full retirement age, you earn retirement credits for every month delayed. These increase your benefits by up to 8% over 12 months. Late retirees can collect credits until age 70.

      14. Overspending before and after retirement

      Every time you bust your budget, you’re taking money from another financial goal. 

      Your best choice is to avoid unplanned and extravagant expenses in the first place, but everyone enjoys an occasional treat. 

      Your retirement and other savings are some of the last places to pull extra resources from. Skipped contributions miss out on tax advantages, compound interest, and sometimes employer contributions – free money you don’t want to pass up. 

      Living within your means is especially important when you retire and budget with limited income. You can’t work overtime or easily cut the fat next month to make up for it when you’re already managing with 20%+ less income than you earned before retiring.

      Learn to budget as soon as possible and stick to your plan each month. You can change it as your lifestyle evolves, but don’t discard it when it doesn’t work how you want. Personalized budgets are a valuable tool to manage long-term goals and hold you accountable for your current finances. 

      The Playbook take

      A 401(k) plan is a great place to start your retirement savings journey, but that’s far from the end. You might be leaving free money on the table if you don’t explore all your investment options, which is a huge retirement mistake to avoid. 

      Click to download our infographic.
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      About the author

      Phil Wettersten, Series 7 & 66

      Head of Product Success

      Phil holds both Series 66 and Series 7 credentials and previously served as an Investment Consultant at TD Ameritrade. At Playbook, he's the authoritative voice representing our customers, spearheading product enhancements and strategic planning. Phil's unwavering dedication keeps us ahead in delivering top-notch user experiences.

      Tanza Loudenback, CFP®

      Editor

      Tanza is a CFP® certificant, writer, and editor. From 2015 to 2021, she was a top-read author and editor at Insider. Her work focuses on helping people make smart decisions with their money and is published by a variety of online publications.

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