Retirement mistakes abound, whether due to bad advice, improper planning, or just misconceptions about what retirement truly is for.
Here are some of the biggest retirement mistakes that people are making, according to financial experts. What is most fascinating is that the majority of them have nothing to do with finances, which should be an eye-opener for anyone planning for or nearing retirement.
Mistake #1: Treating Your 401(k) Like a Credit Card
While there are absolutely reasons to take a 401k loan, a huge mistake I’ve seen time and time again is people taking repeated loans against their 401k, essentially treating their retirement account like a credit card. Save the 401k loans for true emergencies and then only when you’re certain you can pay it back.
Mistake #2: Not Planning for Health Complications
Here is one big retirement mistake: Believing you won’t encounter any health complications for the rest of your life. Maybe you will stay healthy, but having a backup plan for if things go south can help prevent unnecessary pain and stress.
Mistake #3: Passing Up Free Money in the Form of an Employer Match
One large mistake people tend to make is not contributing enough to their retirement accounts to receive the full employer match. If you are not contributing enough to your 401(k) to receive the match, you are just giving up free money.
Also, not saving early enough to take advantage of compounding. The earlier you begin saving the longer your money can compound over time, resulting in more value. Once in early retirement people think they have endless amounts of money and tend to spend too much early on, on things like extravagant vacations and then end up running out.
Mistake #4: Thinking Retirement Planning is Just for Your Finances
The biggest retirement mistake I see is people not considering all the non-financial aspects of retirement. They think they’ll just stop working and spend all their time on a quasi-vacation playing golf or taking it easy.
But people don’t consider that their daily routine will be disrupted and they may feel untethered without a structured schedule, social interaction with coworkers, and the pride and sense of accomplishment that comes from contributing through work. Yes, you need to plan for the financial future, but also consider your lifestyle and daily routine.
Mistake #5: Using Retirement Money to Pay for Your Kids’ College
A regrettable mistake I witness people make is raiding their retirement accounts to pay for their kids’ college expenses. It might seem like a reasonable idea to take out a 401(k) loan to pay for college, but parents frequently lose out on the larger gains their money would have in the stock market versus the small percentage of interest they are “paying themselves” to borrow.
If you don’t have enough saved in your old age, there’s no such thing as a retirement loan! You only get there by investing consistently over time. And there are plenty of ways to pay for your kid’s college: work studies, loans, part-time jobs, scholarships, and grants.
Mistake #6: Not Understanding the Different Types of Retirement Accounts
A common mistake I see is not having a plan for which account type you are building investments. This is known as asset location which is the mix between taxable accounts (individual/joint), pre-tax accounts (IRAs, work retirement plans), and Roth accounts (Roth IRAs, Roth 401k). These accounts all have different rules, some with age restrictions, holding restrictions, and different taxation.
Not having a thoughtful plan about where to put your money between these three buckets can greatly impact retirement. It affects when you access the funds, the taxes paid, and if it’s counted as future income.
Mistake #7: Not Planning for What You’ll Actually Do During Retirement
People spend so much time planning financially yet often spend little time planning practically for their retirement. The clients I have helped transition into retirement that have enjoyed post-career life most are those who have planned how they spend their idle time.
What will your retirement life look like to you? Do you want to travel, play golf, volunteer for a cause, etc.? Whatever your vision is, it is best to have a plan for that initial transition so you can adjust accordingly to your new life.
Mistake #8: Trying to Time the Market
The worst mistake people make is moving investments within their 401k at the wrong time. This mistiming is often done based on the past performance of the current investment holding. Investors will look at the past, move the money, and then miss the rebound.
Mistake #9: Retiring ‘Early’ Without a Plan
As a child, I watched my Dad work hard and retire in his 40s, soon realizing he never made a plan for what to do next. He spends his days wandering around his house, watching a bit of TV, but everyone can tell he’s not happy; he lost his drive. Work was all he had; when it was gone, nothing was left. Finding hobbies and interests now is the solution to future retirement boredom.
Mistake #10: Thinking You Can Wait to Start Saving for Retirement
When it comes to retirement planning, people make the mistake of not starting early enough. No matter how much money you make, it would be best if you tried to start saving for retirement as soon as you start making money.
