10 Mistakes You Should Never Make Before Retirement

In pursuit of a fulfilling retirement, many workers will explore a range of savings options. Obviously, starting early and continuing to contribute to your investment accounts throughout your working life is essential to achieving these goals. There's no getting around the need to save, and it's commonly understood that the earlier you start the easier this journey becomes. But outside of these basic truisms, savers have a lot of question marks to explore for themselves. This reality is made even more complex by the fact that no two savers and investors will have the same lived experience, knowledge base, or even goals. Everyone's journey into and then back out of the workforce will be unique, so all retirement planning strategies are equally one-of-a-kind.

But this doesn't mean that savers can't learn from the example of others. In fact, while you might invest in ways that are totally incompatible with the strategy employed by your neighbors or friends, there remains a basic outline that you all can follow to make sense of the project that is building a nest egg. In particular, it's a good idea to drill down on a number of mistakes that can alter the course of your retirement before it even kicks off. As the date draws nearer, some of these mistakes become increasingly painful, and others can be more likely to ensnare you and your finances. Identifying them and working around these pitfalls is a must, and fortunately this process doesn't have to be challenging.

When planning for retirement, there's a lot that can work in your favor. Starting your investment journey early is a common refrain. Similarly, it doesn't take massive volumes of research and luck in order to select good quality investments. Generally, if you continue storing away cash and investing in good general growth options like ETFs that minimize risk while still providing broad market exposure and growth potential you can expect to see long-running success.

However, you can't simply expect an index fund strategy to just reveal a kaleidoscope of successes without any additional work or planning. There's a lot that you'll need to do on your own, even with much of your growth strategy taken care of by virtue of the stock market's general trend of long-term growth. You can't go into retirement without a plan, even if you've hit it big and experienced lots of success in your investment journey. The stark reality is that without a budget and other planning elements built into your transition, it's incredibly easy to fall into numerous traps that can sink your retirement finances. Banking on things just working out because "that's how it's supposed to go," or because "you worked hard" throughout life is a great way to find yourself underprepared for the new set of challenges that lie ahead.

There are many complications that may spring up in life. A change in your family circumstances or an unforeseen shift in working conditions might see available cash for retirement savings diminish. On the other hand, there are lots of opportunities that typical savers will find to help spur on additional growth. For instance, one great use of your annual tax refund involves adding extra capital to your retirement accounts. There are many rule-of-thumb targets between your entry into the workforce and a fully funded retirement account at the end of your time commuting every day. For example, the average retirement saver will want to have roughly the value of their annual salary set aside by the time they hit 30. For reference, the 2023 average net earnings was just under $64,000 via the Social Security Administration. At 40, you'll want to aim for three times your salary, so in this example that sets a target of roughly $192,000.

If you do find yourself ahead of the curve, it can be tempting to take your foot off the gas and focus your financial energy elsewhere, at least temporarily. However, unless you have become supremely lucky in picking a gigantic stock market winner, a consistent pace without any gaps remains essential to funding the retirement lifestyle you want. Retirement is frequently significantly more costly than expected, so there's just no room in a retirement plan for any sort of slowdown or a lackadaisical attitude when it comes to continually hitting and surpassing targets.

As is the case with routine consumer investing, it's not a good idea to sink your entire savings strategy into a single investment vehicle. This goes for both the assets you choose to buy into and the accounts you use to do it. Indeed, there are many excellent options available to savers seeking tax advantages and other benefits. Starting things off, the Roth IRA is one of the preeminent tools to help support your retirement planning strategies. A Roth allows you to invest capital you've been taxed on already, translating into complete control over whatever assets you end up with tomorrow. By investing post-tax dollars into this account, the entirety of your portfolio can be withdrawn without tax obligations later, presumably when it's much larger. The Roth's inverse is the Traditional IRA. This gives you the opportunity to invest pre-tax dollars. While you can't withdraw this capital later on without considering the tax implications, as you deposit funds you can offset your current tax liability by deducting these funds from your adjusted income figure.

