retirement planning mistakes to avoid
Updated September 30, 2021

19 Retirement Planning Mistakes to Avoid


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Most Americans who are close to their retirement age have saved only 12 percent of what they’re going to need later on in life, a CNBC report suggests.

People aged 55 to 64 have saved a median of solely 120,000 dollars and those in the 65 to 74 age range aren’t performing much better either – they only have 126,000 dollars saved in retirement accounts.

Obviously, most people are doing something wrong when it comes to planning and investing their retirement funds.

According to expert recommendations, people should have at least seven times their annual salary in savings by the age of 55.

This means that a household earning the median US income of 57,617 dollars per year should have at least 403,319 dollars in a retirement account by the age of 55. By the age of 67, the amount should be 10 times the annual salary.

Various common retirement planning mistakes are standing in the way of achieving these milestones.

If you still have enough time and you want to be prepared for the future, you may be wondering about the worst retirement planning mistakes to avoid.

Addressing these issues quickly and efficiently is the key to getting back on track and achieving the retirement sum you’re hoping for.

Here are 19 of the mistakes retirees make with their finances and the potential disastrous consequences each error could bring to the table.

1. Assuming You Will Continue Working When You’re Older

Most of us hope to maintain a sufficient level of health and independence later on in life.

While hoping you’ll be capable of working throughout your senior years is a goal for some, it’s not going to be achievable by everyone.

Good financial planning focuses on a worst case scenario.

Thus, when doing retirement planning, you should not be counting on employment and earning a salary during your senior years.

According to a Gallup poll, working Americans anticipate to retire by the age of 66. The average of retirement, however, is 62.

Today, we are living longer but this does not necessarily mean we’re living better or that we’re healthier.

You should always build a margin of safety into your retirement plan.

Obviously, you should also work towards enhancing your health to enjoy a high level of activity in your senior years.

It may be possible to hit two birds with one stone this way.

Opportunities like HealthyWage enable you to make money while working towards losing weight and improving your health.

HealthyWage allows you to set a weight loss goal, track progress, accomplish your goal and get rewarded for it.

You’re free to be conservative with the goal you set or you can be bold and daring.

2. Failing to Max Out Your Retirement Contributions

The best approach to making retirement contributions is maxing out your 401(k) in the event of availability.

Auto enrollment has been used in many instances to get more employees participating in such programs.

The problem with auto enrollment is that the rates tend to be lower than what an individual would have chosen consciously.

You can boost payments to catch up on the planned amount. There’s an annual possibility for going up and if you’re over the age of 50, you can use a catch-up contribution.

If you’re finding the prospect of 401(k) management too challenging, you can employ a powerful and simple tool.

Blooom provides excellent opportunities for maximizing your 401(k).

You simply need to link your existing retirement account and benefit from free analysis.

Based on this analysis, the best portfolio will be built for you.

3. Taking Loans Out of Your Retirement Account

Retirement accounts are readily available and when facing financial troubles, people feel tempted to take a loan out of that sum.

Taking loans out of your retirement account ranks among the biggest retirement planning mistakes to avoid.

Understand the fact that just like in the case of other loans, this one does not provide free money.

A 401(k) is not a savings account. You have to establish a repayment plan, there will be interests and fees.

There will be at least a one-time loan origination fee that could exceed 75 dollars and you’ll also need to factor the losses resulting from paying off the interest.

Instead of borrowing from your retirement account, consider alternative opportunities that will enable you to save or make more money.

There are hundreds of ways to make extra money – check out our list of the best possibilities.

4. The Lack of Investment Diversity

Out of the many mistakes retirees make with their finances, focusing on just a few opportunities happens to be the most critical one.

The saying “don’t put all your eggs in one basket” is a cliché but it’s 100 percent correct when it comes to investing.

Pursuing one opportunity that’s doing well can be quite invigorating.

Retirement investment, however, is a long-term process. An asset that is doing well right now isn’t necessarily going to deliver the best return in 10 or 20 years.

Portfolio diversification is an investment essential that does apply to retirement planning.

If you don’t know how to achieve a balanced portfolio, you can rely on tools and professionals to handle the task.

Betterment is an excellent opportunity.

Betterment is an online financial advisor that will help you meet your investment goals.

Through the use of Betterment, you can figure out your long-term financial goals, understand your current standing and the specific portfolio assets that will help you accomplish your mission.

5. Adopting a Conservative Approach Early on

The simple truth is that you cannot be entirely risk averse when investing.

If you begin your retirement planning at the age of 30, for example, you will be provided with ample opportunity to risk and win big.

It’s a good idea to take on high reward, high risk investment in the early years of retirement planning.

This doesn’t mean being foolish and wasting your money on scams or opportunities that will barely ever deliver results.

As you get closer to retirement, you can scale back on riskier choices and stick to a balanced investment portfolio.

6. Being Overly Optimistic about Retirement

Very often, people find it impossible to evaluate accurately their financial situation in 10, 20 or 30 years.

Because of this near-sightedness, they will end up saving too little due to an overly optimistic approach (or way too much if they happen to feel pessimistic about the future).

Even if you have a solid business that’s performing well right now, you have to be prepared for an emergency.

Understand the fact you’re not going to be capable of working your entire life.

In addition, national and international factors could affect the local economy.

Things can go downhill very fast and if you’re not prepared, there will be no opportunity for recovery in your senior years.

7. A Failure to Plan for Healthcare

As a young and healthy person, you may find it difficult to imagine just how much healthcare is going to cost you later on in life.

A failure to factor in this type of expenditure is a serious retirement planning mistake.

