Avoid These 8 Costly Retirement Planning Mistakes

There are lots of mistakes we might make throughout our lifetimes that can cost us and our family some serious money. That’s why financial advisors and other experts are always talking about what you should do to make sure you are positioned to maximize your earnings and avoid the mistakes that will derail your retirement. The Retirement Confidence Survey by the Employee Benefit Research Institute in 2015 points out that only 22% of all American workers feel very confident that they are properly prepared for retirement. It’s important to understand how our financial planning strategies are helping or harming our ability to maximize our retirement savings.

Avoid These 8 Costly Retirement Planning Mistakes

Today, we’ll look at the 8 most common retirement planning mistakes we need to understand and attend to. Have you looked at all of these and put yourself on solid ground towards your goals and successful retirement?

1. You’re Putting Off Retirement Planning

Procrastination is one of the main reasons people fail financially. The longer you delay your plan, the more likely you are to fail. Even delaying just a few years has the potential to cost you hundreds of thousands of dollars. The lesson here is to make your plan now and then take actions like investing in your 401k or a traditional or Roth IRA. Whether your investment is fixed or variable, you want all the years of compounding you can get to maximize your retirement fund.

2. You’re Not Saving Enough for Retirement

It’s one thing to have a plan, and another thing for that plan to succeed. In 2015, 57% of American workers had saved less than $25,000 for retirement. That’s a recipe for financial disaster. If you have an employer plan, contribute as much as possible. Matching funds from an employer are a no brainer. Where else can you get 100% return up front?  Make your contributions automatic before you have the opportunity to spend the money. See where you can cut back your budget to save even more and maximize your pre-tax contributions for the year.

3. You Don’t Know How Much Money You Need for Retirement

The survey showed that 52% of American workers have no idea what amount of money they will need to live comfortably in retirement. We often hear that we all will need $1,000,000 when we retire to be sure we don’t become dependent on others or wind up living in a cardboard box! You can use a retirement calculator as a starting point, but the truth is that the amount you need depends on the lifestyle you need to fund and how long you will live. It depends on factors like downsizing your home and autos, your health conditions, the years that you live after you stop working, whether you continue working in some form during retirement, and your Social Security income (remember, you aren’t supposed to live solely on that!). That’s why thinking about all of these variables and more is so important. Planning now for your retirement life will enable you to see your goals and make sure you arrive there when the time comes.

4. You’re Not Choosing the Right Mix of Investments

If you put your money into an inappropriate mix of investments, you can lose out on gains and suffer deep losses. You can see that market investments sometimes fluctuate wildly and are unpredictable at best. The strategy of asset allocation determines 90% of your battle. You want to be appropriately diversified and have a mix of investments that reflects your risk tolerance. Read up and educate yourself about investing, or if you aren’t a market expert yourself, consider seeking out professional advice.

5. You Don’t Have a Tax Reduction Strategy

There have been over 400 tax code changes since the passing of the American Taxpayer Relief Act in 2012 and some of those changes could help you invest more of your money and reduce your taxes. There are some simple ways to reduce your taxes each year, as well as more complex plans you can put into action based on your current and future tax situations. Seeking out professional advice to understand these changes will help you avoid paying higher taxes than you need to and will build wealth more quickly.

6. You Pay Costly Retirement Plan Fees and Penalties

First, the regular fees that your retirement plan costs you can eat away at your retirement savings. There are all sorts of fees that may apply, but if your expenses add up to more than 1%, look around at your options to see if you can lower your costs. The difference compounded over years can add up to an astonishing amount!

Second, the rules and regulations for withdrawing from retirement plans can be complicated and confusing at best. There are penalties and fees for withdrawing from your retirement accounts too early (before age 59½ in most cases) or too late (age 70½). The same is true for not withdrawing enough each year, or too much, pushing you into a higher tax bracket. The penalties can be as high as 50% of the amount involved! If you’re unclear about the rules, consult an advisor here to avoid a big mistake.


These last 2 mistakes are not directly related to retirement, but are essential to a proper financial plan:

7. You Are Avoiding Estate Planning

Without an estate plan, after your passing your wealth could wind up in costly probate litigation, decimated by costly income and estate taxes, and then passed on to unwanted parties. Even worse, your family could suffer delays in receiving their due and financial hardships. And estate planning doesn’t just protect your finances. Having important documents like a living will and/or healthcare power of attorney in case you are unable to make your own decisions is crucial. Although we don’t like to think about our own deaths, proper planning when you’re healthy will make for solid decisions later for your family.

