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17 Costly Retirement Investing Mistakes: Protecting Your Golden Years

Retirement: Protecting Your Golden Years

We picture retirement as a time for relaxation, travel, and hobbies. Without a great deal of planning, however, this idyllic picture can quickly go south. While numerous factors play a role in ensuring a secure retirement, investing is paramount. After all, there are many common investing mistakes that even well-intentioned investors can make, which can ruin their golden years.

In this article, we will examine seventeen key retirement investing mistakes and the strategies for avoiding them.

1. Not planning for the future.

A financially secure retirement won’t just happen on its own. You have to craft a carefully considered plan and then stick to it. Even so, nearly half of American households do not have any retirement savings, according to the Survey of Consumer Finances (SCF).

For those without a retirement plan, you should answer the following questions:

  • What is the maximum amount I can save each year?
  • Have I taken advantage of every saving opportunity, such as my workplace retirement plan and IRA?
  • To grow my assets, where am I investing them?
  • Is there anything I can do to save more?
  • What is the best way to manage my assets?

The above questions are just a few of the many you will want to consider as you create your plan. After all, it’s a big decision, and you’ll have to consider a lot of things. For this reason, many people enlist a financial advisor’s help.

If you’re unsure whether to invest in a Roth IRA or a traditional IRA, a planner can help. The best way to get unbiased advice is to work with a planner who is a fiduciary and paid only by you. In addition, they can motivate you to stick to your goals.

2. Dragging your feet.

Often, we are our own worst enemy when it comes to putting together a successful retirement plan. You are better off starting your investment journey sooner rather than later, especially if compound interest is involved. Even modest contributions can grow exponentially over time due to this powerful phenomenon. Taking advantage of this growth as early as possible allows you to maximize its benefits.

Invest now, even if you can only afford a small amount, to remedy this problem. Even a few years of delay can significantly reduce your nest egg. Contribute whatever you can comfortably afford, even if it’s just a small amount.

Remember, there is no time like the present to start building your financial future.

3. Leaving your job.

It is estimated that the average worker will change jobs 12 times during their career. By doing so, they leave money on the table through employer contributions to their 401(k) plan, profit-sharing programs, or stock options.

Why is this a problem? The problem has to do with vesting, where you don’t own the funds or stock that your employer matches until you’ve worked for a set number of years — usually five years.

As such, don’t decide to leave before finding out your vesting status — especially near the deadline. You might consider changing jobs if you’re nearing vestment or keeping those funds on the table.

4. Having too much debt.

The total amount of debt carried by American households at the end of 2023 was $17.503 trillion, averaging $104,215 per household.

The problem is that if you are in retirement with high credit card balances, the payments might affect your budget. As a result, you might have to pay high interest rates and have less money to spend on activities and entertainment.

Therefore, before retiring, do whatever you can to reduce your debt or eliminate it altogether. It is not uncommon for people nearing retirement to pay off their mortgages, as well.

5. Not maximizing tax breaks.

You might be surprised to learn that the government offers retirement savers a variety of incentives to save for retirement. A 401(k), an IRA, and a 403(b) plan are examples of tax-deferred accounts that let you accumulate wealth tax-deferred or even tax-free. This way, you can compound your money even faster by avoiding taxes today.

Plus, you may even qualify for a tax break today if you contribute to your account, similar to a traditional 401(k) or IRA.

In addition to these benefits, some lower-income savers can also take advantage of saver’s credits, which can lower their tax bill.

6. Underestimating the importance of time horizons.

To develop an effective investment strategy, consider your time horizon, i.e., when you plan to retire. With a longer time horizon, younger investors can take a more aggressive approach to investing.

Investing in higher-risk assets can increase returns, even if some risk is involved. In contrast, as you approach retirement, you should decrease your risk tolerance and reduce your time horizon.

What is the solution here? Make sure your investment strategy is aligned with your time horizon. Depending on your age, risk tolerance, and retirement goals, seek professional advice about asset allocation.

7. Underutilizing a company match.

Many employers offer 401(k)s, so take advantage of the employer match by signing up and contributing as much as you can. Matches are typically based on a percentage of your salary. For example, you might receive 3% from your employer when you contribute 6% of your salary.

