Avoid These Retirement Planning Mistakes

Retirement marks a major financial turning point in one’s life, and how well you’ve planned can make all the difference in whether you live comfortably in retirement or not. Yet, even diligent savers often overlook critical pieces of the puzzle, leading to avoidable stress during what should be a rewarding phase of life.

According to the 2024 Retirement Confidence Survey by the Employee Benefit Research Institute, 39% of workers who lack confidence in their retirement prospects cite insufficient savings as a primary concern.​ And many retirees say they would make different decisions if they could go back, especially when it comes to taxes, expenses, and timing.

This article outlines some of the common retirement planning mistakes. Whether retirement is a few years away or right around the corner, avoiding these missteps can help you protect your nest egg and feel more confident about the road ahead.

Below are some of the top retirement planning mistakes to avoid:

Mistake #1: Not starting to save for retirement from a young age

One of the most common (and costly) retirement mistakes is simply waiting too long to start saving. It’s easy to delay retirement contributions when other financial priorities feel more urgent, whether it’s paying off a mortgage, funding a child’s education, or managing day-to-day expenses. However, the longer you wait, the more difficult it becomes to catch up.

Time is one of the most powerful tools in retirement planning, as you can leverage the power of compounding to your benefit. Starting even a small monthly contribution in your 30s or 40s can grow substantially over time, while waiting until your 50s often means contributing significantly more to reach the same target.

This retirement planning mistake can sneak up on even the most responsible earners, because the real cost of delay isn’t always obvious until later.

The good news?

It’s never too late to start. If you’re behind, taking action now can put you on a stronger path forward. You may begin with small steps, such as enrolling in a workplace retirement plan, increasing your current contributions, or starting to make catch-up contributions if you’re over 50, and gradually work toward bigger financial commitments as your capacity grows.

Mistake #2: Underestimating post-retirement expenses

Another common retirement planning mistake is assuming that expenses will drop dramatically once you stop working. While some costs, such as commuting or work-related expenses, may decrease, others tend to remain the same or even increase.

Healthcare, for example, is a significant and often underestimated retirement expense. Out-of-pocket medical costs, prescription drugs, dental care, and long-term care needs can quickly add up. Additionally, retirees often spend more on travel, leisure activities, or home renovations during their early retirement years when they finally have the time to enjoy life more fully.

Inflation further complicates matters by gradually increasing the cost of essentials such as groceries, utilities, and insurance. Failing to account for these variables can lead to shortfalls down the line.

A strong retirement plan includes a detailed and flexible budget that accounts for both fixed and discretionary expenses, along with buffers for inflation and unexpected costs. It’s a good idea to plan with conservative estimates today to get greater peace of mind tomorrow.

Mistake #3: Overreliance on Social Security benefits

For many retirees, Social Security forms a significant part of their retirement income, but relying on it too heavily is a mistake that can jeopardize their financial security.

Social Security was designed to supplement retirement income, not replace it. In fact, for the average retiree, benefits replace only about 40% of pre-retirement earnings, and for higher earners, the replacement rate is often much lower.

Yet surveys consistently show that a significant number of Americans expect Social Security to cover most, if not all, of their retirement needs. This overreliance can create a gap between expected and actual income, especially as healthcare and lifestyle costs continue to rise.

Building a more resilient income plan involves incorporating other sources such as 401(k)s, IRAs, pensions (if available), and personal savings or investments.

It’s also worthwhile to evaluate how different claiming strategies, such as delaying benefits to increase monthly payouts, can impact your long-term financial picture. Diversifying your retirement income streams also reduces risk and helps maintain your standard of living, even if Social Security falls short.

Mistake #4: Claiming Social Security too early

Many retirees are tempted to claim Social Security as soon as they’re eligible, often at age 62. While this might seem like a practical way to start receiving income quickly, claiming early can significantly reduce your lifetime benefits.

For each year you claim before your full retirement age (typically 66 or 67, depending on your birth year), your monthly payout is permanently reduced. Conversely, delaying benefits until age 70 can result in a monthly check that’s up to 32% higher.

This difference can have a major impact, especially if you live well into your 80s or 90s. The decision about when to claim Social Security should be made with your broader financial plan in mind, considering factors like your health, other income sources, and whether you plan to keep working.

It’s one of the more subtle retirement mistakes to avoid because what feels like a gain in the short term may translate into missed income over the long run.

Mistake #5: Neglecting tax-efficient withdrawal strategies

Taxes don’t disappear in retirement, but shift. One of the more technical but impactful retirement planning mistakes is overlooking how taxes apply to your withdrawals. Different types of retirement accounts, such as traditional IRAs, Roth IRAs, and 401(k)s, come with different tax implications.

