7 retirement planning mistakes to avoid

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Planning for retirement can be overwhelming, but with awareness and preparedness, you can work to avoid these common retirement planning mistakes.

Here is a simple truth about retirement: The way to help create the retirement you want is to plan for it. And that means creating a specific course of action that’s built around your needs and wants, not just doing what it seems like everyone else is doing when it comes to retirement planning.

A lot of factors can impact your plan, including how close you are to retirement — retirement planning looks different for those nearing retirement than it does for those who are just starting their careers. That said, there are seven common retirement planning mistakes that everyone should know about. Those mistakes are identified below, along with tips to help you avoid them so you can work toward the retirement you want.

Retirement planning mistake #1: Having an incomplete plan

If you have not thought about what you plan to do in retirement, your savings goal may not match up to your retirement spending needs. Does your goal amount include considerations for monthly essentials (health care premiums, utilities, food) as well as discretionary spending (travel, hobbies)?

There are plenty of retirement budget planning tools that can help you estimate a broad range of potential retirement costs. With estimated costs in hand, you can work with your financial advisor to estimate what your portfolio goal amount may need to be.

Retirement planning mistake #2: Not knowing your retirement timeline

It’s never too early to start planning and saving, even if your retirement is decades away. However, as you get closer to retirement, the advice you receive and the actions you take will change.

When you approach the five-to-10-year mark, start to focus in on your retirement date.

Establishing the timeline between now and your planned date can help you get organized. Some questions to consider: Will you still have a mortgage? Are you planning to move? How might your lifestyle change, and have you planned for those costs? The answers to these and other questions can help you and your advisor adjust your retirement planning strategy.

Also keep in mind you might retire sooner than you expect. How prepared are you for an unexpected retirement event? You may want to review your plan with your advisor with that in mind. For example, according to a Pew Research study,1 retirement rates spiked during the first years of the pandemic, with half of adults ages 55 and older reporting themselves retired at the end of 2021.

Retirement planning mistake #3: Overspending

An important concept to keep in mind when thinking about living in retirement is “spending discipline.”

What you can afford to spend during retirement depends on your streams of income. As you age through retirement, your priorities may change. Travel and hobbies in your younger retired years will likely lessen as health care tends to become a greater expense in later years.

With that in mind, you should understand where your retirement income will come from — savings accounts, 401(k) accounts, pensions, Social Security — and plan what’s right for you.

While you can take Social Security as early as age 62, that doesn’t necessarily mean it’s what you should do. It’s important to work with an advisor to review your income streams before determining what approach may be right for you.

Retirement planning mistake #4: Lack of diversification

This is about having the right mix of investments to help manage risk during economic downturns. You may want to consider establishing a separate cash reserve to draw from rather than from your investment accounts when the market is more volatile.

One aspect of diversification to discuss with your advisor is diversification of account types regarding tax exposure. Many people are saving in a traditional 401(k), but there are additional opportunities to consider for tax reasons. Contributions to a traditional 401(k) are made with before-tax dollars, meaning those contributions and future earnings are generally not taxed until they are withdrawn. A Roth 401(k) or Roth IRA, on the other hand, is funded with after-tax dollars. Future withdrawals of contributions and earnings from Roth accounts are tax-free (subject to age and other requirements). Having both traditional and Roth accounts in retirement can give you the flexibility to choose where to pull income from and when, which may make a big difference if future tax rates fluctuate.

Retirement planning mistake #5: Misunderstanding your risk tolerance

Your risk tolerance (that is, the level of volatility that you are prepared to accept in exchange for higher potential returns) will likely change as you approach retirement age. In your 30s and 40s, if you are taking more risk, it may be easier to accept market volatility because you won’t be using your retirement savings for a long time.

As you approach retirement, you may want to dial back on risk, which may help reduce volatility. An advisor can help you assess your risk tolerance and investments as you approach retirement.

Retirement planning mistake #6: Underestimating the cost of retirement

Younger investors often think of retirement as 15 to 20 years of their life, but as they get closer to retirement age, they recognize that their retirement years may actually span 30 years or more. And with that longevity typically comes changing financial priorities, especially around health care, that might require more savings than you originally thought.

Health care costs can be underestimated when planning for retirement. This can first be true when people think about retiring early and purchasing their own health care coverage before they qualify for Medicare at age 65. The premiums and co-pays may be manageable in your early retirement alongside other spending, but as you get older, you may spend more on health-related expenses than anything else. Retiring earlier than 65 may still be an option, but it’s wise to work with an advisor to estimate those costs accurately for your particular situation.

The second time health care costs may be underestimated occurs with health-adjacent expenses that people don’t always expect. These include things like modifying your home to accommodate your needs as your mobility changes or spending to move to be nearer to family or caregivers. Planning early for these expenses can make them easier to manage when the time comes.

Retirement planning mistake #7: Going adrift

Just like any journey, the road to retirement will likely have events that may cause you to detour to keep moving forward. The most important thing to remember is that your plan is there to help you stay on course.

Whether it’s well before retirement or once you’re nearing retirement age, reacting to uncertainty and volatility with decisions that veer wildly from your plan may not be in your best interest.

On the other hand, not reacting at all as circumstances change can be just as detrimental. A trusted investment professional can help give you knowledgeable perspective and guidance to help keep your plan on track.


1. “Amid the Pandemic, a Rising Share of Older U.S. Adults Are Now Retired,” Pew Research Center, November 4, 2021

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