Retirement Planning Mistakes to Avoid Throughout Your Career

By Cathie Ericson

PUBLISHED January 16
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6 MINUTE READ

When you picture your retirement, are you sitting around in a rocking chair and hitting the early bird buffet? We're guessing not. Today, many retirees are more active and adventurous than ever, eager to continue enjoying life and contributing to their communities. But making your golden years truly golden requires planning. One survey found that Americans age 45 and older believe the average amount they'll need to retire comfortably is $1.1 million, yet only 21% think they'll hit that mark.¹

By starting to save early, you're more likely to reach that number. The secret is to make sure you don't inadvertently make missteps that can harm your bottom line.

Average Retirement Savings by Age

How Much Do You Need to Retire at 55?

Early Career

Retirement might seem eons away when you're just starting your career, but your actions today can have a lasting effect on your future. Here are three common mistakes that many savers make as they're starting out.

1. Putting off saving

The earlier you start saving, the longer your money has to grow. The most immediate place you'll see this benefit is through compound interest. That's the phenomenon that happens when your money earns interest and then that interest earns interest, too. This increases the value of your account exponentially, even beyond the amount you put in.

2. Only having one type of bank account

When you contemplate savings, you might automatically think of retirement. And of course, it's important to save for the long term. But you also should consider setting up different types of savings accounts for various needs.

For example, it's important to have a financial cushion, yet having money sitting in a checking account where it's earning little to no interest might not be your best option. By setting up a short-term savings account for emergencies, your budget won't be upset by an unexpected bill, such as for a medical procedure or car repair. Stashing money in a high yield savings account or money market account means it's accessible when you need it, while still earning interest. This savings buffer makes it more likely you can avoid accumulating costly high-interest debt when a surprise expense arises.

You might also want to set up a medium-term savings account for goals that have a slighter longer timeline, like saving for a dream vacation or a down payment for a home. By putting those funds into a certificate of deposit (CD), you'll be receiving a guaranteed fixed rate of interest with terms as short as three months.

3. Not automating your savings

The adage “out of sight, out of mind" is the key to automatic savings. When you set this up, the amount you decide to save is transferred effortlessly from your checking account with each paycheck. This consistency means your savings will build faster and removes the temptation of spending the money on something else when other budgetary needs come calling. You can automate savings to go directly to a short-term high yield savings account at your bank, as well as to a long-term retirement account through your work, like a 401(k) account.

Mid-career

As you advance throughout your career, it's wise to take time to reassess your savings trajectory. While it's never too early to start saving, it's also never too late. So if you haven't yet committed to saving, now could be the time. But even if you're already a savings ninja, there are a few pitfalls to watch out for.

1. Pausing your savings in the face of competing priorities

When you hit your mid-career stride, you may be making more money, but you may also have more obligations—that house that comes with not just mortgage payments, but also insurance, repairs and maintenance. Or maybe you have children and are suffocating under relentless kid-related costs, from diapers to childcare to summer camp.

It can be tempting to look at the chunk of money going to savings each month and consider tapping into it. However, interrupting long-term savings, even temporarily, can have a profound impact on your eventual retirement lifestyle as you forgo the compound interest that would otherwise be accruing. If you really need to take a pause to make ends meet, consider at least saving up to your employer's 401(k) match, if offered, so you're not leaving free money on the table.

2. Taking withdrawals from your retirement accounts

Again, when financial hardships occur, it can be tempting to look at the pot of money sitting in your retirement account as a critical stopgap. Yet when you tap into those accounts, you typically owe taxes and penalties that make a dent in your current finances, while also potentially causing long-term damage to your future retirement. As the accounts are depleted, you may miss out on positive market activity, as well as the compound interest the funds would otherwise have earned.

3. Planning to rely solely on employer-sponsored plans and Social Security in retirement

Even if you've been faithfully funding your 401(k) and expect to receive Social Security, many people find that an overdependence on these sources can leave you cash-strapped in your retirement years. While providing a helpful safety net, Social Security is unlikely to cover all your needs—the Center on Budget and Policy Priorities estimates that Social Security benefits only replace about 30% to 50% of prior earnings.² One option is to supplement with an individual retirement account (IRA), Roth IRA or other tax-advantaged account where you can diversify your retirement income and reap the benefits of contributions that are tax-deductible or that grow tax-free.

4. Not seeking professional advice

Talking to a financial advisor or planner can help you get your financial house in order. A financial professional can consider your budget, savings trajectory and financial goals to help you put a plan in place. It's a good idea to check in regularly to ensure your plan is still on target, especially if you experience life changes such as a marriage, birth of a child, divorce, death of a partner or other situations that may impact your financial future.

Late Career

With retirement on the horizon, it's easy to put your savings plan on autopilot. However, as the window narrows for earnings potential and retirement planning, any missteps can be amplified. Here's what to consider:

1. Assuming you can work as long as you want

At some point in your later years, you might realize how fulfilling work is and decide you're going to put in more years than you had originally planned, further beefing up savings accounts. Unfortunately, sometimes that end date is out of your control. A survey from Goldman Sachs revealed that 56% of respondents retired earlier than planned—some by choice, but others because of unexpected factors like a health concern or job loss.³ That means you may want to front-load your savings as much as you can so you feel protected should your income cease unexpectedly.

2. Disregarding part-time employment

In the same Goldman Sachs survey, 55% of respondents who were still working said that part-time work would be a preferred source of income generation during retirement.³ In addition to supplementing income, many workers appreciate the sense of purpose and structure it gives their days as they transition to full retirement. Now is the time to consider whether you can reduce hours at your current place of employment or start looking into another gig that would be financially and personally fulfilling.

3. Taking Social Security too early

While you might be ready to claim Social Security as soon as you're eligible—after all, you've been paying into the fund for years—many retirees could benefit from waiting until what's called their “full retirement age," as that delay can result in a higher monthly benefit for the remainder of their life.⁴ The decision should be based on your own personal financial situation and goals, but it's something to consider when deciding how to navigate retirement. The Social Security website has a handy calculator that can offer insight into your future benefits.

4. Failing to create a new budget for retirement

Many people assume their spending will automatically decrease once they retire, but that's not necessarily the case. With more free time—which you might fill with travel and entertainment—you may find your lifestyle costs rising. Healthcare and long-term care expenses can also be a surprise for many. Therefore, as you wind down your work life, take time to determine your sources of income and work up a budget. Use that to determine if there are some changes you can put in place now, such as bumping up your savings or considering a move to a lower-cost region.

Knowledge is Power

Although retirement may seem a long way away, it's never too early to develop good savings habits and stay alert to mistakes that could potentially impact your nest egg. With planning and attention, you can help put yourself in a position where you will have sufficient income to live comfortably after your working years.

Cathie Ericson is an Oregon-based freelance writer who covers personal finance, real estate and education, among other topics. Her work has appeared in a wide range of publications and websites, including U.S. News & World Report, MSN, Business Insider, Yahoo Finance, MarketWatch, Fast Company, Realtor.com and more.

Sources/references

1. 2023 US Retirement Survey. Schroders. April 2023.

2. Top Ten Facts About Social Security. Center on Budget and Policy Priorities. April 17, 2023.

3. Navigating the Financial Vortex: Retirement Survey & Insights Report 2022. Goldman Sachs. October 12, 2022.

4. Starting Your Retirement Benefits Early. Social Security Administration.

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