In other words, you get free money if your company has a generous matching program. The IRS has set a maximum contribution amount for employee and employer contributions to an employee’s retirement plan. For those over 50, the catch-up contribution is $7,500, so the total contribution may not exceed $69,000 in 2024.

8. Not considering housing options.

If you aren’t sure where you will live in retirement, now is a good time to start researching. Living expenses can vary greatly depending on where you live, so you’ll have to account for them if you choose to spend winters somewhere else.

Ultimately, you should find a place that meets your budget and interests.

9. Pursuing “get rich quick” schemes.

Investing is not a sprint; it’s a marathon. As such, it’s a recipe for disaster to chase unrealistic returns through get-rich-quick schemes. These schemes often promise astronomical returns but end in significant losses due to their high risk and unregulated nature.

To avoid this, stick with tried-and-tested investment strategies. For instance, invest with a long-term perspective and build a diversified portfolio. If you are unsure about a specific investment option, seek professional advice.

The rule of thumb is that if something sounds too good to be true, it probably is.

10. Putting all your eggs in one basket.

No matter how well-intentioned, putting all your eggs in one basket is a risky move.

You mitigate risk by distributing your investments across different asset classes, such as stocks, bonds, and real estate. As a result, a downturn in one asset class could be offset by growth or stability in another.

Again, diversifying your portfolio is important. Considering your risk tolerance and time horizon, consider diversifying your portfolio based on stocks, bonds, and other asset classes.

In addition, a broadly diversified portfolio of stocks, such as the Standard & Poor’s 500, can beat inflation over time.

11. Ignoring the costs of health care.

A retired couple aged 65 in 2023 will need approximately $315,000 in savings (after tax) to cover health care expenses in retirement, according to the Fidelity Retiree Health Care Cost Estimate. However, you can lower that figure by staying healthy.

It’s important to remember that Medicare doesn’t cover all retirement healthcare costs. If you don’t have supplemental insurance, be prepared to pay the difference out of pocket.

12. Distribution strategies that fail.

Retirement savings don’t just turn into income when you sell investments and pocket the cash. To support yourself in retirement, your assets should be used to account for your income needs and your timing, taxes, life expectancy, and the types of accounts you have. In particular, it’s how withdrawals from different types of accounts or stocks are taxed.

For example, once you reach age 73, be incredibly attentive to taxes and timing. The IRS requires your 401(k)s, SEPs, SIMPLEs, and traditional Individual Retirement Accounts (IRAs) to make required minimum distributions (RMDs).

The reason? You could owe taxes on long-term capital gains and qualified dividends in your nonretirement accounts if RMDs increase your taxable income.

An effective retirement income plan and tax-efficient distribution strategy can help. For example, some retirees might opt to take withdrawals before age 73 from tax-deferred accounts like traditional IRAs when they are more flexible about how and when to reduce retirement account balances and future tax on RMDs.

Generally, it’s best to avoid taking withdrawals from tax-deferred accounts before the age of 59 ½, since withdrawals before that age may be subject to an additional 10% penalty.

13. Ignoring fees.

The fees associated with your investments can significantly impact your long-term returns despite appearing small.

That said, it is important to remember that a number of expenses, including management fees, expense ratios, and transaction costs, can erode the growth of your investments. Also, when choosing an investment option, you should take the fees into account and choose one that’s low-cost.

In the end, research and compare fees before investing. If you want broad market exposure with minimal fees, choose index funds and exchange-traded funds (ETFs).

14. Letting your portfolio drift.

Due to market fluctuations or individual asset class performance, the allocation of your investment portfolio can diverge from your original target over time. When you rebalance your portfolio, return it to the original asset allocation you intended. As a result, your risk profile remains aligned with your goals.

