15 Retirement Errors to Avoid -- Before It's Too Late

Each of the following common retirement-related blunders can wreak havoc on your future financial security. If you end up committing several of them, the results might be disastrous. Fortunately, you can avoid many common errors by learning about these mistakes -- and others. Another smart idea is to take the time to come up with a solid, comprehensive retirement plan, laying out how much you need to save for retirement, how you'll amass what you need, and how you'll draw down your available funds.

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Pensions have been going the way of the saber-toothed tiger, replaced at many workplaces by 401(k) plans. That's a shame, because pensions tend to offer a certain guaranteed income in retirement (which is why they're called "defined benefit" plans). Meanwhile, 401(k)s are "defined contribution" plans, where the amount you contribute to them is set, but how much money you'll end up with is more uncertain. So it's rather important to make the most of your 401(k) plan, if your workplace offers one, and a key thing to do is to grab all available matching funds. Fail to do so, and you'll be leaving free money on the table.

Many of us move from job to job every few years, so we often don't accumulate much money in each employer's 401(k) plan. It can be tempting then to just cash out the account. That's an unwise move, though, because even if there's only, say, $20,000 in the account, you'll be robbing your retirement of what that $20,000 would have grown to in the next, say, 20 years. (If it grew at an annual average of 8% over 20 years, it would grow to more than $93,000 -- certainly a handy sum in retirement.) Remember, too, that early withdrawals from retirement accounts can whack you with taxes and/or penalties.

ALSO READ: Leaving a Job? Here's Why Cashing Out Your Retirement Savings Is Bad, According to Suze Orman

It can be hard to pinpoint the perfect time to retire, but give the matter a good deal of thought before deciding. It can be dangerous to retire too soon, if it means you won't have a big enough nest egg to sustain you throughout retirement -- and many, many people are way behind in their saving and investing for retirement. It can also be a mistake to retire too late: If you have a fat nest egg and don't need that extra income, you might want to call it quits and start enjoying all you've wanted to do in retirement -- such as traveling, taking up a new hobby, reading, gardening, golfing, or more.

Failing to account for the high cost of healthcare can be a terrible retirement mistake. Consider this: According to the folks at Fidelity, "an average retired couple age 65 in 2022 may need approximately $315,000 saved (after tax) to cover health care expenses in retirement." Yikes! And that doesn't even include over-the-counter medications, most dental services, and long-term care. Speaking of long-term care, most of us should learn more about and think about buying long-term care insurance. You may not need the coverage if you're wealthy and can pay for long-term care if you need it, and you may not be able to afford the coverage if you're just managing to make ends meet. But those in the middle should consider it.

ALSO READ: How to Save on Healthcare in Retirement

You should also tend to your health -- both physical and mental -- along with planning for the cost of maintaining it. The healthier you are, the less you may have to spend on healthcare over the rest of your life, so aim to eat nutritious foods and exercise regularly while seeing your doctor regularly. Don't ignore your mental health, either. Many retirees are surprised to find themselves bored or even depressed in retirement, when they no longer have structured days filled with frequent interaction with others. Plan to be socially active in retirement.

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If you find yourself being pitched an opportunity to buy into a time-share vacation property, do a lot of reading up on them and their downsides before making a decision. There may be some upsides that you like, but understand that they do typically come with annual fees (which may well increase over time) and they can be hard to sell.

A comfortable retirement is one where you have sufficient income rolling in to keep you afloat for the rest of your days. Some of it may come from Social Security and possibly even a pension, but take time to figure out how much income you'll need and how you'll get it. Buying a fixed annuity can be a good option, delivering rather dependable income regularly. A reverse mortgage is also a good move for some, but not all -- it's essentially a loan that provides income while you live in your house, but the house may need to be sold to pay off the loan in the future.

