15 Financial Mistakes That Will Truly Ruin Your Retirement

Not all financial mistakes have a ripple effect into retirement, but these do.

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Updated June 6, 2024
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Preparing for a secure and comfortable retirement requires making prudent financial decisions throughout your working years. 

Unfortunately, certain choices can have long-lasting and detrimental effects on your retirement savings. It's essential to avoid some pitfalls and make informed choices that can safeguard your future.

To help you navigate the path to financial freedom, we have compiled a list of 15 financial decisions that can potentially ruin your retirement.

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Ignoring the impact of taxes

Goran/Adobe Worried senior couple feeling stressed while paying their bills over Internet while sitting on the table at home.

Failing to consider tax implications during retirement can erode your savings pretty quickly. 

Remember to account for taxes on withdrawals, investment gains, and Social Security benefits when planning your retirement finances. 

To minimize your tax burden, utilize tax-efficient strategies, such as investing in tax-advantaged accounts (like Roth IRAs).

Neglecting to save early

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Failing to build your savings for retirement early on can significantly impact your nest egg. 

The power of compound interest allows your savings to grow exponentially over time, making early contributions crucial. 

By delaying saving (even by just 3-5 years), you miss out on a lot of potential growth and may have to make larger, last-minute contributions to catch up later in life.

Relying solely on Social Security

Zadvornov/Adobe] old woman counting money

Depending solely on Social Security benefits is risky. These benefits are often not sufficient to maintain the lifestyle you desire during retirement. In fact, there’s no guarantee that Social Security will exist forever.

It’s smart to diversify your income sources by contributing to retirement accounts, investing in stocks or real estate, and creating passive income streams ahead of retirement age.

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Underestimating expenses

Ljupco Smokovski/Adobe shocked mature man

Many retirees make the mistake of underestimating their post-retirement expenses. 

Failing to account for rising healthcare costs, rampant inflation, and lifestyle adjustments can deplete your savings faster than anticipated.

It’s essential to carefully estimate and plan for all potential expenses to avoid running out of funds later in life. It’s also not a bad idea to pick up part-time work for a while when transitioning away from full-time work.

Carrying high levels of debt

Kay A/peopleimages.com/Adobe mature woman using a digital tablet

Entering retirement with significant debt burdens can be detrimental. 

High-interest credit cards, mortgages, personal loans, and student loans can all eat into your retirement savings, making it harder to meet your financial needs. 

Aim to pay off debts before retirement to reduce financial stress and free up cash flow.

Overlooking long-term care costs

Alexander Raths/Adobe senior woman with her caregiver

Neglecting to plan for potential long-term care expenses can jeopardize your retirement funds. 

Healthcare costs can escalate rapidly, especially in cases requiring assisted living or nursing home care. 

Consider long-term care insurance in addition to basic Medicare coverage to protect your assets and ensure you can afford quality care if needed.

Prematurely tapping into retirement funds

K Seisa/peopleimages.com/Adobe senior couple on a budget review

Withdrawing from retirement accounts before reaching the eligible age can result in hefty penalties and taxes. Avoid tapping into these funds unless absolutely necessary to preserve your savings.

Allow your retirement funds to grow and take advantage of tax-deferred or tax-free growth until you reach retirement age. 

The earlier you start contributing to your retirement savings, the more money you could have once you actually need to make withdrawals.

Making poor investment choices

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Learning how to make smart investment choices early in life can make all the difference when it comes to retirement. Making hasty or uninformed investment decisions, on the other hand, can lead to substantial losses. 

Seek professional advice from a financial advisor, diversify your investments, and stay updated on market trends to maximize your returns.

Conduct thorough research, consider your risk tolerance, and avoid speculative or high-risk investments that can jeopardize your retirement savings.

Failing to adjust your portfolio

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As you near retirement, it's important to reassess your investment portfolio and gradually shift toward lower-risk options. 

Failing to adjust your portfolio accordingly can expose your savings to unnecessary market volatility, which is important to avoid as you age. 

As you near retirement, focus on preserving capital and generating consistent income rather than chasing high returns.

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Overestimating investment returns

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Overoptimistic expectations for investment returns can lead to disappointment and financial strain in retirement. Be realistic and conservative when projecting future investment gains.

It’s better to err on the side of caution and assume lower returns to ensure your retirement plans are adequately funded. This way, you’ll have the funds you need (and hopefully more) when it’s time to retire.

Not having an emergency fund

Ljupco Smokovski/Adobe mature man and a broken car

Failing to establish an emergency fund can be disastrous during retirement. Unexpected expenses, such as medical bills or home repairs, can arise at any time and strain your finances. 

Without a safety net, you may be forced to dip into your retirement savings, depleting your resources and jeopardizing your long-term financial security.

Building an emergency fund ensures you have a cushion to handle unforeseen circumstances and protects your retirement savings from unnecessary depletion.

Cashing out retirement plans when changing jobs

insta_photos/Adobe senior couple checking bank documents

Opting to cash out your retirement plans when changing jobs can have dire consequences for your retirement savings. 

By withdrawing the funds prematurely, you not only face hefty taxes but also miss out on the opportunity for continued tax-deferred or tax-free growth.

Instead, consider rolling your retirement funds into a new employer's plan or an individual retirement account (IRA) to maintain the tax advantages and preserve your long-term financial security.

Failing to plan for inflation

Kateryna/Adobe tired mature businesswoman

Ignoring the impact of inflation can erode the purchasing power of your retirement savings. 

Over time, the cost of living increases, and your expenses will likely rise accordingly. It’s crucial to factor in inflation when setting your retirement goals and investment strategies.

Consider allocating a portion of your portfolio to inflation-protected assets or adjusting your retirement income projections to ensure your savings can withstand the effects of inflation over time.

Falling victim to scams

Sergii Mostovyi/Adobe senior man

As retirees are often targeted by scams, falling victim to fraudulent schemes can devastate your retirement savings. 

Scammers employ tactics such as phishing emails, fake investment opportunities, or identity theft to deceive unsuspecting individuals.

Losing your hard-earned money to scams can have a lasting impact on your financial well-being. Stay vigilant, educate yourself about common scams, and protect both your personal and financial information.

Underestimating your lifespan

De Visu/Adobe elderly woman looks out the window

People are living longer than ever before, and underestimating your lifespan can lead to financial hardship in your later years. 

It’s crucial to plan for a retirement that covers your expenses well into your golden years. Failing to account for a longer lifespan may result in exhausting your savings sooner than anticipated. 

Consider factors such as family longevity, health care advancements, and your overall health when projecting your retirement needs.

Bottom line

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Retirement should be a time of relaxation and enjoyment, but certain financial decisions can derail your plans for a secure future. 

By avoiding these 15 detrimental choices, you can grow your wealth and safeguard your retirement savings.

Take proactive steps to plan for potential challenges, diversify your income sources, and seek professional advice.

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Author Details

Adam Palasciano

Adam Palasciano is a personal finance-obsessed and money-savvy individual who loves to hash out content on all things saving money. He specializes in writing millennial-friendly personal finance content, covering topics ranging from trending financial news, debt, credit cards, cryptocurrency, and more.