It’s estimated that you’ll need at least 75% of your pre-retirement income to enjoy your golden years after you stop working. That can be a daunting challenge when you consider all the planning missteps you could potentially make along the way. However, you can potentially avoid them if you’re aware of the most common retirement planning errors.
Key Takeaways
1. Waiting Too Long to Start Saving
Everyone tells you that you should begin saving for retirement as soon as possible, and that makes sense. The earlier you begin, the more you can potentially save.
“Starting early not only gives your investments more time to grow through compounding, but it also reduces the financial pressure later in life,” says Patrick Marcinko, certified financial planner (CFP) and a financial advisor at Bogart Wealth. “The earlier you begin, the greater your chances of achieving a strong and sustainable retirement fund.”
But your lender has its hand out for your mortgage payment, and maybe your child needs orthodontics this year. Then there are those credit card payments you’re juggling. Sometimes life gets in the way. Fidelity Investments suggests looking at those statements and checking out other loans you’ve taken as well. Look at the interest rates. You probably want to get rid of any obligations that are charging you 6% or more.
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Pay them off first, then shift that money toward retirement savings. You can begin making minimum payments on those that charge less than 6% and save that money instead. Those dollars could earn you more than the accumulated interest rate over the years if you place them in the right investments.
Dipping into the savings in your retirement plan, such as a 401(k), to pay other debt, can also derail you from your long-term savings goal. Before borrowing from your 401(k), consider that you could lose earnings on the money while it’s out of the account. And, also, you’ll have to repay the loan with after-tax dollars.
2. Grabbing Social Security Too Soon
Your employer began snagging those Social Security taxes out of your paychecks the first time you punched a time clock. It can be tempting to take that money back again as soon as possible. You can begin collecting benefits at age 62, but you’ll receive 30% less in benefits if you were born in 1960 or later.
This reduction doesn’t just apply until you reach your full retirement age. It affects all payments you’ll receive throughout your life. Depending on the year you were born, you could receive anywhere between 24% to 32% more if you wait until after your full retirement age and hold out until age 70.
Important
Your benefits will be further reduced if you begin collecting Social Security before full retirement age and continue working and earn more than certain limits that are adjusted annually for inflation.
“If you can afford to delay your Social Security payments or if you’re working past the age of 62, take the benefits later to get a larger monthly payment,” says Nathan Gurchak, CFP and private client banker at KeyBank. “You can take it early if you need the Social Security payments now for expenses and bills, but it can be difficult to change after you’ve started claiming the payments.”
3. Overlooking Tax Benefits
Retirement plans such as individual retirement accounts (IRAs) aren’t just savings vehicles. They come with various tax breaks, too, so you’ll effectively save money you would otherwise have given to Uncle Sam. You can keep it in the plan so it earns more money for you instead, at least until federal law requires that you begin taking required minimum distributions (RMDs).
You must begin taking RMDs and paying taxes on the money when you reach age 73. You can’t leave your money there forever. The rule applies to IRAs, 401(k)s, 403(b) plans, 457(b) plans, profit-sharing plans, and some other accounts. The terms can shift somewhat depending on the type of account or accounts you have. The Internal Revenue Service (IRS) can impose a 25% penalty on you if you fail to comply.
There are annual contribution limits to consider as well. They’re set at $23,500 for 401(k)s and $7,000 for IRAs in 2025. They’re adjusted annually to keep pace with inflation.
4. Not Grabbing That Employer Match
Many employers provide the option of saving into a 401(k), 403(b), or other type of qualified retirement plan. The process can make saving for retirement almost effortless. Your contributions are taken from your salary or other earnings and are invested for you before you receive your paycheck. You never see the money, in most cases.
And some firms go one step further. They’ll match the contributions you make, at least to an extent, so you can effectively save some of their money as well. This process is known as an employer match. It’s effectively free money. Your company will match an amount equal to a percentage of your earnings, and you typically have to invest enough on your own to earn this gift. Some employees fail to take advantage of it, however.
Note
Here’s another advantage of 401(k) plans: Taxes on the money you save and its earnings are deferred until you withdraw the money when you retire, and you might be in a lower tax bracket then.
“Employer matches are a great way to supercharge your retirement savings,” Marcinko says. “Always aim for at least the minimum required to receive the full match when you’re deciding how much to contribute.”
5. Forgetting About Healthcare Costs
Retirement planning isn’t just about tucking money away so you can tap into it when you stop working. You’ll most likely have additional expenses to deal with at that time, and planning for them can be important as well. Unfortunately, many people overlook them.
According to Fidelity, you should anticipate requiring about $165,000 for healthcare expenses during your retirement years—and this doesn’t include the possibility that you might need long-term care, which one in five 65-year-old retirees will require.
Long-term care insurance policies are available, so you might want to consider adding one to your retirement plan. Medicare doesn’t cover most nursing home care.
6. Investing Aggressively Later in Life
Another common retirement planning pitfall is adopting an aggressive investing style as you grow older, focusing on a higher allocation to stocks and a lower allocation to bonds or cash.
Keep in mind that the economy is going to dive and accelerate periodically, and the market will respond in kind. Aggressive investments are often favored by younger investors with longer time horizons and a higher risk tolerance, and who can recover more easily from those potential market downturns.
“Look at your investments to make sure you aren’t taking any undue risk,” Gurchak says. “This can change from person to person, and it depends a lot on how you’ve saved. Older investors typically tend to be less aggressive than they were in their 20s and 30s.”
You’re Retired. Now What?
Your retirement plan doesn’t end when you reach the finish line of your workdays. Managing your retirement going forward includes some critical components as well. You most likely won’t be able to maintain your decades-old spending habits in these years.
Morgan Stanley suggests creating a budget that’s realistic for this time in your life. It’s likely that the income you have available to service your monthly expenses won’t be as significant as it was when you were working, and it can be a good idea to accommodate this as you head into retirement. Cut back if necessary on expenses associated with things that it won’t hurt you too much to live without. You might not really need that second car anymore.
You might also want to touch base with a financial advisor about rebalancing your portfolio to include more conservative investments, now that you’re living on that money rather than just watching it grow. You might want to switch your focus from long-term to short-term.
The Bottom Line
The prospect of a healthy, comfortable retirement can be an encouraging spotlight on your personal horizon, but it won’t happen by itself. A solid retirement plan means strategizing and then sticking to your strategies. It means saving a little more rather than spending all your disposable income when you’re young. But it’s doable, particularly if you seek professional advice.