8. You Have Too Much or Too Little Life Insurance

Again, a subject we don’t like to talk about, but life insurance is important as a protection for your family and to take care of funeral expenses and debt you may have when you pass away. However, paying for too much insurance can drain away your investable income. When you are young and independent, you may not need the insurance, but it is when you can obtain it most cheaply provided you are in good health. If marriage and children become a part of the picture, it is essential. This is protection if something happens and your income is lost. This is when you need it the most and can still get it for a reasonable rate.  As you age, you can reduce life insurance especially if you own your home outright and have little or no real debt. That can save you money in retirement, but I will say that every case is a little different, so again, seek advice in the various stages of life to get the correct amount and type of coverage.


You should start reviewing your own situation now, even if retirement is many years off. Time is a friend if you take advantage of proper planning and revise your plan as you go along. Make sure to avoid these 8 costly mistakes and you should be on your way to a bright retirement future.

Where do you stand on planning for your retirement?

Image courtesy of 401kCalculator.org (with changes)


  1. Never too early to begin planning. I think for many young adults it difficult to think of retirement because it’s so many years away. Instead they need to be thinking of financial independence or at least take advantage of 401k match by their employer. Free money is free money.

  2. Jayson @ Monster Piggy Bank

    I am readying myself to retire by the age of 50 years. Knowing all these especially about no. 4 “You’re Not Choosing the Right Mix of Investment” give me a good and higher chance in retiring at the age I plan and with the right amount of savings. Thanks Gary.

  3. Jack @ Enwealthen

    I’m definitely slacking on the life insurance. When I was single, having the insurance my employer provides was sufficient. Now that I’m married with children, I need to increase it dramatically to cover the primary mortgage and basic needs for 20 years.

    Hard to find the time and juggle family at the same time, but that would be a great topic once I find the time to write about it…

    1. What you describe is very typical for a lot of people. Getting your life insurance through work is easy, fast, and cheap (relatively). But as time goes on, the ability to buy it cheaply becomes more difficult and there’s always the instance that if you leave your job, that insurance you had may become unavailable or dramatically increase in price.

    1. Thanks for your comment, Gretchen. My tax situation was straight-forward since I retired in my 60’s and have relied on my retirement plan as a major source of my income. For those looking at early retirement, where there may be passive income streams that are not necessarily predictable, a tax professional would probably be of great help.

  4. Silas Knight

    You’ve got some great tips on what to avoid when retirement planning. I like how your first tip is about not putting off retirement planning. I can definitely see why procrastination is a huge reason why people fail financially. I need to tell my parents to start planning now!

  5. Thank you Gary Weiner for your post. The taxation process idea i needed right now – as my boss ask me to prepare all the documents in his favor. He is now 60+ and want to finalize the will process for his successors. Any more idea on will?

  6. Hi,

    Glad to see this amazing post! It is really informative as well as useful. I completely agree with each and every aspect.
    We all dream of retirement and spending our time as we see fit, but making that life changing decision prior without fully understanding the consequences can be an error. As early retirement could also mean assessing Social Security prior to receiving the maximum benefit. Once Social Security is selected, it cannot be changed. Working even a few years beyond what you’ve planned can pay a surprisingly large bonus in retirement security.

    Thanks for being sharing this wonderful post!

    Lyle L. Ketner

  7. Hi,
    Retirement years are one of the best years in one’s life most especially if you’ve already worked for almost all your entire life. It’s time to relax, to free yourself from worries and enjoy the remaining years of your life.
    Most people commit mistakes in planning for their retirement years. In the end, they have not successfully retired themselves from work and would either depend on the income of their children to support their needs.
    So plan your retirement properly and avoid these retirement planning mistakes which are discussed above in this post.
    Thanks for sharing this informative post with us.

  8. Hi,

    There are too many people who find themselves already ready to retire when they finally start thinking about preparing for it.

    My husband and I just got married and we’re already starting to talk about retirement. We understand that we won’t be able to retire for a while, but I think that saving for it is very important.

    Thanks for being sharing..

    Lyle L. Ketner

  9. I have read your post. Thanks for such a nice post, its really informational.Retiremnt planning is very important for everybody.When planning for retirement, don’t forget to consider inflation. Because of inflation, your money will buy less in the future. You must, therefore, plan saving and investments accordingly. Thanks for sharing this post.

  10. Great thoughts here, this is definitely advice that should be learned early in life in order to avoid financial pitfalls in the future. For example, I know of too many families who were devastated when the main breadwinner passed away and had no life insurance to fall back on! Thanks for sharing.

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