Another option is the 401(k). This comes in both variants, so you have either tax strategy at your disposal when utilizing this account type. What a 401(k) offers, however, goes above and beyond the individual saving strategies you may have available. This is generally offered through your place of work, and many companies offer an employer match program that deposits free, extra money into your account. The boost you'll receive here can be transformative.

The value you can receive from investments made through employer-sponsored plans is often significant. Employer match options in your 401(k) can supercharge your retirement savings strategy. Other benefit plans, such as pensions, can also be significantly enriching. But, as with all good things, it's unfortunately possible to lean in too much. Becoming too reliant on retirement planning tools linked to your employer can leave you vulnerable under certain conditions. For example, when taking advantage of stock vesting programs, you can ultimately find yourself forfeiting the added benefits of the plan if you change jobs without first consulting your contract. In many instances, you'll need to stay in a company for a certain period of time in order to keep the value you've been able to accumulate at favorable terms. Considering the current job market in which company loyalty has gone by the wayside and rapid job changes have therefore become something of a norm, this may ultimately burn you in your pursuit of increased retirement funding to go hand in hand with salary bumps and new opportunities.

No matter what kind of funding tool you are utilizing as you prepare for retirement, it's important to understand the full ramifications of your choices. For many savers the best approach involves a blending of tools. Relying on your employer to take advantage of some of the benefits offered in terms of pensions and stock market mobility can help give you a leg up but this should be paired up with your own individual saving that isn't reliant on a continued relationship with that company.

All Americans eligible for Social Security benefits can start claiming these checks at 62. Of course, there's a lot more to this decision than just turning on the tap when you hit your eligibility age. For one thing, waiting until you turn 67, or full retirement age, will allow you to enjoy a 100% payout rate. In August 2025, the average Social Security check came out to a little under $2,000. Claiming benefits at 62 would yield a 70% payout rate: A roughly $1,400 monthly check, instead, for those entitled to an average rate. Setting up a Social Security account so that you can explore the benefit amount you're entitled to based on existing figures is a good idea by the time you're 50. Those looking to get ahead of things might want to consider this in their 30s because most Americans will have worked for long enough to officially secure Social Security benefit eligibility by this time.

Receiving benefit checks isn't just about ages and penalty or bonus rates, however. If you are still working you likely don't need Social Security benefits on top of your salary. Moreover, those still working and taking Social Security benefits before they hit 67 will see their check value reduced based upon their income level. The longer you wait to start claiming benefits the more you'll receive, therefore it's worth exploring how claiming benefits at different ages, alongside your timeline for exiting the workforce, will impact your retirement finances. If you begin payments before you actually need them, you'll be locking yourself into a check worth less than you could have earned.

The rules that govern your use of numerous retirement savings accounts include language about early withdrawals. For the most part, you'll pay capital gains taxes on early withdrawals alongside a 10% penalty. These are in place to incentivize savers to only deposit dollars they intend to leave in their nest egg until they reach the retirement phase of life. There are other considerations beyond age but for most savers with a retirement account, hitting 59 ½ acts as the threshold at which these penalties melt away. It's also worth noting that there are some exceptions. If you've recently bought a home, had a child or have been a victim of domestic abuse, among many other exception categories, you can withdraw a certain amount of money from a variety of retirement savings portfolios without this added tax haircut. It's also possible to borrow from your 401(k), repaying the loan with interest to yourself under certain conditions in order to avoid added penalties.

Even though there are a variety of options to access these funds early, including a straight withdrawal subjected to the additional costs, savers serious about their retirement planning should avoid these choices at all costs. Even the 401(k) loan that will see you repay the entirety of the capital accessed will set you back significantly from your goals. Taking money out of these retirement accounts freezes their ability to continue growing at an exponential rate. It's a problem that's exceedingly difficult if not impossible to solve, and potentially guarantees that you don't meet your targets in the process.

