What Almost Everyone Gets Wrong About Retirement

Learn about the 20 most common retirement planning mistakes people make and how you can avoid them.
Updated May 8, 2024
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You've probably heard the saying, "The best time to plant a tree was 20 years ago. The second best time is now." The same could be said about retirement planning. 

If you haven't started planning for retirement yet, it's not too late, especially if you want to avoid throwing your money away like many seniors do these days. 

Here are 20 things you want to consider when you’re planning for your life after work.

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Monkey Business/Adobe House for rent

If you're thinking about relocating during your retirement years, keep a few things in mind before taking the plunge.

Test the waters before making a permanent move. Spend some time in your desired destination (ideally during different seasons) to get a feel for the people and lifestyle. This is especially true if you're considering retiring overseas.

You may also want to rent before buying a home. This gives you the flexibility to move if you find that the area isn't a good fit for you. And finally, keep in mind that retirement is a time for enjoying yourself. So pick a place where you'll enjoy living.

Pro tip: Check out some of these creative ways to help pay your rent and hold on to more of your retirement savings.

Downsizing your home

pressmaster/Adobe  happy senior couple packing cardboard boxes

A house may be one of your most significant assets, and the house where you raised your family may be too large now. Downsizing to a smaller home may also lower expenses later in life.

If you sell your home, which may have appreciated significantly over the years, don’t overlook the $250,000 ($500,000 for couples filing jointly) capital gains exclusion you’re allowed.

Planning to work into your retirement years

Laura/Adobe Art Jeweler Working in Studio

You may think that you'll be able to work indefinitely, but several factors could prevent you from doing so. Health problems, employer downsizing, or outdated skills may cause you to stop working earlier than you had planned.

It's vital to have a backup plan if you may not be able to continue working. And it’s still possible to build wealth after the age of 50, so don’t give up.

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Taking Social Security benefits too early

gunnar3000/Adobe social security benefits

Suppose you claim Social Security benefits as soon as you're eligible at age 62. In that case, you could reduce your benefits by up to 25%. 

For people born between 1943 and 1954, the full retirement age is 66. For people born after 1959, it increases to age 67. You could increase your benefits by 80% per year by waiting to claim your benefits until full retirement age or later. 

Take some time to consider when you'll start taking your Social Security benefits to ensure you're getting the biggest bang for your hard-earned savings. Otherwise, you may need to look for ways to supplement your income.

Claiming Social Security early and continuing to work

Kateryna/Adobe angry mature woman

When you claim Social Security benefits at age 62 and then continue working, you could lose some of those benefits. For every $2 earned above the annual income limit of $17,040, you may lose $1 in benefits.

During the year you reach full retirement age, the income limit increases to $45,360, and for every $3 earned above that, you may lose $1 in benefits.

The good news is that after you reach full retirement age, the limit disappears. So, if you plan to keep working after claiming Social Security benefits, be aware of the earnings limits to avoid any reduction in benefits.

Carrying debt

F/Adobe stressed about credit card debt

One of the biggest mistakes you may make in retirement is carrying debt. Debt may leave you vulnerable to financial hardships, and you may have to take on more debt for unexpected expenses. If possible, pay off all debt before retiring.

Paying off your mortgage before you retire may be a personal choice. Interest rates for a 30-year fixed-rate mortgage have been below 6% for the past 15 years, so it may be worthwhile for you to keep your mortgage.

But if your mortgage is a significant monthly expense and you are nearly at the end of the life of the loan, you may want to pay it off.

Not using home equity as an income source

PaeGAG/Adobe stack of money and home model

Your home equity may be valuable during retirement, whether you take out a home equity loan or line of credit. This may be especially helpful during tough times when the stock market is down, and your portfolio takes a hit. Or it can help if you need to renovate your home to make it more user-friendly.

The interest on a home equity loan or line of credit is also tax-deductible. So don't forget to consider your home equity as part of your retirement planning.

Not planning for long-term care

okrasiuk/Adobe Senior woman using automatic stair lift on a staircase at her home

One important thing to plan for in retirement is increased medical costs and long-term care. This may be an enormous expense, and it's not typically covered by Medicare or health insurance.

If you don't have long-term care insurance, you'll need to be prepared to cover these costs out of pocket. As you research long-term care options, remember that the older you are when you get a policy, the more expensive it will be.

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Lack of estate planning documents

Arindam/Adobe signing on an important paper

Many people think that estate planning is only for the wealthy. It’s not and it should be a piece of your retirement planning.

An estate plan includes a will, a living will, and advance health care directives. Without these documents in place, your loved ones may have to deal with legal and medical issues and probate court.

Besides avoiding legal issues, an estate plan will let your loved ones know what your wishes are at the end of your life, sparing them from guessing what you may have wanted.

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Not revising your investment strategy

LIGHTFIELD STUDIOS/Adobe Smiling senior man using laptop and pointing up with finger

Most financial planners suggest that you adjust your investments as you age, especially after you retire. The money you have saved and invested may have to last for 30 years or more.

