5 Things You Definitely Shouldn't Do While Planning for Retirement

Most of us are not independently wealthy, so we need to be planning for our retirement -- estimating how much income we'll need when we're no longer working, figuring out how we'll get it, and taking steps necessary to get us to our goals.

As we plan, save, and invest for retirement, there are some critical errors to avoid, in order to get the best possible results. Here are five biggies to know about.

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1. Don't procrastinate

For starters, be sure not to procrastinate when it comes to saving and investing for retirement. It's rarely too early to start -- even if you're in your 20s. Indeed, starting early can give you a shot at retiring early. Also, the earlier we start, the longer our money will have to grow for us.

The table below shows the power of starting early:

Data source: Calculations by author.

2. Don't cash out 401(k)s early

Lots of people cash out their retirement accounts when changing jobs; often they think that withdrawing a relatively small balance after only working at a company for a few years isn't problematic. But it is. For one thing, early withdrawals can sock you with penalties and taxes -- and they can significantly shortchange your future, too.

Imagine, for example, cashing out $20,000 when you're 30 years old. You'll likely pay a few thousand dollars in penalties and taxes, leaving you with not enough money to even buy a new car. But if you leave that sum to keep working for you, and it grows at an annual average of 8%, it will become more than $200,000 in 30 years. That's a meaningful sum in retirement!

3. Don't ignore healthcare costs

Here's a shocker: According to the folks at Fidelity, "An average retired couple age 65 in 2022 may need approximately $315,000 saved (after tax) to cover healthcare expenses in retirement." It gets worse: That sum doesn't even include over-the-counter medications, most dental services, or long-term care.

The main takeaway here is that you need to factor healthcare costs into your overall retirement plan. Depending on your health and your luck, you may end up spending a lot more or less than the $315,000 average. Resolving to get fit and to eat nutritiously from now on is a smart move that may pay off considerably in the long run.

4. Don't invest too conservatively

It's worth learning enough about investing to make savvy investment decisions that don't leave you shortchanged. For example, you might be thinking that once you retire, you should have all your money in bonds, but think again.

Check out the table below, showing how various U.S. asset classes have performed between 1802 and 2021, according to Wharton Business School professor Jeremy Siegel. (Stocks outperform bonds handily in many shorter periods, too.)

Data source: Stocks for the Long Run, by Jeremy Siegel.

It's definitely reasonable to shift some of your portfolio into bonds as you age and retire. But remember that if you retire at, say, age 60 and you live to age 85, your nest egg will have to help support you for 25 years. Investing a long-term chunk of it in stocks can make good sense.

5. Don't make risky assumptions

Finally, be careful with what you assume as you plan for retirement. If you're assuming you'll work until age 70, for example, that plan can get derailed if you're unexpectedly laid off or develop a health condition. Millions of people end up retiring earlier than planned.

Similarly, if you're amassing a nest egg that's likely to support you for 30 years, remember that there's a chance you might live to age 100 or beyond -- depending on when you retire, you might need your money to support you for 40 years. Plan and invest accordingly, just in case.

Don't put off planning for retirement -- even if you're still quite young. There are steps you could take even in your 20s that can set you up for a much more comfortable and secure future.