Retirement is a period of life you've earned after years of hard work and dedication to bringing home a paycheck, and so the last thing you want to do is make a mistake that turns your seniors years into a long-term financial nightmare. As such, it pays to avoid the following blunders at all costs.

1. Investing your savings too conservatively

Setting money aside for retirement is important. If you fail to do so, you'll risk falling short on the bill-paying front when your time in the workforce comes to an end. But in addition to diligently funding your 401(k) or IRA, you'll also need to do a good job of putting your savings to work -- namely, by investing in a reasonably aggressive fashion to generate growth. That way, you'll be more likely to have enough money to pay your living expenses in retirement and enjoy the comfortable lifestyle you deserve.

Imagine you manage to sock away $500 a month for retirement over a 40-year period. If your investments during that time were to generate an average annual 7% return, which is doable with a stock-heavy portfolio, you'd grow your savings to about $1.2 million. But watch what happens when you play it too safe and invest heavily in conservative investments, like bonds. In that case, you may be looking at a 4% average yearly return over time, leaving you with just $570,00 to work with during your golden years.

Older man looking at documents with blurry image of older woman in background


Now to be clear, $570,000 isn't nothing. But it's nowhere close to $1.2 million, and it won't buy you nearly the same lifestyle when you're older. That's why it really pays to load up on stocks during the bulk of your investment window. You can shift toward safer investments as retirement nears to mitigate risk, but if you avoid stocks completely, you'll run a different risk: running out of money later in life.

2. Claiming Social Security too soon

If you got a late start on saving for retirement and you don't have much time to catch up, you'll need all the money you can get from Social Security to stay afloat financially once your time in the workforce comes to an end. That's why you'll need to be careful with claiming benefits.

You're allowed to sign up for benefits as early as age 62, but you're not entitled to your full monthly benefit based on your earnings history until you reach full retirement age, which is either 66, 67, or somewhere in between, depending on the year you were born. Claiming benefits ahead of full retirement age will shrink them for life, and if you're low on savings, that's a hit you probably can't afford.

In fact, if your savings situation is really dire, you should consider holding off on claiming Social Security past full retirement age. For each year you delay your filing, you boost your benefits by 8%, up until age 70.

3. Tapping your retirement plan early

When money gets tight, it can be tempting to take an early withdrawal from your 401(k) or IRA. That way, you don't have to go through the hassle of applying for a loan or risk getting denied.

But raiding your retirement plan early could hurt you in more ways than one. First of all, if you remove funds from a 401(k) or IRA prior to age 59 1/2, you'll risk a 10% early withdrawal penalty on the amount you remove -- though it's worth noting that right now, due to the COVID-19 crisis, you can actually withdraw up to $100,000 from a 401(k) or IRA at any age and avoid that 10% penalty.

Even without the penalty, the danger of taking an early retirement plan withdrawal is that you'll leave yourself with less money for -- you guessed it -- retirement. Remember, the money in your retirement account doesn't just sit there doing nothing; it gets invested to generate growth. If you take a $10,000 withdrawal ahead of retirement that you never pay back and you don't leave the workforce for another 30 years, you'll lose out on a total of $76,000 if your investments normally generate a 7% average yearly return.

That's why it really pays to leave your savings alone. Right now, if you're badly affected by COVID-19, that may not be possible, but if you do take an early withdrawal and your financial situation improves in a year, do your best to repay that distribution so it can stay invested.

After holding down a job for a lifetime, you deserve to enjoy your senior years to the fullest. Avoid these mistakes, and you'll hopefully get to do just that.