Government statistics show that someone turning 65 today has a 70 percent risk of needing long-term medical assistance in their remaining years.

Long-term medical assistance and the treatment of chronic conditions can be quite costly.

Here’s a simple example of how much health care services cost: the median monthly cost of having a home health aide is 4,099 dollars, the medium monthly fee at an assisted living facility is 3,750 dollars.

8. Beginning to Work on Your Retirement Plan Too Late

Most people don’t want to think about getting old.

As a result, they’ll fail engaging in retirement planning early enough.

Statistics show that 21 percent of Americans have no savings at all and 10 percent have less than 5,000 dollars put away.

While it’s never too late to begin saving money for the future, the earlier you start, the better.

Even if you do believe it’s too early to do retirement planning, you can get in the habit of saving money.

Here’s a list of the best opportunities to reduce expenditure and begin saving money right now.

9. Assuming Social Securities Will Be Sufficient

Do you believe the social security benefits you’ll be getting in your retirement are going to be sufficient?

If so, you’re committing a massive retirement planning mistake.

As of recently, the average social security benefit has been estimated at slightly over 1,400 dollars per month.

This adds up to slightly over 17,000 dollars per year.

Your average earnings during your working years could contribute to a bigger sum but you probably get the picture.

It’s a good idea to learn what you can get in the form of social security benefits.

Adding that number to the overall retirement investment mix is a good approach to have a realistic idea about the income you could expect later on in life.

10. Underestimating the Length of Your Retirement

Right now, retirement probably sounds like an abstract concept.

A person in their 20s, 30s or even 40s could find it impossible to imagine just how long their retirement is going to last.

If you live to the age of 90 and you retire at 62, you will have to plan for 28 long retirement years.

Once again – it’s better to be over-prepared than to underestimate your financial needs and end up without money at a really vulnerable age.

11. A Failure to Consider Fixed Annuities

Incorporating at least one fixed annuity in your retirement investment portfolio is a good idea.

Fixed annuities provide almost guaranteed regular income, which is why ignoring them will rank among the retirement planning mistakes to avoid.

Through the addition of a fixed annuity to your investment portfolio, you’re eliminating the risk of running out of money in your later years.

While fixed annuities are a good choice, you should refrain from going for variable or indexed annuities.

Variable and indexed annuities can have rather unmanageable fees and strict terms.

12. Cashing Out Too Early

Early retirement mistakes abound because people often lack the patience to continue developing their portfolio for a sufficiently long period of time.

Quitting your job in your 50s, for example, could tempt you to cash out your 401(k).

If you do so, however, you will face taxes and a penalty in the form of a percentage of the entire amount.

Additionally, cashing out the 401(k) before retiring will also mean you’ll have to pay taxes on the money you collect. Of course, there are ways you can cash out early in case of an emergency.

But there are other ways to generate passive income every month without having to rob yourself of retirement funds.

Check out these cool and effective methods for passive income generation.

13. A Failure to Account for Inflation

The money you have today is not going to be worth the same 20 or 30 years from now.

The reason is simple and it’s called inflation.

Over longer periods of time, inflation has averaged to about three percent per year.

Depending on the financial or political climate, however, it could climb to higher levels.

Inflation can have a devastating effect, eating away your savings.

Once again, you need to plan a healthy margin in order to plan for inflation in your retirement.

14. Leaving All Your Money in the Bank

A bank savings account is a good choice but it shouldn’t be the only one you’re counting on.

Your bank savings will probably earn enough to help you overcome inflation but nothing more.

There are other ways to invest if you want to get a bigger ROI.

15. Panicking When Things Go Downhill

Retirement planning is a long-term process.

Thus, you cannot allow a temporary sign of trouble derail you.

Many people will cash out as soon as they notice the loss of money or devaluation of their investment assets.

It’s a much better idea to hold your horses and wait for the episode to pass.

Chances are that things will get back on track as soon as the economy stabilizes.

16. Investing Too Aggressively

Just like relying solely on bank savings and social securities is not a good choice, you shouldn’t opt solely for aggressive investment opportunities.

Proper asset allocation and diversification is crucial.

This way, even if a high risk opportunity bombs, you will still have an array of other possibilities that will be compensating for the losses.

Retirement planning isn’t a gamble – base it on a rational understanding of risks and opportunities!

17. Putting Your Kids First

As a parent, you’ll obviously put the needs of your kids ahead of your own.

That’s the right thing to do or is it?

Making sure that you’re taken care of later on in life is actually in the best interest of your children.

While education and childcare do cost a lot, there are creative ways to deal with such financial burdens and still save some money.

Getting free government money is an obvious choice – learn more about it here.

18. A Failure to Increase Your Investment Amount When You Get a Promotion

As your disposable income increases, so should the money you put towards your retirement plan.

While this is the logical thing to do, many people will commit the retirement planning mistake of sticking to a fixed amount every single month, without factoring in the availability of more money.

19. Paying High Retirement Account Fees

Getting investment assistance is a good choice but it should be priced reasonably.

Pay attention to the investment fees, commission and additional charges related to the management of your retirement assets.

You may find out that you’re spending way too much when more affordable opportunities are available.

A simple estimate suggests that if you start saving at the age of 25 and you pay a one percent investment fee, the charge will add up to over 140,000 dollars over your lifetime.

Don’t be afraid to introduce a change if you see that some aspect of retirement planning is not working.

While change can be scary, especially if it takes place later on in life, it could save you hundreds or even thousands of dollars.

What are your thoughts on the biggest retirement planning mistakes?

Are you guilty of the errors mentioned above? Have you managed to overcome them?

Share your experience with us in the comments below!


Logan Allec, CPA

Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.

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