Keeping that in mind, rebalance your portfolio at regular intervals. For rebalancing portfolios, Vanguard examined three methods commonly employed by investors, advisors, and asset managers:

  • Calendar-based rebalancing. In this case, the portfolio will be regularly reset to the target asset allocation. Frequent rebalancing results in a higher transaction cost, as cash flows are absent to assist in rebalancing.
  • Threshold-based rebalancing. The portfolio’s deviation from the target allocation is triggered in this case. One major disadvantage of threshold-based rebalancing is that it requires daily monitoring, which makes it impractical for investors who manage their own portfolios. Transaction costs are higher when the threshold is smaller because the tracking error is lower.
  • Calendar- and threshold-based rebalancing. A rebalancing approach that combines both approaches. Whenever the portfolio has departed from the target allocation by more than a specific percentage, it is rebalanced based on a calendar frequency.

It is preferable, however, for many investors to rebalance their portfolios annually.

15. Letting emotions dictate your decisions.

Fear and greed are powerful emotions that can trigger impulsive investment decisions. You can significantly hinder your long-term investment goals by selling out of investments at a loss or chasing hot stocks based on emotional impulses.

As such, you should develop and stick to a disciplined investment plan. Be rational. Don’t let emotions cloud your judgment. And don’t react based on market noise; keep a long-term perspective.

16. Taking Social Security too early.

As you age, your Social Security benefit will increase (up to age 70). If you were born in a specific year, you can retire as early as 62, but you have to wait until 66 or 67 to become fully retired. To receive maximum benefits, waiting until you are 70 years old to file is best.

Unless you are in poor health, this makes no sense. As another consideration, if spousal benefits are important to you, you may want to file at full retirement age so your spouse can also receive your benefits.

17. Not seeking financial advice.

Don’t be intimidated to seek professional assistance when navigating the world of investments, especially if you are a beginner. With the help of a qualified financial advisor, you can develop a customized investment plan that aligns with your specific goals, risk tolerance, and time horizon.

Additionally, they can help you navigate complex financial decisions and ensure you are on the right track for retirement.

Final words of advice.

You can protect your golden years and make sure that you enjoy financial freedom by avoiding these common mistakes.


How much should I be saving for retirement?

To determine the ideal savings amount, various factors must be considered, including your intended retirement lifestyle, age, income, and existing assets. The general rule of thumb is to save 10-15% of your pre-tax income each year.

A financial advisor or online retirement calculator can help determine your savings target.

What are some good first steps for someone new to retirement investing?

  • Educate yourself. Before investing, know the basics of asset allocation, diversification, and risk tolerance.
  • Open a retirement account. To leverage tax advantages, contribute to retirement plans such as 401(k)s and individual retirement accounts such as IRAs.
  • Start small and consistently. As your income increases, gradually increase your contributions to a level you can afford.
  • Seek professional guidance. A financial advisor can help you develop a personalized investment plan that is aligned with your goals.

What are the different types of investment fees?

Several fees can affect the return on your investment:

  • Management fees. Funds are paid a management fee when making investment decisions.
  • Expense ratios. Fees associated with index funds and ETFs cover operational expenses.
  • Commissions. Stock or bond commissions are charged when you buy or sell individual stocks or bonds.

How can I avoid outliving my retirement savings?

  • Plan for a long retirement horizon. Don’t forget that you might live well into your 80s or even 90s. As such, make sure you factor inflation into your retirement calculations.
  • Diversify your income sources. Depending on your retirement income needs, you may be able to tap into Social Security, pensions, part-time work, or rental income.
  • Review and adjust your withdrawal strategy. Monitor your retirement savings and adjust your withdrawal rate accordingly.

What if I’m already behind on my retirement savings?

Even though catching up can be challenging, it is not impossible. To increase your savings rate, you may want to consider debt reduction or delaying retirement so that you have additional time to save.

It’s important to remember that even minor adjustments can make a big difference over time.

Featured Image Credit: Photo by Anna Shvets; Pexels

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CEO at Due
John Rampton is an entrepreneur and connector. When he was 23 years old, while attending the University of Utah, he was hurt in a construction accident. His leg was snapped in half. He was told by 13 doctors he would never walk again. Over the next 12 months, he had several surgeries, stem cell injections and learned how to walk again. During this time, he studied and mastered how to make money work for you, not against you. He has since taught thousands through books, courses and written over 5000 articles online about finance, entrepreneurship and productivity. He has been recognized as the Top Online Influencers in the World by Entrepreneur Magazine and Finance Expert by Time. He is the Founder and CEO of Due.

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