Common Retirement Savings Mistakes to Avoid

Many people don't realize how much they'll need for retirement or how long it might last. Life gets busy, and short-term priorities often overshadow long-term planning. Misconceptions or lack of clarity can lead to delayed action or unwise shortcuts. Consider the following common missteps, so you can avoid them and create a more secure retirement plan.

Not Having a Clear Retirement Plan

Having a comprehensive plan is vital to a financially sound retirement. According to the 2019 Retirement Confidence Survey by the Employee Benefit Research Institute, two out of three people feel confident about their retirement path — yet, only one in three have actually calculated or planned for their retirement needs.

Saving without a defined retirement age, income goal, or spending estimate can lead to significant gaps in your planning. A written plan is important because it connects your savings rate, time, and retirement lifestyle goals. It clarifies what you're working toward and helps you make important decisions like which accounts to open and how much to contribute. A well-organized retirement plan should include time-based milestones for checking contributions and risk allocation as well as predicting income needs. This helps you make more informed decisions over time and keeps you focused on your long-term goals.

Keep in mind, your retirement plan should encompass all financial areas you're focused on. This includes saving for retirement along with the other financial goals you’re working toward — whether that’s saving for future education needs, creating emergency funds, paying off school loans, or something else. It should also consider how to pursue multiple needs simultaneously, ensuring a balanced approach to your financial goals.

Starting Too Late or Saving Too Little

Putting money aside for retirement is necessary. So, when should you start? It’s never too soon. That’s because starting early can:

1. Give you more time to reach your goal and potentially make reaching your goal easier.
2. Lessen the impact to your contribution and your budget – having more time to save means you might be able to put aside less with each contribution.
3. Help you capitalize on the power of compounding interest, which is when your interest earns interest. Compounding interest can be thought of as the magic or multiplier that helps your money grow faster.

It’s easy to underestimate how much you’ll need to save. Healthcare, housing, and discretionary expenses are among the top costs in this bucket. So it’s important to consider them as part of your plan — and make sure that you’re accounting for rising costs and inflation. After all, retirement can last 25–30+ years.

The ideal savings rate depends on a number of factors, including current savings, retirement timeline, and desired lifestyle in retirement. By the time you’re in your 40s to early 50s (and potentially at your peak income), a common rule of thumb is to save between 15%–25% of your income towards retirement.

If you’re looking to make up for lost time or if you haven’t saved enough, there are a few things you can consider. Adjusting your lifestyle and/or automating savings increases is the first. For example, as your salary rises, you may want to increase the percentage you’re allocating to retirement saving. Once you turn 50, catch up-contributions is on the table. That’s where you can contribute more to various retirement accounts, like 401(s) and IRAs, than standard limits set by the IRS.

Ignoring Employer Match or Roth Options

This is another seemingly small misstep, but it can have larger implications. Your employer may match a portion of the contribution to your retirement account when you save a certain percentage of your salary into your retirement account. Employer matching is essentially free money that can play a significant role in helping save – as well as help you get to that level of saving at least 15% of your salary. What’s key here is making sure you contribute enough to receive the full match.

Roth 401(k) options can offer tax diversification, which is particularly valuable for high earners. Understanding the difference between Roth and traditional contributions is crucial for maximizing your retirement savings. Things to consider include your current and future tax rates, withdrawal timing, and more.

Making Early Withdrawals or Borrowing

Early withdrawals or borrowing from your retirement account often causes taxes, penalties, and lost compounding potential – things you don’t want. Some workers choose to cash out of 401(k) accounts when they switch jobs. A potential move in this instance would be to roll over your old retirement fund into the one offered by your new employer.

Similarly in a financial emergency, you may start thinking of borrowing from your 401(k). That’s where having an emergency fund can help. No one knows what could be around the corner – things like a new roof, or loss of income. So having an emergency fund or financial safety net in place can help you avoid having to dip into retirement accounts prematurely. Keep in mind, once you put money into a retirement account, your goal is often to leave it there until you’re ready to retire.

Overlooking Investment Risk, Allocation, and Life Changes

Being too aggressive near retirement can amplify losses, while being too conservative too early may not generate the growth you need. A diversified portfolio can reduce volatility and improve consistency. Your asset mix should evolve as retirement nears, balancing growth and protection (e.g., through assets like stock and bonds). Even though there is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio, a well-diversified portfolio is a key strategy to managing risk and achieving your long-term retirement goals.

Markets, income, goals, and family dynamics change over time, necessitating regular reviews of your retirement strategy. Major life events or regular intervals are ideal times to revisit your plan.

What to Do Next

If you've identified areas for improvement in your retirement plan, start by making gradual changes. Increase your savings rate, revisit your asset allocation, and consider working with a professional to create a tailored strategy.

By understanding and avoiding common retirement savings mistakes, you can create a more secure financial future. Whether you're just starting to save or nearing retirement, taking proactive steps today can make a significant difference in achieving your long-term goals.