Are You Sabotaging Your Retirement? 5 Common Savings & Investment Mistakes to Avoid

In our financial planning series so far, we’ve covered the foundational steps of defining your retirement vision and then using that vision to calculate your specific retirement number. Now that you've calculated your retirement number, it's crucial to ensure your savings strategy is on track to hit it. But what if hidden roadblocks are silently undermining your best efforts? This is the third part of our series, where we’ll dive deep into the common pitfalls that can derail even the most well-intentioned retirement plan.

Many savers and investors I speak with share a nagging fear: that they are unknowingly making critical financial mistakes that will cost them dearly in the long run. It’s a valid concern. The good news is that these errors are often easy to spot and correct once you know what to look for. Let’s explore five of the most common retirement savings mistakes I see in my practice and discuss how you can steer clear of them.

Mistake #1: Ignoring Inflation's Silent Attack on Your Savings

It’s natural to feel a sense of security when you see a healthy balance in your savings account. But cash isn't as safe as it seems. The single biggest threat to money held in cash or low-yield accounts is inflation—the steady increase in the cost of goods and services over time.

I recently met with a couple in their early 50s who were incredibly diligent savers. They had accumulated a significant nest egg, but the vast majority of it was sitting in a standard savings account earning less than 2% interest. Their logic was sound on the surface: they didn't want to risk losing their hard-earned money in the stock market. However, with inflation averaging around 3% historically, their "safe" money was losing purchasing power every single year. They weren't losing dollars, but they were losing what those dollars could buy.

The Fix: Your retirement strategy must aim to outpace inflation. While you should always maintain an emergency fund in a liquid, safe account, your long-term retirement funds need to be invested in assets with the potential for higher growth, such as stocks, bonds, and real estate. This is a core principle of how to invest for retirement—your money needs to work as hard for you as you did to earn it.

Mistake #2: Playing It Too Safe (or Too Risky) for Your Age and Timeline

Asset allocation—how you divide your portfolio among different asset classes like stocks and bonds—is not a one-size-fits-all formula. One of the most significant investment mistakes to avoid is having a portfolio that is mismatched with your time horizon (how long until you need the money).

• Playing It Too Safe: A client in her early 30s once came to me with a 401(k) portfolio that was 60% in bonds and stable value funds. She was worried about market volatility and had chosen the most conservative options available. While her caution was understandable, she was sacrificing decades of potential compound growth. With over 30 years until retirement, she had ample time to weather market ups and downs and should have been positioned for more aggressive growth.

• Playing It Too Risky: On the flip side, I worked with a gentleman just five years from his planned retirement date who had nearly 90% of his portfolio in aggressive growth stocks. He had enjoyed fantastic returns during a bull market but was exposed to a catastrophic level of risk. A single market downturn could have forced him to postpone retirement indefinitely.

The Fix: Your asset allocation should evolve with you. Younger investors can generally afford to take on more risk in pursuit of higher returns. As you approach retirement, your focus should gradually shift from accumulation to preservation, meaning you slowly reduce your stock allocation in favor of more stable investments like bonds.

Mistake #3: Underestimating the Power of Compound Growth and Starting Too Late

Albert Einstein reportedly called compound interest the "eighth wonder of the world." It’s the process of earning returns not just on your original investment, but also on the accumulated returns from previous periods. Its power is almost magical, but it requires one crucial ingredient: time.

Of all the retirement planning pitfalls, waiting too long to start saving is perhaps the most damaging. Consider two hypothetical savers:

• Anna starts investing $300 a month at age 25.
• Ben waits until he’s 35 and starts investing $600 a month to catch up.

Assuming both earn an average 8% annual return, by the time they both reach age 65, Anna will have accumulated over $1 million. Ben, despite investing the same total amount of money out of his own pocket, will have just over $615,000. That decade of lost compounding cost him nearly $400,000. The lesson is clear: the best time to start investing was yesterday. The second-best time is today.

The Fix: Start now, even if it’s small. Automate your contributions from every paycheck so you aren't tempted to skip them. The consistency of your contributions and the time they have to grow are far more important than the initial amount.

Mistake #4: Letting High Fees Devour Your Hard-Earned Returns

Fees are an unavoidable part of investing, but not all fees are created equal. Many investors are unknowingly paying excessive fees in their mutual funds, ETFs, and retirement accounts. These seemingly small percentages can have an outsized, devastating impact on your long-term results.

This is one of the most common financial errors I uncover when reviewing new clients' portfolios. A client recently showed me an old IRA statement from a previous employer's plan. He was invested in several actively managed mutual funds with expense ratios nearing 1.5%. We calculated that over a 30-year period, those high fees could potentially consume nearly 30% of his total potential returns compared to similar, low-cost index fund alternatives. He was shocked.

The Fix: Become a fee detective. Review the expense ratios on all of your investments. For your 401(k), look for low-cost target-date funds or index funds. If you’re working with an advisor, understand exactly how they are compensated. A fee of 1% might sound small, but it’s a significant hurdle your investments must overcome each year just to break even.

Paving the Way for a Secure Future

Building a successful retirement plan is as much about avoiding major missteps as it is about making brilliant moves. By sidestepping these common retirement savings mistakes, you protect your hard-earned capital and clear the path for more efficient growth. Understanding the corrosive effect of inflation, aligning your risk with your timeline, harnessing the power of compounding, and minimizing fees are four of the most powerful actions you can take to secure your financial future.

Worried your portfolio might be making one of these mistakes? Book your retirement portfolio review session today.