Reviewing your plan every few years helps ensure your savings are still adequate. Plus, it's an excellent way to ensure you're still on track for a comfortable retirement overall. So don't forget to monitor your investments, even after you retire.

Being too conservative with investments

kasto/Adobe old woman counting remaining coins from the pension in her wallet

Many retirees avoid stocks because they are afraid of losing money in a market downturn. However, you are trading off one danger for another by eliminating stocks.

You don't have the growth potential in your portfolio to outpace inflation if you do not invest. Stocks have outpaced bonds and other conservative assets over the long run, even though they may fluctuate in value over short periods.

Too risky with investments

Stockwerk-Fotodesign/Adobe Cubes dice with arrows up and down and risk

Some retirees take too much risk in their portfolios to achieve higher returns. However, this may backfire, and these investors end up losing money.

Diversifying your portfolio with stocks, mutual funds, bonds, and cash may help you weather market turbulence. Taking on too much risk is not worth it if it jeopardizes your retirement.

Overexposure to one asset class or stock

Rido/Adobe Bad investment

You shouldn't put all your eggs in one basket, especially with your retirement funds. Having too much of your portfolio invested in a single stock — such as your employer’s — is risky because your whole retirement could be in jeopardy if that company's stock tanks.

Again, the key is to diversify your investments and have exposure to different companies, sectors, and asset classes.

Pro tip: Try using one of the best investment apps to find opportunities for diversifying your portfolio.

Confusion over how much money to withdraw

BillionPhotos.com/Adobe Atm bank banking

How much money should you withdraw from your retirement savings each year? This is a basic question for retirees. They should start by making a realistic budget.

Withdrawing too much money each year may put you at risk of running out of cash before your life is up. For many years, the general rule was to withdraw 4% of your savings annually. 

However, this number may fluctuate depending on things like inflation and the performance of your investments.

Not taking the required minimum distribution

syahrir/Adobe Required Minimum Distribution 2022 written on sticky notes

Some people make a mistake in retirement by failing to take their required minimum distribution (RMD). If you have a 401(k) or traditional IRA, you usually have to take withdrawals by age 70½. However, you may delay your first RMD until April of the following year when you turn 72.

You are responsible for withdrawing your RMD; the IRS doesn’t alert you to do it. If you don't take your full RMD, expect to pay a penalty of 50% of the amount you did not withdraw. So make sure you keep track of when your RMD is due and plan accordingly.

Ignoring annuities

New Africa/Adobe Woman throwing crumpled paper ball into basket

People often dismiss annuities because of the associated fees. Yet, since it provides a guaranteed income stream, a simple, immediate annuity may be an excellent addition to a retirement portfolio.

Consider your yearly retirement money needs to figure out how much to invest in an annuity. Then, estimate how much money you may receive from Social Security or pensions. 

If your income doesn't cover your costs, an annuity might help you. Don't write off annuities without doing your research.

Falling for scams

Rokas/Adobe Incoming call from Scammer

Hard work and decades' worth of wealth-building are the foundations of financial security in retirement. There are no shortcuts. 

Yet, many Americans lose hundreds of millions of dollars per year to scams, according to the FTC, as elder fraud runs rampant.

Don't let a few minutes of gullibility wipe out decades of saving. Be wise and be wary. Your retirement depends on it.

Underestimating your lifespan

Tommaso Lizzul/Adobe young man looking at an older himself in the mirror

No one knows how long they’ll live, which is what makes retirement planning difficult. The average life expectancy is 76 for men and 81 for women, but many live into their 90s or even past 100.

Plan to withdraw from your savings at a rate that may give you a good chance to have enough money to last several decades.

Not planning for a spouse's death

jaflippo/Adobe white grave markers and flowers at a national cemetary

No one likes to think about their mortality, let alone their spouse's. But it's an important event to plan for, especially as you get older. Life, income, and taxes change when one spouse passes away.

As an exercise, make a budget for yourself as a single again and see what adjustments you may need to make to your retirement plan.

Not being frugal

Fabio/Adobe two seniors hugged in the water of swimming pool

It's easy to spend money when you're young and don't worry about saving for the future — and have a steady paycheck. But as you face retirement and living on a fixed income, you may want to consider a more frugal lifestyle.

While some expenses may be lower when you’re retired, you will still have fixed expenses that you can’t avoid. Developing a frugal plan may help you manage discretionary spending to maintain the lifestyle you want.

Pro tip: Taking advantage of some smart shopping hacks could help with your budgeting.

Bottom line

Jacob Lund/Adobe Elderly couple holding hands and walking

Retirement is a time to enjoy life, but it's important to avoid throwing money away. You may set yourself up for an enjoyable retirement by steering clear of these common mistakes.

Talking to a financial planner may be an excellent first step if you're unsure where to start. They may help you figure out what you need to do to reach your retirement goals.

Even if you’re nearing retirement age, there's still time to get your finances in order. The sooner you start, though, the better off you'll be. So, why not start today?

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Author Details

Larisa Redins Larisa Redins is a highly experienced professional writer and editor. With experience writing on diverse topics, such as eco investments, real estate, cryptocurrency, side hustles, and budgeting, she loves to learn and share her knowledge with readers.

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