The 5 Biggest Retirement Mistakes to Avoid

Retirement should be a welcome reward for long years of hard work, but unless you prepare now, it might not be the bed of roses you had hoped for.

(Image credit: Lee Pei Ling Copyright 2017)

The road to retirement is full of obstacles, but knowing what lies ahead can help you successfully overcome them. Think of a retirement plan as a road map (in the days before GPS) that will help you avoid wrong turns, like not taking advantage of a 401(k), forgetting about significant costs in retirement, and forgetting about your desired retirement lifestyle.

Here are five of the biggest retirement mistakes to look out for as you’re nearing or entering this new phase of your life.

Not Having a Strategy

Do you think the best sports teams go into games with no plan? The successful ones definitely don’t. Your financial future is no different, except that it’s more important than the outcome of any sporting event.

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It’s important to set goals and create a strategy for achieving them before and after you retire. You only retire once, and the choices you make in the years leading up to and just after your retirement can impact your finances for the rest of your life. Retirement planning is also complicated. Between minimizing your taxes, maximizing your Social Security benefit, choosing a Medicare plan, completing your estate planning and figuring out how all of these elements interconnect, preparing for retirement is a job itself.

Not Maximizing Tax-Deferred Savings

Taking advantage of tax-deferred 401(k) and IRA contributions can be one important step toward retirement. Not participating in your workplace retirement plan can be a big mistake, especially if your employer matches your contributions. For 2019, you can contribute up to $19,000 to your 401(k) if you are under 50, and up to $25,000 if you are 50 or older. You can contribute up to $6,000 to your IRA if you are under 50, and up to $7,000 if you are over 50. Contributions aren’t taxed, so you can save for retirement while reducing your tax bill at the same time. Remember, though, that when it comes time to take withdrawals from traditional IRAs and 401(k)s, those will be taxed. Distributions from Roth 401(k)s and IRAs, however, are not taxed because they are funded with after-tax dollars. So, one tax minimization strategy to consider is utilizing Roth accounts, whether you’re converting funds from traditional retirement accounts or simply funding a new account.

Most companies don’t offer pensions anymore, so your retirement accounts may be your main source of income in retirement.

Not Adjusting Your Investment Approach Well Before Retirement

If you take advantage of tax-deferred savings in retirement accounts, you should have a sizable nest egg by the time you’re nearing retirement. Possibly even more important than building it is protecting that nest egg from market volatility.

When you were younger, riskier investments had their advantages, but when you get closer to retirement you don’t want to gamble your savings. If the market took a turn for the worse, you would have little time to rebuild them. And, the state of the market when you retire could impact your investment returns for life if not properly protected. You can adjust your asset allocation before you start spending your savings to avoid having to sell stocks at a loss to make ends meet.

You can’t eliminate risk or predict the market, but you can take measures to help decrease your exposure to risk, like diversifying your portfolio. At O’Donnell Financial Group, we use our “O’Dometer,” which is a complimentary risk assessment tool, to help evaluate whether your investments are properly aligned with your unique risk score and overall goals for the future. If your investments don’t align with your values as you reach retirement, you need to reconsider.

Forgetting About Health Care Costs

Good health is crucial for a long and happy retirement, and it can come at a high cost. Medicare will only cover so much of your health care needs, and it’s not free. Medicare Part B premiums can be as high as $460.50 for high-income earners, and many retirees purchase additional Medicare Advantage or Medigap plans. A couple retiring at 65 today will need to pay an average of $399,000 in health care costs in retirement. And this doesn’t even include long-term care costs, which average $4,195 per month for a home health aide and $8,365 per month for a private room in a nursing home, according to figures from Genworth.

Figuring out how to protect your portfolio from high long-term care costs and deciding on the best Medicare plan are important parts of a solid retirement plan. The right plan for covering health care and long-term care costs is dependent on the individual, and there are so many insurance and annuity options available that this is one area where an expert’s advice can really help.

It’s Not All About Money

You can’t create a plan to meet your retirement goals if you don’t know what they are. Before you retire, spend time thinking about what you what to accomplish in retirement and how you want to live. Many retirees want to travel, pursue new activities they didn’t have time for previously, spend more time with family, or create a legacy. Your personal goals should be what dictate your financial goals, not the other way around. A good financial plan takes into account how you want to live in retirement, and a good financial planner asks you this question.

Ultimately, you want to try and avoid getting tunnel vision when preparing for life in retirement, which makes it important that you don’t forget about these five common retirement mistakes. Retirement preparation isn’t just about saving money; it’s about creating a strategy to best use your savings and anticipate costs in retirement. Another pair of eyes can help you create such a strategy and spot trouble before it happens.

Investment Advice Offered Through O’Donnell Financial Services LLC, a Registered Investment Adviser. CA Insurance Number: 0B87978

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Greg O'Donnell, Investment Adviser
Founder, O'Donnell Financial Group

Greg O'Donnell is the CEO and founder of O'Donnell Financial Group ( His mission over the course of three decades has been to guide people to pursue and maintain a healthy financial life plan that accomplishes their goals.