Mortgage loans are a complex topic, and this is an area that's hotly debated by pundits, homeowners, and financial planners. Everyone has an opinion on what you should do regarding your housing costs, and no two consumers will have identical needs. This means that everyone's individual strategy involving home finances leading up to their exit from the workforce will be unique. However, it's generally a bad idea to extract capital from your home at this stage. Refinancing your home or utilizing a HELOC to gain access to funding can be a useful solution for numerous financial requirements. However, before you retire you'll generally want to be focused on shedding debts, maximizing retirement savings, and reevaluating many budgetary action items. Your lifestyle will change, perhaps drastically, when you stop commuting to the office every day. 

You may find yourself spending far more time and money on your hobbies, or engaging in significant amounts of travel. All of this takes money, and adding a new financial obligation to your plate right before you give up your salary can add a particularly nasty fiscal drain into the mix. Unless you desperately need a lump sum of cash to pay for an emergency, finance a new and significant demand, or perhaps shift your debt load around, this is a bad call. With that being said, if you've been unable to get out from underneath crushing credit card debt or other high interest loans, making this shift can be valuable because you may realistically be taking a debt of some kind into retirement anyway.

It can be somewhat morbid thinking about your estate planning needs. In America today, life expectancy stands at 78.4 (via CDC). That means the average retiree (who leaves the workforce at 62, according to The Motley Fool), can expect to live for 16-plus years after retiring. However, the life expectancy has continued to grow at a more or less steady pace through the decades. So most people will need to plan for a nest egg that lasts even longer. However, the end eventually comes for us all, and it's impossible to predict when this will occur. Most older Americans arrive in their 60s with numerous personal connections and social 'complications,' for lack of a better word. If you are married, help support children or grandchildren either physically or financially, or share your home with a friend, companion, or some other loved one, explicitly laying out your wishes is imperative.

If you have specific obligations you've set for yourself or wishes for your home, retirement accounts, cash, or collectibles, you'll need to spell this out explicitly so that your beneficiaries understand what they can, should, and must do after you have passed. Beyond the legal hurdles that this approach can eliminate, it's also important to spell out how to access things like your retirement accounts, important documents, life insurance policies, and more. The last thing you want to do is leave a spouse with the money they need to continue supporting their life but fail to spell out how to access that cash.

Most savers will likely have to work around tax reporting obligations for the rest of their lives. Even if most of your investing has been done in a Roth IRA that doesn't come with additional payment obligations, calculating, reporting, and keeping financial records is always going to be a part of life. Your Social Security benefits do count as regular income and can be taxed under certain circumstances. Therefore, this can ultimately factor into an ongoing tax obligation when calculated alongside other sources of retirement income. It's easy to think that you can just switch off on the need to keep track of these elements of your personal finances. But unfortunately, the taxman rarely rests, and if you suddenly stop reporting your income you may just get a letter in the mail looking for an explanation.

With this in mind, it's also important to stay focused on how you are preparing for the tax obligations of retirement while you're still working. Naturally, the tax-advantaged retirement accounts you utilize will play a big role in these later consequences. Front loading your tax advantages with a Traditional IRA account, for instance, results in the need to calculate income figures when you take distributions. Understanding the results of your choices today and how they will affect your future is critically important for your tax situation and many other aspects of your personal finances in retirement.

The sad truth is that health care costs have a tendency to rise as you age. Not every senior in America will need a knee or hip replacement and you aren't doomed to get cancer as you get older. But both of these serious health complications happen in greater numbers among the older segment of the population than people below the age of 50. Age-related health care costs can really set you back if you haven't prepared for them. Much like the constant threat of inflation continually tacking on extra costs that can overtax your retirement accounts, consistently growing demands in your health care expenditures bring with them the ability to sink your retirement finances in a hurry.

There are a few ways to deal with this sticking point. Investing in an HSA allows you to grow a tax-advantaged reserve purpose-built to deal with health care needs later on. You might also want to consider your health insurance options. Medicare is a valuable resource that all older Americans (and selected others) can utilize. There are numerous free health screening and care services available through your standard Medicare plan, and taking advantage of them will allow you to get out in front of any potentially expensive treatment needs you may face. Understanding the financial risk that comes from aging care requirements is essential. Those who ignore this threat set themselves up for failure because playing the odds rarely works in your favor.