10 mistakes to avoid when saving for retirement

Saving for retirement is a gradual process that involves making countless decisions. With such a long timeframe and a complex financial goal, it’s possible to make mistakes that could impact your future.  

We can help you avoid common retirement savings mistakes and make informed decisions as you increase your contributions. 

Mistake 1: Waiting to start saving 

You may have competing financial goals, or you may not be sure you have enough to put away, however delaying savings means that you lose out on the power of compounding growth. Over time, this compounding effect can amplify retirement savings in a way that simply saving more later in life often cannot.  

Avoid this mistake: Start now to give your money more time to work for you. Even seemingly small contributions can grow substantially over time.  

Mistake 2: Underestimating how much you’ll need 

Underestimating how much to save for retirement can lead to financial gaps in the future. Key factors like rising health care costs and inflation can significantly impact your savings. For example, an expense that costs $50,000 today could exceed $80,000 in 20 years at a 3% average inflation rate. Additionally, you may have certain aspirations beyond maintaining your lifestyle in retirement. Whether you dream of traveling, pursuing hobbies or relocating, these pursuits require careful financial preparation. 

Avoid this mistake: Keep tabs on your retirement savings projections by using a retirement planning calculator. Regularly reviewing your retirement strategy is a critical way to stay on track.  

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Input your numbers to gain insights into what your financial picture could look like in retirement. 

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Mistake 3: Missing out on your employer’s 401(k) match 

An employer match for a 401(k) is when an employer contributes additional funds to your retirement savings based on your own contributions, up to a certain limit. If you’re not contributing enough to your 401(k) to qualify for the full match from your employer, you’re essentially leaving free money on the table. 

Avoid this mistake: Review your 401(k) to ensure you’re contributing at least the minimum amount, if you’re able, to obtain the full match. Over decades, these matched contributions, combined with compounding growth, can have a huge impact on your retirement savings. 

Mistake 4: Not investing your 401(k) or IRA contributions 

Contributing to a 401(k) or IRA is an important first step toward securing your financial future, but it’s only part of the process. For some types of accounts, you can set up automatic transfers to these accounts without selecting investments, leaving contributions as cash. This is particularly true for self-directed IRAs. 

Avoid this mistake: Review your 401(k) or IRA contributions and selections to ensure you’re investing into a diversified portfolio. 

Mistake 5: Failing to diversify your portfolio 

Relying on a single stock or sector can leave your investments critically vulnerable. A properly diversified portfolio spreads your investments across various asset classes, industries and geographic regions. This approach may help reduce significant downturns in any one area. 

Avoid this mistake: You’ll want to ensure your investment mix, or asset allocation, is tailored to your goals, risk tolerance and time horizon. This involves investing in different asset classes, such as stocks, bonds, cash and alternative investments. Each class offers unique risk and return characteristics. Through asset allocation and diversification, you can create a resilient portfolio designed to adapt to changing market conditions and support long-term objectives. 

Mistake 6: Withdrawing retirement funds early 

While it may be tempting to tap into your retirement accounts to manage unexpected expenses, it’s generally unadvisable to do so. Early withdrawals not only reduce your current balance but also restrict the future growth that money could generate.  

Early withdrawals from a 401(k) or traditional IRA before age 59½ typically incur a 10% penalty and are taxed as income, potentially raising your tax bracket and reducing the net amount received. 

Avoid this mistake: You can prepare for unexpected expenses by establishing a cash reserve, reviewing your insurance options and considering leveraging existing assets for access to cash flow. 

Mistake 7: Trying to time the market 

Timing the market may seem like an appealing strategy — buy low, sell high — but history proves this is nearly impossible. Markets are unpredictable and influenced by countless factors, from economic shifts to geopolitical events and market sentiment.  

Especially when markets decline, it’s natural to consider withdrawing funds from high-risk investments to reduce potential losses. But this move often locks in losses and prevents your portfolio from recovering when the markets rebound. Historically, the market’s best-performing days often follow closely behind its worst days.  

Avoid this mistake: Stay invested, trust your long-term investment strategy and remember that periods of market volatility are temporary. History shows that time in the market beats market timing. Invest a set amount at regular intervals to take advantage of dollar-cost averaging. This method allows you to make systematic purchases at fluctuating prices over time, potentially reducing the impact of market volatility. 

Mistake 8: Forgetting to rebalance your portfolio 

Market fluctuations often lead to shifts in your portfolio’s asset allocation, which can change your exposure to risk or misalign with your long-term financial goals. For instance, a significant surge in stock values might overexpose your portfolio to equity volatility, while stagnant bond values could reduce your portfolio’s return potential.  

Avoid this mistake: Rebalancing your portfolio acts as a corrective measure, ensuring your investments remain in line with your goals, time horizon and risk tolerance, particularly during periods of market volatility. Rebalancing a portfolio is not easy to do, however. Some accounts may offer automatic rebalancing. In other cases, a financial advisor can help make these recommendations. 

Mistake 9: Neglecting the benefits of Roth accounts 

Many investors focus solely on tax-deferred accounts like traditional 401(k) plans, but Roth accounts can offer powerful tax advantages. Unlike tax-deferred contributions, Roth contributions are made with after-tax dollars, and qualified withdrawals during retirement are entirely tax-free. Roth IRAs and Roth 401(k) plans do not have required minimum distributions (RMDs), allowing your money to remain invested and grow tax-free throughout your lifetime.  

Avoid this mistake: Include both Roth and traditional retirement accounts in your portfolio to help strategically manage your tax burden in retirement. For example, if you believe tax rates will rise in the future or you expect your income — and tax rate — to increase later in life, Roth contributions can help lock in today's tax rate.  

Mistake 10: Overlooking the value of professional guidance 

Retirement planning can be complex, no matter where you are in your retirement savings journey. But you don’t have to do it alone.  

Avoid this mistake: Reach out to us. We can help you create a personalized retirement savings strategy tailored to your risk tolerance, financial goals and time horizon.