5 retirement planning mistakes you need to avoid

Content Type: Article

Plus, easy fixes for some of the most common missteps.

By: Brienne Walsh

Millie, a content program about women and money, is licensed from Dotdash Meredith, publisher of Real Simple, InStyle, Investopedia, The Balance and more.

If you’ve already started saving for retirement, great job—you’re on the right course. But while nearly 75% of U.S. adults have at least some retirement savings, only about 31% think their retirement savings are on track, which is down from 40% in 2021. Not so great.

So let’s talk about how to remedy that by diving into the mistakes that no one warns you about (and even super money savvy people make).

Not getting that 401(k) match—or understanding what you’re investing in

If your company offers a 401(k), you probably learned about it your first few weeks on the job. You picked an option and then forgot about it. That’s your first mistake. You should have asked if the company has a 401(k) match, and how much you’ll need to contribute to get that match. It’s free money! If you aren’t sure, reach out to your human resources department now and ask.

Generally, companies offer a 401(k) plan with a variety of investment options—and these choices matter. Indeed, most people don’t realize that the 401(k) provider charges them for expenses or that they may not be invested at an appropriate risk level. For example, someone contributing to a retirement fund in their 20s might be using a traditional 60/40 investment model—meaning 60% invested in stocks and 40% in bonds. This minimizes risk. However, if you’re only 28, you have time to invest more aggressively in stocks or other assets that might have greater returns in the long run.

Sit down with HR, or a certified financial planner, to go over the fine details of the plan you’re investing in.
Forgetting your old 401(k)s

As of May 2023, Americans will have left nearly $1.65 trillion behind in old 401(k)s, according to a recent study. Yes, you read that right: $1.65 trillion—enough to buy a lot of major things, like more than 4 million single-family homes. Oh, and a lot of cozy retirements.

How does this happen? The average worker will have about 12 different jobs throughout their lifetime, and most of those will hopefully offer employer-sponsored retirement plans. But when you switch jobs, your 401(k) doesn’t automatically switch over with you.

You can leave that 401(k) where it is—if you like the old plan’s fund selection and fees (just don’t forget about it)—but the 401(k) plan at your new job may have better terms and allow you to roll over your funds. Or maybe your new employer doesn’t offer a 401(k) or doesn’t accept rollovers, you went freelance or quit your job entirely. In that case, you can open an individual retirement account (IRA), move your old 401(k) funds over to it and manage all the money there. The only rule is that you must transfer the old funds within 60 days of opening the new account to avoid having it be a taxable event.
Putting aside money for your kid’s education, but not for your own retirement

It’s a noble thought. You don’t want your kids to worry about paying for college (or being seriously in debt with student loans) and put them first—even when it means skimping on your own future. So, for now at least, you’ll just contribute more to a 529 plan for them than you do to your retirement account.

Mistake alert! First of all, if you don’t save for retirement, you’ll end up burdening your kids regardless because they’ll have to pay to take care of you in your old age—a recent survey found that 68% of parents have made or are currently making financial sacrifices to help their kids financially. And guess what? A whopping 43% say their retirement savings is the sacrifice.

It doesn’t have to be all or nothing. Sit down with your partner or co-parent (or just with yourself) and discuss what you expect your child’s education and your retirement to cost. For example, maybe you went to a public college on a state scholarship and think your child would be happy to do the same. Or maybe you’re willing to move somewhere cheaper—a different city or even country—when you retire so that your child can have the best private education available with the least amount of debt possible.
Getting Social Security benefits too early

The earliest you can start claiming your Social Security is age 62. But that doesn’t mean you should. Instead, wait until you reach full retirement age (see this chart to determine when that is for you) or until you’re 70.

Delaying your benefits will increase the amount you receive—you’ll be eligible for delayed retirement credits—while if you start too early, the benefits you get will be reduced by a small percent for every month before you reach full retirement age. For example, if you were born in 1960 or later, your full retirement age is 67. If you choose to claim at 62—which is 60 months before you turn 67—your retirement benefit will be reduced by 30%.
Not updating your estate-planning documents

Both you and your partner have (hopefully) been saving for retirement your entire adult lives. Now it’s time for you to retire to that beach house you bought in a different state—but suddenly … your partner dies. Your beach house was bought in your partner’s name because they had the better credit to get the mortgage, but you still contributed money to the down payment. Like 68% of Americans, your partner didn’t have a will, so you’re not legally named as the inheritor of their estate. While spouses will typically inherit to some degree regardless, the terms vary from state to state and can take time to settle. You might need to spend your hard-earned retirement savings to hire a lawyer so that you can gain access not only to your home, but also to your partner’s retirement accounts.

It’s a nightmare easily avoided by drafting a will and updating your estate plan periodically.

The bottom line

No matter what sort of situation your retirement plans are in, it’s worth thoroughly reviewing them on a yearly basis. It may seem like a pain now, but can mean the difference between spending your golden years living your dream or living mired in debt and financial stress.

Brienne Walsh is a writer based in Savannah, Ga. She contributes to Forbes, Rangefinder and MarketWatch, among other publications.