Planning for retirement is one of the most important financial steps you’ll take in your lifetime. Yet, even high-income tech earners and financially savvy individuals can make costly missteps that derail their long-term goals. At Palmer Financial Wellness, we see these mistakes all too often—and we’re here to help you avoid them. Here are eight common retirement planning mistakes and what you can do to stay on track.
1. Directing 100% of Your Retirement Savings into a 401(k)
A 401(k) is a fantastic retirement savings tool, but it shouldn’t be your only one. Relying solely on a 401(k) limits flexibility and can lead to hefty tax bills in retirement when you start taking required minimum distributions (RMDs).
How to Avoid It:
- Diversify your retirement savings by contributing to Roth IRAs, taxable brokerage accounts, or even real estate investments.
- Take advantage of employer 401(k) matching but consider allocating additional savings to other tax-efficient vehicles, such as cash value life insurance.
- Work with a financial professional to create a tax-diversified retirement strategy.
2. Not Taking the Full Employer Match on Their 401(k)
Many employees fail to contribute enough to their 401(k) to receive the full employer match, leaving free money on the table. This can significantly impact long-term retirement savings.
How to Avoid It:
- Contribute at least enough to get the full employer match—it’s essentially free money for your retirement.
- Review your plan’s matching formula and adjust your contributions accordingly.
- If you’re unsure how much to contribute, work with a financial professional to create a savings strategy that maximizes employer benefits.
3. Not Keeping 3-6 Months of Liquid Savings
Many people focus so much on long-term investing that they forget the importance of an emergency fund. Without liquid savings, you might be forced to withdraw from retirement accounts early, incurring penalties and taxes.
How to Avoid It:
- Maintain a separate emergency fund with 3-6 months’ worth of living expenses (i.e., your personal burn rate) in a high-yield savings account. Think of this as your personal runway, in case of a revenue interruption.
- Avoid using credit cards or borrowing from your retirement accounts when unexpected expenses arise.
- Replenish your emergency fund whenever you dip into it.
4. Not Utilizing the Triple Tax Advantages of a Health Savings Account (HSA)
An HSA is one of the most underutilized retirement planning tools. Many people use their HSA only for current medical expenses instead of leveraging its long-term benefits.
How to Avoid It:
- If you have a high-deductible health plan (HDHP), contribute to an HSA and invest the funds for long-term growth. You don’t have to use this money to pay for medical expenses you incur now. If you’d rather keep the funds in your HSA, you can use the post-tax dollars in your checking account instead.
- Remember: HSAs offer triple tax advantages—tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses…at any point in the future, including retirement!
- Consider saving HSA funds for healthcare expenses in retirement instead of spending them now.
5. Earning a High Income but Not Keeping It on Your Financial Balance Sheet
Earning a substantial income doesn’t automatically translate to financial security. Many high earners fall into the trap of lifestyle inflation—spending more as they make more—without building lasting wealth.
How to Avoid It:
- Track your net worth, not just your income.
- Set financial goals that include asset growth, not just salary increases.
- Invest surplus income into diversified assets that generate long-term wealth.
6. Waiting Too Long to Start Saving for Retirement
One of the biggest financial regrets people have is not starting their retirement savings earlier. The longer you wait, the harder it is to catch up, thanks to the power of compound interest.
How to Avoid It:
- Start saving as early as possible, even if it’s just a small percentage of your income.
- Take advantage of employer-sponsored retirement plans and individual retirement accounts (IRAs).
- Increase your contributions as your income grows to stay ahead of inflation and maximize growth.
7. Not Moving Discretionary Spending Funds Out of Your Default Checking (i.e., Operating) Account
It’s easy to let extra cash accumulate in a standard checking where it earns no interest. Even worse, you’ll spend those discretionary funds on “lifestyle creep” without even realizing it. However, money sitting idle isn’t working for you.
How to Avoid It:
- Regularly transfer excess cash into investment accounts, high-yield savings accounts, or other interest-bearing assets.
- Automate transfers into your retirement or brokerage accounts to ensure consistent investing.
- Keep only what you need for short-term expenses in your checking account and put the rest to work.
8. Going at It Alone Without the Assistance of a Financial Professional
Retirement planning can be complex, and DIY strategies often leave gaps in your financial plan. Without expert guidance, you might miss opportunities for tax efficiency, investment optimization, or estate planning.
How to Avoid It:
- Work with a financial professional who understands your unique financial situation and long-term goals.
- Regularly review your retirement plan to ensure it aligns with changing tax laws and market conditions.
- Leverage financial planning software or professional advice to stress-test your retirement strategy.
Final Thoughts
Retirement planning is about more than just saving money—it’s about making strategic decisions to ensure financial security and flexibility in your later years. By avoiding these common mistakes and taking a proactive approach, you can set yourself up for a stress-free and financially sound retirement.
At Palmer Financial Wellness, we help professionals and entrepreneurs create customized retirement strategies that align with their goals. If you want expert guidance on securing your financial future, let’s talk!