The Retirement Planning Mistakes That Cost People Thousands

Almost half of Americans over the age of 55 have no money saved for retirement. Even those who do often find that their savings fall short of covering basic living expenses. The problem is not always a lack of income—it’s that many people make avoidable mistakes with how they plan, save, and invest for their later years.

Retirement planning is more than setting aside money. It’s about making choices that protect your savings from unnecessary risks and costs. In this article, we’ll explore the most common mistakes that drain retirement accounts and show you how to sidestep them.

1. Waiting Too Long to Begin Saving

The single biggest advantage in retirement planning is time. When you delay starting, you lose out on years of compound growth. For example, someone who starts saving $300 a month at age 25 could end up with twice as much as someone who begins at 35, even if they save the same monthly amount.

Many people put off saving because they believe they’ll have more money later, but life’s expenses often grow rather than shrink. The earlier you start—even with smaller amounts—the less you’ll need to contribute later to reach the same goal. Setting up automatic contributions to a retirement account can help you build consistency and reduce the temptation to skip deposits.

2. Skipping Professional Advice When It’s Needed

While some people manage their retirement planning successfully on their own, many benefit from professional guidance. A financial planner can help you create a strategy based on your goals, income, and risk tolerance. They can also identify gaps you might overlook, such as estate planning or tax efficiency.

Today, some platforms offer free access to financial advisors as part of their services. For instance, you can open an IRA with SoFi and schedule a complimentary session with a financial planner to review your situation. This kind of expert input can help you avoid costly errors and stay on track.

3. Relying Too Much on Social Security

Social Security is designed to supplement retirement savings, not replace them. The average monthly benefit is around $1,900, which is not enough to cover all expenses for most people. If you depend solely on it, you could face financial stress and be forced to cut essential spending.

Your retirement income should ideally come from multiple sources, such as employer-sponsored plans, IRAs, personal savings, and investments. By diversifying your income streams, you reduce the risk of falling short and give yourself more flexibility in how you manage expenses.

4. Overlooking the Power of Tax-Advantaged Accounts

Failing to use retirement accounts that offer tax benefits can leave you with less money in the long run. Accounts like 401(k)s and IRAs allow your investments to grow tax-deferred or tax-free, depending on the type. This means more of your money stays invested and working for you.

For example, a Roth IRA allows tax-free withdrawals in retirement, while a Traditional IRA offers upfront tax deductions. Understanding the contribution limits and rules for each can help you choose the best option for your situation. These accounts also encourage disciplined saving by making early withdrawals less attractive due to penalties.

5. Neglecting to Diversify Your Investments

Putting all your retirement money into a single type of investment is risky. Markets change, and assets that perform well one year may underperform the next. Diversification spreads risk across different asset classes—such as stocks, bonds, and mutual funds—so that poor performance in one area doesn’t devastate your entire portfolio.

A balanced investment mix depends on your age, risk tolerance, and retirement timeline. Younger savers can generally take on more risk for higher potential returns, while those nearing retirement often shift toward more stable assets. Reviewing your portfolio regularly ensures it stays aligned with your goals and market conditions.

6. Losing Money Through Early Withdrawals

Withdrawing retirement savings before you reach the eligible age can be costly. In most cases, taking money out of a 401(k) or IRA before age 59½ results in a 10% penalty on top of the regular income tax you’ll owe. Even if you repay the amount later, you lose the growth that money could have generated during the time it was out of the account.

There are a few exceptions, such as certain medical expenses or first-time home purchases, but they should be used sparingly. Early withdrawals not only shrink your balance but can also affect your ability to meet long-term goals. If you face a financial emergency, consider other options like personal loans or adjusting your budget before dipping into retirement savings.

7. Letting Fees and Costs Eat Away at Returns

Investment fees can seem small, but over decades, they can significantly reduce your total retirement savings. For example, a 1% annual fee on a $200,000 portfolio could cost you tens of thousands of dollars in lost growth over 20 years.

To keep more of your returns, review the expense ratios on mutual funds and exchange-traded funds (ETFs). Consider low-cost index funds or no-commission investment options. If you’re paying for account management, make sure the service provides value in areas like portfolio planning and risk management. Checking and comparing fees regularly is a simple way to protect your earnings.

8. Failing to Adjust Plans as Life Changes

Retirement planning is not a one-time task. Over the years, your income, expenses, and investment performance will change. Major life events—such as marriage, divorce, or a job change—can affect how much you can save and how you should invest.

Reviewing your retirement plan at least once a year helps ensure your goals and strategies remain realistic. Adjust your contributions, rebalance your portfolio, and update your projections to reflect current conditions. Staying proactive means you can make smaller adjustments over time instead of facing major shortfalls later.

9. Forgetting to Prepare for Healthcare Expenses

Healthcare is often one of the largest expenses in retirement, yet many people underestimate how much it will cost. Fidelity estimates that a 65-year-old couple retiring today will need around $315,000 for medical expenses over the rest of their lives. This figure doesn’t include long-term care, which can be even more expensive.

To prepare, explore options like Health Savings Accounts (HSAs) if you’re eligible, which offer triple tax advantages. You should also understand what Medicare covers and what it doesn’t, so you can plan for supplemental insurance if needed. Having a strategy for medical costs helps protect your savings from being drained unexpectedly.

Avoiding common retirement mistakes can be as valuable as making contributions. Starting early, calculating your needs accurately, diversifying investments, and minimizing fees all help protect your savings. Just as important is adapting your plan as circumstances change and preparing for major expenses like healthcare.

Taking small, consistent steps now can add up to a stronger financial position later. Whether you work with a professional or manage your own accounts, the key is to stay informed and make deliberate choices. By avoiding these costly errors, you give yourself the best chance for a secure and comfortable retirement.