7 Retirement Savings Pitfalls to Avoid

Retirement feels distant until it is not. Because retirement savings benefit so much from time, little pitfalls made early or ignored for years can have a large effect later. The good news is that most of the common pitfalls are effortless to fix once you spot them.

Here are seven pitfalls to watch for, along with effortless methods to correct course. This is general education, so check with a licensed financial planner or tax professional for guidance on your specific situation.

1. Waiting to start

The earlier you begin, the longer your money has to grow, since returns build on earlier returns. Even little contributions in your 20s and 30s can matter. If you are already past that stage, do not give up. Starting now is better than not starting, and you can ramp up contributions over time.

2. Missing the employer match

If your employer matches contributions to a retirement plan, such as a 401(k), contribute at least enough to receive the full match. It is effectively part of your pay. Leaving it unclaimed means turning down compensation. Check your plan's rules, including any vesting schedule that determines when the employer money is fully yours.

Tip: If you cannot afford the full match now, start with 1 to 3 percent and raise it by 1 percent every few months or at each raise.

3. Saving too little and not increasing it

Many planners suggest saving around 10 to 15 percent of income toward retirement, including any employer contribution, though the right amount depends on your age, goals, and other savings. Review your rate annually and increase it with raises. Many plans offer automatic escalation, which handles this for you.

4. Cashing out when changing jobs

Withdrawing your balance when you leave a job may trigger income taxes and often an early withdrawal penalty if you are under 59 and a half. It also removes years of future growth. Consider rolling the money into your new employer's plan or an individual retirement account instead.

5. Investing too conservatively or too aggressively

Keeping everything in cash may lose ground to inflation over decades. On the other hand, putting everything in a single stock or a risky bet can lead to large losses. A diversified mix that fits your age and comfort with risk is the typical approach. Many plans offer target-date funds, which adjust the mix over time, but check their fees and make sure they match your timeline.

6. Ignoring fees

Fund expense ratios and account fees quietly reduce returns every year. A fee difference of 1 percentage point can add up to a large sum over decades. Look at the expense ratios of your investments and compare them with similar inexpensive options.

• Check the expense ratio listed for each fund.
• Ask what fees your plan administrator charges.
• Be cautious of products with high commissions or complicated terms.

7. Borrowing from your retirement

Plan loans and early withdrawals may seem like effortless money, but they carry risks. Borrowed money is not growing in the market, and leaving your job can make a loan due quickly. Early withdrawals can trigger taxes and penalties. Treat retirement accounts as the last resort and build an emergency fund first.

Do not forget the basics

Update your beneficiaries after major life events like marriage or a new child. Learn your expected Social Security benefits through the official government website, and remember that benefits alone usually do not cover all expenses.

What if you are starting late?

If you are in your 40s, 50s, or beyond with little saved, you still have options. Raise your savings rate as much as you can sustain, take advantage of catch-up contributions available to older savers in many plans, and consider working a few extra years, which both adds savings and shortens the period you need to fund. Delaying Social Security claiming can increase monthly benefits. Meeting with a fee-only planner for a one-time review can be a worthwhile investment at this stage.

Speedy start checklist

• Find out whether your employer offers a match.
• Set an automatic contribution and a yearly increase.
• Review your investment choices and fees.
• Confirm your beneficiaries.
• Build an emergency fund so you are not tempted to tap retirement money.

Retirement planning is a long game. Check in once a year, adjust as your life changes, and consider a fiduciary financial planner if you want personalized guidance.