9 Common Retirement Mistakes to Avoid

1. Failing to Plan

What would you like your retirement to look like? If you don't know, you run the risk of entering retirement unprepared and missing out on the opportunity to envision a retirement you'll love. Long before you collect your last paycheck and begin a life of leisure, you need a plan for retirement.

To do:

• Sketch out some options. Where would you like to live? How will you fill your days? How long would you like to continue working?
• Map out a retirement budget. Look for adjustments you can make if you need to reduce expenses, create more income, postpone retirement or accommodate medical issues.
• Check into Social Security, pensions and other retirement benefits early and often so you aren't surprised by how much (or how little) you'll receive.

2. Waiting Too Long to Start

Retirement isn't a project you can start at the eleventh hour: It can take decades. Don't wait. Starting to plan early offers several advantages. It gives you more years to contribute to Social Security, start a profitable business, squirrel away cash or develop a second career.

To do:

• Create long-term savings goals early in life to make saving for retirement less overwhelming.
• Harness the benefits of compounding. Save and invest early so your money has the chance to double and redouble while you're working toward retirement.

3. Not Leveraging Tax Breaks

The IRS incentivizes you to save for retirement. Don't miss the opportunity to reduce your current tax bills while putting away more. As you go, don't forget to factor taxes into your post-retirement budget.

To do:

• Take advantage of retirement plans. Employer-sponsored 401(k) plans and individual IRA accounts are tax deferred: You can deduct contributions from your current-year taxes and don't have to pay taxes on your money as it grows. You will, however, pay income taxes on the money you withdraw in retirement.
• If you're over age 50, you can make tax-deductible catch-up contributions to accelerate your savings as retirement years approach.
• Worried about being in a high tax bracket in retirement? Consider contributing to a Roth IRA now. Although you don't get a deduction when you contribute, funds in a Roth IRA grow tax-free until retirement. You can withdraw your contributions any time without penalty and can start pulling money out, tax free, any time after age 59½.

4. Leaving Employer Benefits on the Table

According to the Bureau of Labor Statistics, 68% of private industry employees have access to retirement benefits from their employers, though only 51% choose to participate. If retirement benefits are part of your compensation package, don't overlook them. Employer-based contributions are a great tool for automatic savings. They can help you save on your tax bill—and can represent significant money.

To do:

• Take advantage of employer matching on 401(k) and 403(b) contributions. This is your chance to double your retirement investment on day one: It's the best return on your money out there.
• Before you submit that letter of resignation, check the status of any pension, 401(k), stock option or profit-sharing benefits you may have earned. At many firms, you must work a certain number of years before these types of benefits become fully yours. Are your funds currently vested? If not, weigh the value of staying at your job until you realize these benefits. It may be worth putting in a few more months or years to collect what's yours.
• When you do quit, don't forget to take your funds with you. You can move your retirement funds into a rollover IRA to manage yourself going forward.

5. Raiding Your Retirement Fund

If you manage to save up a significant amount of money for your retirement, you may be tempted to use your retirement money before you retire. After all, it's your money and it's just sitting there. Resist. Not only is using retirement money to finance your pre-retirement life counter-productive, it's also likely to generate a large tax bill as you pay income tax on tax-deferred withdrawals from 401(k)s or traditional IRAs, and a 10% penalty if you're under 59½ when you make your withdrawal.

To do:

• Check with your tax advisor before withdrawing any retirement funds to find out precisely how large your tax bill would be.
• Consider a personal loan or home equity loan instead of withdrawing retirement funds. You'll pay interest but will avoid taxes and can leave your nest egg intact.
• If you're planning to withdraw Roth IRA contributions to pay for your child's college education, work out a plan to repay as much as possible so you don't lose out on Roth IRA tax benefits.

6. Racking Up Debt

Minimizing debt and maintaining good credit are strategically wise, both before and after retirement. Reducing your loan and credit card balances keeps expenses down, while monitoring your credit and working to improve your credit score can help you ensure you have access to favorable rates and terms on credit if you need it.

To do:

• Pay down credit cards and other consumer debt as much as possible before you stop working.
• Use credit wisely. While it's still possible to wield a credit card after you retire, overusing your card to spend beyond your means can spell trouble.
• Look for ways to pay off large debts like your mortgage or car loan to further reduce your debt load in retirement.

7. Underestimating Medical Costs

It may be difficult to predict exactly what your medical needs will be throughout your retirement. Keep in mind potential expenses, which include premiums for insurance beyond basic Medicare, prescription costs that aren't covered by your insurance, dental and vision care, and possible long-term care if you're sick, injured or need help with daily living.

To do:

• Estimate your costs for Medicare and supplemental insurance and build these into your retirement budget. Medical care is not an optional expense.
• Consider long-term care insurance or set aside ample funds to cover long-term care in the event you need it.

8. Never Mastering Your Pre-Retirement Finances

Want a sneak peek at how well you might manage your money when you stop earning a paycheck and must live on a finite, fixed income? Look at how you're managing your finances now. If you're continually short on money, mired in debt, unable to set aside savings for retirement or even an emergency, you may need to develop skills along with your retirement savings. It's never too late to learn, and it's never too early either.

To do:

• Cultivate money management skills like budgeting and building credit.
• Figure out how to set aside money regularly toward your retirement as well as meet other savings goals like maintaining an emergency fund or saving up to buy a home. Bonus: You'll save more retirement money while you learn financial discipline.
• Get expert help wherever you can. A trusted tax or investment advisor may be worth their weight in gold.
• Optimize your financial health as retirement approaches. The better you are at understanding your financial needs, managing your income and expenses, minimizing debt, and monitoring your own financial health, the better your chances for smooth sailing once you retire.

9. Underestimating the Impact of Inflation

Whether or not inflation is dominating the headlines, it almost certainly affects your future spending power. To be successful, your retirement planning should account for rising costs and a shrinking dollar. Here's how to account for the impact of inflation:

To do:

• Study up on how to invest when inflation is high and dedicate at least part of your retirement savings to investments that have the potential to grow.
• Look for basic financial strategies that work against inflation. For example, buying a home can lock in your monthly housing cost for decades, inflation be damned. If you pay off your home loan, your expenses can be even lower in retirement.
• Don't cut it too close. Saving even a little more than you think you'll need can help you avoid running out of funds when your dollars don't go as far.

Keeping Retirement Goals Within Reach

Steering clear of common retirement mistakes can help you achieve your retirement goals and avoid some of the stress that goes along with retirement planning. It's a career-long journey with inevitable ups and downs along the way. Staying on course can help you get there faster with a little less wear.