Even if you can only afford $5 a month, you should put $5 in your retirement account. The best time to start saving for retirement is as a teenager. The second best time to start is today.
Mistake #11: Forgetting to Assign Account Beneficiaries
One retirement mistake most people make is not assigning beneficiaries. Retirement plans allow you to add multiple beneficiaries. You can designate primary and secondary beneficiaries and set up a benefit split between them.
The next mistake they make is they assign the beneficiary but don’t re-evaluate and update every year. Life and situation change every moment. Therefore, it is always wise to review your beneficiary yearly and update, re-evaluate and revise your choice.
Lastly, most people don’t discuss their retirement plans with their beneficiaries. If something happens to the account holder, the retirement funds could go unclaimed.
Mistake #12: Forgetting to Enjoy Life Before Retirement
A retirement mistake that people make is to wait until retirement to enjoy doing the things that they love (e.g., traveling, spending time on hobbies, etc.). Even though delayed gratification is important in life, you may not have the same level of energy to do the things you want to do. If there’s something you want to do, do it now.
Mistake #13: Overspending in Retirement
With money saved up, investments paying off, and a healthy pension, you may feel it’s okay to go on a spending spree after retirement. After all, why have all that money if you can’t have a good time?
While there’s nothing wrong with spending money, overspending in retirement can leave you bankrupt and stranded. You don’t want to be retired and broke; it’s a sorry state. So, apply some frugality to your lifestyle and curb your expenses. Remember, there’s still life after retirement.
Mistake #14: Not Understanding the Power of Compound Interest
One retirement mistake I see the most and kick myself for is not starting to save and invest earlier. When you learn about compound interest’s magic and let it do its thing without making any withdrawals, it is pretty amazing.
As Charlie Munger says, “the first rule of compounding is never to interrupt it unnecessarily.” Just sit back and watch the power of compounding. Typically, you’ll see interest gains start to pick up around the ten-year mark and continue to grow larger.
Mistake #15: Not Setting Goals in Retirement
A huge mistake people make when retiring, especially retiring early, is not having a plan for their life. Sometimes people want so badly to get out of a job or just not be working that they find retirement boring. They whither away.
Instead, have a plan for what you will do in retirement. Find things that interest you and engage you, and commit to pursuing those things when you quit your job. Consider picking up a hobby, like painting or crafting, slow traveling for an extended period, or volunteering. Having varied interests to explore will ensure your retirement is as fulfilling as possible.
Mistake #16: Not Being Prepared for Unexpected Health Crises
Pondering the possibility of becoming incapacitated as you age is not a pleasant thing to do. However, it is a mistake not to. Therefore, being prepared by designating both a financial and healthcare power of attorney (POA) is necessary to protect yourself and your family.
Don’t wait until your health is declining to start the process. Being proactive will allow you to choose someone you can trust to make your healthcare decisions and handle your financial affairs. Finally, strive to get it done well before retirement, no matter what age you plan to retire.
Mistake #17: Running from a Job Instead of Running Toward Something New
One of the most common retirement mistakes I see is when people only treat it as the absence of something (their job) rather than a space for something new. Retirement is a splendid opportunity to explore new possibilities in life.
Whether that be more social and family time, a casual hobby, community involvement, or a new semi-professional adventure, this can be a stage of life that is filled with joy, growth, and excitement!
Retirement Mistakes to Avoid at All Costs
Did you catch the theme running throughout the experts’ advice? Almost half mentioned some form of the fact that people fail to plan for what they will actually do during retirement.
While there are many things you can do to ensure a smooth financial retirement, make sure you are also planning for what you are retiring ‘to’, not just what you are retiring ‘from’.
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Andrew Herrig is a finance expert and money nerd and the founder of Wealthy Nickel, where he writes about personal finance, side hustles, and entrepreneurship. As an avid real estate investor and owner of multiple businesses, he has a passion for helping others build wealth and shares his own family’s journey on his blog.
Andrew holds a Masters of Science in Economics from the University of Texas at Dallas and a Bachelors of Science in Electrical Engineering from Texas A&M University. He has worked as a financial analyst and accountant in many aspects of the financial world.
Andrew’s expert financial advice has been featured on CNBC, Entrepreneur, Fox News, GOBankingRates, MSN, and more.