4 Surprising Mistakes That Could Cost You $10,000

Source: Alex Proimos via Flickr.

In a recent poll conducted by Harris Poll for Wells Fargo, it was found that middle-class adults have an average of only $20,000 saved for retirement -- less than 10% of what they think they'll need to get by in their golden years. Unfortunately, many people are missing out on thousands of dollars -- sometimes tens of thousands -- by making small mistakes and not taking full advantage of the savings options available to them.

Here are four of the most common and costly mistakes people make, along with some ways to avoid them and reap additional gains.

1. Leaving money behind
If your employer offered you a raise, you'd take it, wouldn't you? This seems obvious, and yet many workers today are leaving free money on the table at work.

As employer-provided 401(k) plans become more widespread, a common benefit available to workers is an employer match to their contributions. Put simply, many companies will match a significant portion of the income you set aside for retirement, effectively handing you free money.

While you might expect every worker to take every free penny available, a significant percentage of them don't. A recent report from MarketWatch broke down how Boeing's employees left a combined $98 million behind in single year, though all they had to do was contribute 8% of their pay to a 401(k). Not only does this employer match give you more money now, but it also gives that money the opportunity to compound throughout your career, possibly putting you tens of thousands of dollars closer to your retirement goal.

If your employer offers this benefit, be sure to take full advantage. If you don't know whether this benefit is available to you, it's certainly worth finding out.

2. Saying "I'll save later"
Saving for retirement isn't as fun as buying a new house or a flashy car, but by waiting to contribute to your long-term plans, you give up potentially decades of compounding and make it so you'll have to contribute far more later than you need to now.

Even the timing of saving just $10,000 can make a big difference. If you put away $10,000 at age 25, you'd have over $70,000 by age 65, assuming a modest 5% annual return. But if you waited just another 10 years to put this money away, you'd have only $43,000 by age 65.

Over half of those polled in the Harris Poll said they would save later to make up for their lack of savings now -- but few of them likely realize how challenging that will be, given that they'll have much less time to let compound interest work its magic. Bottom line: Even if you can't put away a lot of money now, it's still worth putting away what you can to take advantage of long-term compounding.

3. Not taking advantage of IRAs
There aren't many tax breaks that ordinary Americans can use to save tens of thousands of dollars, but individual retirement accounts are one of them. The government has realized that it's good for individuals to prepare for retirement and has offered a tax break to those willing to do so.

By setting up an IRA, you can contribute earned income without paying taxes on it until you withdraw your funds during retirement. You delay your taxes for decades and earn interest on your contributions in the meantime.

If you don't already have an IRA -- or a Roth IRA, which offers its own set of tax benefits -- contact your financial advisor about setting one up to delay your tax burden and earn more toward your retirement.

4. Racking up withdrawal penalties
Saving money in a tax-advantaged retirement account such as an IRA is a good idea for long-term savings, but you can incur significant penalties if you take the money out too soon. Although that growing pot of retirement savings may look tempting when the time comes to buy a new car, beware the 10% penalty charged on early withdrawals. And on top of that penalty, you also have to pay income tax -- it's a double-whammy.

Since these accounts offer unique tax benefits to encourage retirement savings, it makes sense that there would be a penalty for using the money for other expenses. While there are a few exceptions for limited withdrawals, for the most part this money is best left untouched until it's needed for its intended purpose. If you absolutely need to access this money or have any question about the exceptions for penalty-free withdrawals, be sure to talk to your financial advisor and a tax professional to see how best to handle the situation.