Retirement is a goal most people look forward to, but poor planning can turn those golden years into stressful ones. While the retirement age varies depending on whether you follow Social Security (62) or IRS guidelines (65–67), what truly matters is how well you’re prepared—financially and emotionally.
Here are the 24 most common mistakes Americans make before retirement, and how to avoid them for a smoother, stress-free future.
1. Not Saving Enough
One of the biggest mistakes is simply not saving enough. The average American aged 55–64 only has $185,000 saved. But according to Fidelity, you should aim for at least 10x your salary by age 67. If your salary is $50,000, you should have $500,000 saved.
2. Retiring Too Early
Early retirement might sound great, but remember—Medicare only starts at 65. Retiring earlier means you pay for your own health insurance, which can be very costly.
3. Ignoring Taxes in Retirement
Just because you’re retired doesn’t mean you stop paying taxes. Withdrawals from 401(k) and IRAs are taxed, and Social Security may be taxable too. However, some states like Florida, Texas, and South Dakota don’t tax income or retirement funds.
4. Overspending Instead of Saving
Saving at least 15% of your pre-tax income is ideal, but many people spend more than they save—especially on unnecessary shopping. This leaves less money for long-term investment growth.
5. Underestimating Your Lifespan
More people are living past 100. If you only plan for 20 years after retirement, but live for 30, you may run out of money. Plan for longevity, just in case.
6. Taking Social Security Too Early
Taking Social Security at 62 reduces your monthly check by up to 30%. Waiting until 67 or even 70 gives you a much higher payout.
7. Ignoring Inflation
Money sitting in a savings account might lose value over time. Inflation reduces purchasing power, so it’s important to invest in assets like IRAs or 401(k)s that offer growth.
8. Missing the Medicare Enrollment Window
You can apply for Medicare three months before turning 65 and up to three months after. Missing this 7-month window may lead to penalties.
9. Underestimating Healthcare Costs
In 2021, 20% of seniors spent over $2,000 out-of-pocket on healthcare. Supplemental insurance is recommended to cover what Medicare doesn’t.
10. Retiring With Debt
Nearly 63% of households over 65 have debt. If possible, clear your debts—especially high-interest ones—before retiring.
11. Taking a Lump-Sum Pension
Choosing monthly pension payments instead of a lump sum often leads to better financial stability over time.
12. Miscalculating Your Monthly Budget
Many underestimate how much they’ll spend. Retirees often spend 53% of their income on essentials, more than the 42% estimated by pre-retirees.
13. Investing Too Aggressively
High-risk investments may pay off when you’re young, but as you near retirement, it’s better to lower the risk and preserve your savings.
14. Panicking During Market Downturns
Selling investments during market drops can lock in losses. Always speak to a financial advisor before making big moves.
15. Ignoring Employer 401(k) Match
If your employer matches 401(k) contributions, take full advantage. Even starting late is better than not at all—it’s free money.
16. Not Getting Expert Help
Financial advisors can help fine-tune your plan, but choose wisely. Not all advisors specialise in retirement planning, and some charge high fees. Research before hiring.
17. Not Rebalancing Your Portfolio
As you get older, rebalancing your investments ensures your risk level matches your retirement timeline. Don’t let your portfolio become too risky or too conservative.
18. Withdrawing Retirement Funds Early
Unless it’s an emergency, avoid early withdrawals. You’ll pay a 10% penalty plus income tax—losing valuable savings to taxes and fees.
19. Skipping an Emergency Fund
Retirement savings are not your emergency fund. Always keep some cash aside to handle surprise expenses without dipping into investments.
20. Timing Retirement Based on the Market
Trying to retire only when markets are strong isn’t realistic. If you’ve saved well and planned properly, you can retire regardless of market ups and downs.
21. Overestimating Investment Returns
Don’t expect a 12% return. Financial experts recommend assuming a 5%–7% annual return to avoid running out of money too soon.
22. Forgetting Ongoing Home Cost
Even if your home is paid off, you’ll still have maintenance costs, repairs, and property taxes. Don’t ignore them in your budget.
23. Not Using Catch-Up Contributions
After age 50, you can contribute more to your IRA or 401(k). Use this opportunity to boost your savings before retirement.
24. Working Too Long
Yes, working longer means more savings, but it also means less time to enjoy retirement. If you’ve saved enough, don’t let fear stop you from retiring.
Retirement should be a time of relaxation and joy, not regret. But it takes planning, smart financial decisions, and sometimes, professional advice. Avoid these common mistakes, stay informed, and your retirement years can truly be golden.