Without a thoughtful withdrawal strategy, you might end up paying more in taxes than necessary, reducing the longevity of your savings. For example, taking large distributions from a traditional IRA can bump you into a higher tax bracket or trigger surcharges on Medicare premiums.

Similarly, failing to take required minimum distributions (RMDs) after age 73 can result in steep penalties. On the flip side, Roth IRAs offer tax-free withdrawals, making them a powerful tool when used strategically.

Consider working with a financial advisor to implement retirement tax strategies, such as blending withdrawals across account types, converting your traditional IRA to a Roth account during lower-income years, or coordinating withdrawals with Social Security. This can help minimize your tax burden and preserve more of your hard-earned wealth.

Mistake #6: Ignoring inflation’s impact

Inflation might not seem like an immediate concern, especially in years when it remains low, but over a 20- or 30-year retirement, even modest inflation can erode your purchasing power. Many retirees forget to account for the fact that today’s expenses will likely cost significantly more, a decade or two down the road.

Essentials like groceries, transportation, utilities, and healthcare rarely stay static in price. For instance, with an average annual inflation rate of just 3%, something that costs $1,000 today could cost nearly $1,800 in 20 years.

If your retirement income doesn’t grow at a similar pace, your lifestyle may need to shrink, even if your savings appear stable on paper. So, building a plan that looks sufficient in today’s dollars but fails to keep up with the future may not be prudent.

To counter this, your investment strategy should include assets designed to outpace inflation, such as equities or inflation-protected securities, and your income plan should leave room for periodic adjustments.

Mistake #7: Maintaining an unoptimized investment strategy

A common misstep as retirement approaches is shifting your entire portfolio into ultra-conservative investments, such as bonds or cash equivalents. While reducing risk as you near retirement is wise, going too far can limit the growth you still need with increasing longevity and healthcare costs on the horizon.

On the flip side, some retirees maintain an overly aggressive portfolio that exposes them to unnecessary market volatility and potential losses they may not have time to recover from. Striking the right balance is important here.

Your strategy should reflect your time horizon, risk tolerance, and income needs, and not just your age. It should also evolve over time. This is where a diversified, goals-based approach can help. It is recommended to allocate your assets between growth, income, and preservation buckets.

Periodic rebalancing also ensures that your portfolio remains aligned with your evolving retirement goals.

Mistake #8: Failing to plan for healthcare and long-term care costs

Healthcare is one of the most significant and often underestimated expenses in retirement. Even with Medicare, there are gaps in coverage that can lead to substantial out-of-pocket costs, especially for dental care, vision, prescriptions, and hearing aids.

Many retirement plans do not account for the potential need for long-term care. According to the U.S. Department of Health and Human Services, about 70% of adults aged 65 and older will require some form of long-term care during their lifetime.

Whether it’s in-home assistance, assisted living, or a nursing facility, the costs can be staggering and are rarely covered by traditional health insurance or Medicare. Ignoring this risk can quickly drain retirement savings that were set aside for other needs.

To safeguard against this, you may consider long-term care insurance, health savings accounts (HSAs), or certain investment funds.

Mistake #9: Not having an estate plan in place

Estate planning is one of those aspects that many people ignore, often because it feels too complex or emotionally difficult to address. But failing to plan can lead to legal complications, unintended outcomes, and unnecessary stress for your loved ones.

A will is just the beginning; your estate plan should also include updated beneficiary designations, a power of attorney, healthcare directives, and possibly a trust, depending on your assets and goals. One common mistake is assuming that beneficiary designations on accounts like IRAs or life insurance policies are automatically aligned with your will.

In reality, these designations override your will, so keeping them up to date is of utmost importance. Estate planning helps honor your wishes and ensures that your assets are distributed efficiently, with minimal delay and expense.

Even if your estate is modest, having clear documentation can prevent confusion and provide peace of mind for you and those you care about.

Mistake #10: Not seeking professional financial advice

With so many variables, such as investments, taxes, when to claim Social Security benefits, and healthcare planning, it’s no surprise that retirement planning can feel overwhelming. Yet, one of the biggest mistakes people make is assuming they have to navigate it all alone.

While DIY planning might work for basic budgeting, more complex decisions benefit from expert guidance. A qualified financial advisor can help you create a personalized retirement roadmap, identify potential blind spots, and make adjustments as your situation evolves. Importantly, a fiduciary advisor is legally obligated to put your best interests first, offering advice tailored to your goals, not their commissions.

Financial advisors can offer comprehensive support that involves defining your withdrawal strategy, analyzing tax implications, or making sense of investment options. Avoiding this step might seem like you’re saving on costs in the short term, but in the long run, a suitable advisor can help protect and even grow your retirement assets.

A successful retirement is the result of careful, informed decision-making. While it’s impossible to plan for every scenario, steering clear of these common retirement planning mistakes can greatly improve your chances of long-term financial security.