ALSO READ: 5 Unexpected Sources of Retirement Income

A big danger in retirement is running out of money before you run out of breath. Be sure to have a well-thought-out withdrawal strategy in place when you retire. Many people look to the famous 4% rule for guidance, but it has some big drawbacks and won't serve everyone equally well. Whatever your withdrawal strategy is, be sure to reevaluate it every few years in retirement, to make sure it still looks like you're not drawing down your savings too quickly. You might even find that you're drawing down too slowly and are on track to leave a lot of money behind. That can be great for your heirs, but if you've been depriving yourself of some pleasures, you might loosen those purse strings a bit.

ALSO READ: 5 Retirement Withdrawal Strategies: How to Withdraw Funds

Relocating in retirement can be a powerful money-saving move. You might stay in your same area and simply downsize to a smaller home, in order to pay less for insurance, taxes, mortgage payments, maintenance, utilities, and so on. Or you might move to an area with a lower cost of living. (Some even move to countries with lower costs of living.) But consider all angles, beyond financial ones, before moving. Will you be moving away from a valuable social network? From your children and grandchildren? Will they be likely to visit you?

This retirement blunder is an all-season one -- it can be made by those in, near, or still far from retirement: investing ineffectively. There are many ways to invest ineffectively, such as putting off investing in the first place, chasing high-flying and overvalued stocks, loading up on risky penny stocks, investing on margin with borrowed money, paying high fees, dabbling in complicated securities that you don't understand, being impatient, and many more. Learn about as many of these mistakes as you can, to avoid making them.

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As we approach retirement, it can make sense to add some or more bonds to our portfolio, for diversification's sake. But that doesn't mean selling out of stocks entirely. Think about it: If you retire at 65, you may live another 30 years or more. Surely some portion of your portfolio might remain invested in stocks, so that it can have a good chance of growing more briskly for, say, 10 or 20 years.

It's good to go through life as an optimist, but investors need to accept that market downturns -- corrections and crashes -- will happen occasionally. Thus, only keep money in stocks that you won't need for at least five, if not 10, years. You don't want to be counting on withdrawing, say, 3% of your portfolio, only to have your needed withdrawal being 5% of your portfolio. Indeed, a big market downturn right before you retire might be hazardous to your wealth -- think it through and see if working for another year or two might help. At a minimum, as you plan, hope for a best-case scenario and prepare for a worst-case one.

Social Security is likely to be providing critical income to us in our retirements, so it's vital to make smart Social Security decisions, such as deciding when to start collecting our benefits. We can start as early as age 62 and as late as age 70, and the earlier we start, the smaller our benefits will be -- and vice versa. Remember, though, that if you start early with smaller checks, you'll still receive many more of those checks than someone who waits for bigger checks.

ALSO READ: Everything You Need to Know About Social Security Benefits

As we get older, we need to be on our guard, in order to spot and not fall for scams. Many older people tend to be more trusting than younger people, and they're vulnerable to scams -- which is why many scammers target the elderly. Scams come in a wide variety of forms -- relating to taxes, Social Security, banking, and more. Train yourself to be skeptical and don't rush to respond to a phone call or email that's designed to scare you and possibly rob you.

ALSO READ: How to Avoid Social Security Scams

Finally, don't ignore estate planning. Dying without a will -- and, for some people, without a trust and other arrangements -- can leave your loved ones with headaches and possibly many unnecessary expenses, too. A few hours spent with a good lawyer can have you set up with a will, a living will, power of attorney, advance healthcare directive, and perhaps a living trust as well. Consult with a professional or two to see exactly what you need -- and get it all taken care of. Even if you're still in your 20s or 30s, it's smart to have most of these documents, just in case you're temporarily or permanently unable to manage your affairs. Remember that the unexpected does happen, even to young people.

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The bottom line here is that it's smart to get yourself a retirement plan and execute it well -- which will likely involve regularly investing long-term dollars in the stock market in order to build up a nest egg sufficient to support you in your later years. Avoiding all these mistakes can help you make savvy moves that can position you for a comfortable future.

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