Retirement planning can be tricky, and even small missteps can have big consequences down the road. Based on common pitfalls and practical advice, here are 13 retirement mistakes people often make—and how to avoid them:
1. Not Starting Early Enough
Mistake: Procrastinating on saving because retirement feels far away.
How to Avoid: Start saving as soon as possible, even if it’s a small amount. Compound interest works best over time—$100 saved at age 25 could grow to over $1,000 by 65 at a 7% annual return, but the same $100 saved at 45 might only reach $300.
2. Underestimating Living Expenses
Mistake: Assuming you’ll need far less money than you actually will.
How to Avoid: Plan for 70-80% of your pre-retirement income, adjusting for lifestyle goals. Factor in inflation ( historically ~3% annually) and unexpected costs like healthcare. Use a budgeting tool to test your assumptions.
3. Ignoring Healthcare Costs
Mistake: Thinking Medicare will cover everything.
How to Avoid: Research Medicare gaps—premiums, deductibles, and long-term care aren’t fully covered. A 65-year-old couple retiring in 2025 might need ~$315,000 for healthcare alone (Fidelity estimate, adjusted). Consider a Health Savings Account (HSA) if eligible.
4. Relying Solely on Social Security
Mistake: Expecting Social Security to be your primary income source.
How to Avoid: Treat it as a supplement. The average monthly benefit in 2025 is projected at ~$2,000, far below most people’s needs. Max out retirement accounts like a 401(k) or IRA instead.
5. Withdrawing Savings Too Early
Mistake: Dipping into retirement funds for non-emergencies before age 59½.
How to Avoid: Build an emergency fund (3-6 months’ expenses) to avoid early withdrawals and penalties (10% plus taxes). If you must tap retirement savings, explore penalty-free options like a 401(k) loan, if available.
6. Taking Social Security Too Soon
Mistake: Claiming benefits at 62 without weighing the trade-offs.
How to Avoid: Delay until full retirement age (67 for those born after 1960) or even 70 if you can. Benefits increase ~8% per year past full retirement age, boosting lifetime income significantly.
7. Overlooking Taxes
Mistake: Forgetting that withdrawals from traditional 401(k)s or IRAs are taxed.
How to Avoid: Diversify with Roth accounts (tax-free withdrawals) and plan withdrawal strategies to stay in lower tax brackets. Consult a tax advisor for personalized moves.
8. Investing Too Conservatively
Mistake: Shifting all funds to bonds or cash too early, missing growth.
How to Avoid: Maintain a balanced portfolio—stocks can still play a role even in retirement since you might live 20-30 years post-retirement. A 60/40 stock-bond split could work for moderate risk.
9. Investing Too Aggressively
Mistake: Keeping too much in stocks close to or during retirement, risking big losses.
How to Avoid: Gradually shift to safer assets as you near retirement. Use the “rule of 110” (subtract your age from 110 to find your stock allocation)—at 65, that’s 45% stocks, 55% bonds/cash.
10. Not Accounting for Inflation
Mistake: Assuming today’s dollars will hold their value.
How to Avoid: Invest in assets that outpace inflation, like stocks or TIPS (Treasury Inflation-Protected Securities). Plan for a 3% annual cost increase in expenses.
11. Failing to Adjust Lifestyle
Mistake: Spending like you’re still working, draining savings fast.
How to Avoid: Practice living on your retirement budget a year or two before retiring. Cut discretionary costs (e.g., dining out) and downsize if housing eats up too much income.
12. Neglecting a Withdrawal Plan
Mistake: Pulling money out haphazardly, risking running dry.
How to Avoid: Follow the 4% rule as a starting point—withdraw 4% of your portfolio in year one, adjusting for inflation annually. Tweak based on market conditions and life expectancy.
13. Not Reviewing Your Plan
Mistake: Setting a plan and never revisiting it.
How to Avoid: Check your retirement strategy yearly. Life changes—market dips, health issues, or new goals—mean adjustments. Use free tools like retirement calculators or meet with a financial planner.
Final Thought
Retirement isn’t a one-size-fits-all deal. Avoid these mistakes by starting early, staying flexible, and getting real about numbers. If you’re unsure where you stand, run a quick projection with your current savings rate and expected retirement age—small tweaks now can save big headaches later. What’s your biggest retirement worry? I can dig deeper if you’d like.