5 Retirement Planning Mistakes That Can Set You Back for Years

If you’ve set up a retirement account through your work (or through a Roth IRA on the side), great! Automating your savings, or employing the set-it-and-forget-it strategy for your savings, can be incredibly effective.  

However, you do need to pair a thoughtful savings strategy with strategic action.  

For example: If you make a mistake early on and don’t correct it, you could miss out on significant savings. If you make a mistake later on, just before you need to start withdrawing your retirement funds, you could jeopardize the security you’ve been working towards.  

Here are five retirement planning mistakes that could set you back significantly – and what to do if it seems like you’re running out of time. 

1. Tapping into your retirement savings (…before retirement).  

Picture this: You’re in the zone, working hard and saving up. You’re seeing your retirement accounts grow, and you’re feeling good about things. 

But then, you need to make a down payment on a home. Or maybe it’s time to buy a new car. Life is full of uncertainty; these things happen.  

Unfortunately, they can make that growing pile of retirement cash very hard to resist.  

It’s key to stay away from your retirement funds for anything other than dire emergencies until it’s actually time to retire. Why?  

Pulling money out of retirement accounts early triggers taxes on that income and penalizes you 10%. Depending on the tax bracket you’re in, you could lose large amounts of money every time you withdraw prematurely.  

It’s best to truly try and forget about that money until it’s time to access it later in life.  

2. Taking on too much, or not enough, investment risk 

It can be difficult to decide how safe to play it. (That’s where a financial advisor comes in.)  

One rule of thumb worth considering is this: Think about how much time you’ve got. If you’re still ten or more years away from retirement, you have time to weather a little volatility. Now may be the time to take on risk – investing aggressively in equities, for example. 

This can be scary.  

Take a step back and consider the long-term picture: even if the stock market is experiencing a few dramatic downturns, your investments will still grow as the market (eventually) recovers.  

The stock market has experienced reliable long-term growth for many years. To win, trust your financial advisor – and know yourself. If you’re liable to worry too much, close the browser tab.  

If you’re going to be withdrawing your money in less than five or so years, the opposite may be true. It may be time to play it safe. Trust your financial team’s advice, particularly if you’re getting close to retirement.  

3. Failing to save enough for your goals 

The amount you need to retire safely and comfortably can come as a shock. Yet it’s far worse if that shock comes later in life when you’re hoping to retire soon.  

Your financial planner can help you determine what you need to do in order to achieve your goals, depending on your specific circumstances (e.g., your plans during retirement, whether you have a partner you hope to support, whether you wish to pass some funds down through inheritance). They can also help ensure that you provide for everything in your plans. 

For example, it can be easy to underestimate the following:  

  • Healthcare expenses during retirement: You may be healthy, fit, and mobile the day you retire. That may change over time. To make sure that you’re covered you’ll need to have a sizable sum set away. In 2021, the average retired couple may need $300,000 saved to cover health care expenses in retirement. Your needs may differ significantly.  
  • The impact of inflation: remember that the nature of inflation means that maintaining your current cost of living will be more expensive in the future. To afford a similar quality of life later, you may need more than current calculations indicate.  
  • The number of years you’ll be living in retirement. Often, people assume they will only live for 15 or so years in retirement – but that’s changing. People are living longer, and, while that’s a good thing, the discrepancy between our lengthening life expectancy and our retirement plans means that we risk running out of money in retirement.  

In any of these circumstances, your wealth advisor can look at your specific circumstances and help you discern retirement goals that should work for you!  

4. Not maxing out a company match 

This one’s simple: If your company offers a 401(k) with an employer match, take full advantage of it. This is free money – and if your employer has a generous program, it’s worth maxing it out if at all possible. Very likely, you can set things up within your company’s benefits system to contribute specific percentages of your salary. Set this up early in your career, and you may find that it’ll make a large difference decades later when you’re ready to retire.  

5. Tackling retirement planning on your own  

Creating a financial plan for your retirement involves estimating the expenses you’ll need to be able to cover in the future and your expected income.  

However, actual retirement planning is far from simple. Being able to retire means that you’ve done the work and thought about everything from healthcare to inflation, actuarial sciences (e.g., your life expectancy), financial trends, and the likely tax ramifications of being in a higher bracket later than you are now.  

It’s a lot. The stakes are also high enough to make sure that you’re doing it right. Fortunately, you don’t have to do it alone. Working with a financial advisor is a great way to enjoy the confidence that you’re planning for retirement in the most strategic way possible!  

If you’re interested in teaming up with a financial advisor to plan out your retirement, the team at Commas is excited to hear from you. Contact us today for more information!  

Commas is a wholly-owned subsidiary of Truepoint Inc., a fee-only Registered Investment Adviser (RIA). Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A and Form CRS filed with the SEC, can be found at www.usecommas.com. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice.