What are The 4 Most Common Money Mistakes for Pre-Retirees?

Nearing retirement, your thoughts start to drift farther and farther away from the job at hand and closer to what you’ll be able to do in all that free time - catch up on some reading, enjoy an afternoon on the back nine or travel the world with your spouse. But as you get closer and closer to your retirement party, it’s important to stop and assess your readiness for retirement. We’ve rounded up the four most common mistakes soon-to-be retirees make regarding their money, so you can prepare now to make your transition into retirement a bit smoother.

Mistake #1: Neglecting To Calculate How Much You Need for Retirement

Interestingly enough, in a 2024 Retirement Confidence Survey, 74% of retirees said they were feeling confident that they’ll have enough to live a comfortable retirement, yet only half have actually attempted to calculate how much money they’ll need in retirement.¹

The first (and one of the biggest) money mistakes any pre-retiree can make is not heading into retirement with a plan. Understanding how much you really need to retire before you reach retirement can give you time to adjust your savings strategies or portfolio allocations. Additionally, it can help you understand if your retirement expectations are going to be realistic or not.

Simply put, if you don’t understand how much you should have to retire comfortably, you won’t know if you’re on track.

Mistake #2: Waiting To Start Saving

Once you’ve created your retirement plan and discovered how much you need for retirement, it may become clearer as to why you shouldn’t delay the savings process. And while putting away a couple thousand now might feel hard to do, it’s important to remember that due to the principle of compound interest, your couple thousand now could potentially turn into tens of thousands in retirement (depending how the markets perform, what you invest your money in, and how many years away you are from retirement). The best way to make this happen? Time. Give your money the years (or decades) it needs to collect interest and grow into what you’ll need in retirement.

Mistake #3: Underestimating Healthcare Long-Term Care Costs

Those between the ages of 65 and 74 spend an average of $5,956 in healthcare costs annually, not including any type of long-term care.² Whether that sounds like a lot to you or not, the number can certainly add up over time and eat into your retirement savings, especially if an unexpected injury or illness occurs.

One way to help with the costs of healthcare is to understand your Medicare coverage and supplemental plan options. For every full 12-month period that you wait to sign up for Medicare upon becoming eligible, you face a 10% penalty that gets added on to the standard premium. This penalty on the premium will have to be paid every year that you choose to use Medicare.³

Mistake #4: Underutilizing Tax-Advantaged Accounts

Never underestimate the impact taxes can have on your income now and through retirement. Both traditional and Roth IRA and 401(k) options can provide tax-advantaged opportunities that can make a difference in your retirement savings. Traditional retirement accounts reduce the amount of taxable income for the year they are created. For example, if your income is $60,000 but you put $4,000 into a traditional IRA, your taxable income for the year drops to $56,000. Roth IRA contributions are still taxed as part of your income for the year they’re added into the account, but then they are withdrawn from the account tax-free during retirement.

And if you haven’t heard, the IRS raised the contribution maximum for employer-sponsored retirement accounts in 2024 from $22,500 to $23,000 a year and IRA contributions from $6,000 to $6,500 a year for individuals under 50.⁴ That makes now an opportune time to begin catching up on your retirement plan contributions if you’ve found yourself falling behind in recent years.

Preparing for retirement can bring about a mix of emotions - excitement to leave the workforce and anxiety about affording your ideal standard of living, just to name a few. Putting in the work now to help avoid common retirement pitfalls could mean creating more peace of mind as you and your spouse look forward to enjoying your years of freedom ahead.