Common Mistakes People Make With Their Retirement Money

Avoid These Pitfalls to Safeguard Your Retirement Future

Whether you're approaching retirement age or you've just landed your first job, money you set aside for your senior years should be invested wisely. While investing is an important tool in building retirement wealth, gambling on risky investments or paying unnecessary fees and costs can derail your retirement or at least make it less comfortable than it could be. 

Whether you're in your 60s or your 20s, avoid these common retirement investing mistakes.

01 of 07

Investing in Things You Don't Know About

Senior woman raising hand in seminar

Steer clear of new, unfamiliar investment schemes. This includes that free seminar with a dinner thrown in, which could be an attempt to bring you in on a fraud or Ponzi scheme. Don't trust anyone who tries to pressure you into handing over your retirement money. Any reputable financial adviser understands hesitancy and reluctance. 

Take the time to learn as much as you can first, then invest in new areas in small steps with just a little money at a time. 

02 of 07

Betting on Stocks

A retired couple discuss purchasing stocks with their retirement funds

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Don't invest a large portion of your valuable retirement holdings in a stock that's touted as a can't-miss opportunity or the next big thing. It's too easy to lose your shirt and your retirement future or to not realize the full potential of your investment dollars by putting it in an unproven company. More people would be billionaires if beating the market were that easy. 

Investment isn't just about guessing on the future value of a company. Investing is a process, and that process has a name: asset allocation. As exciting as the thought of big gains can be, think of putting the bulk of your retirement money into an unproven company as the equivalent of going to Las Vegas and betting your retirement money on red or black. Yes, you could win big, but the odds are not in your favor.

If you love the thrill of gambling in the stock market, do it with small amounts of money you can afford to lose, not with the bulk of your retirement funds.

03 of 07

Neglecting to Take Full Advantage of Your Employer's Savings Plan

A young woman at her first job out of high school learns about her 401(k) benefit

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That 401(k) your employer offers is made up at least partially of "free" money. Putting money into a retirement account might seem tame to your way of thinking, particularly if you prefer playing the market and think you can earn more on your own. But consider all you'd be giving up.

Contributions to your 401(k) are a tax-free way to invest in your future. That's not the case if you take a portion of your after-tax income and invest in stocks. Yes, you'll be taxed when you take distributions from your 401(k) down the road, but presumably you'll be in a lower tax bracket then.

It's especially foolhardy to ignore the potential of a 401(k) if your employer is matching your contributions. Those contributions are the equivalent of income.


Passing up employer contributions to your retirement account is like telling your boss you'll work for less money.

There are limits to how much you can contribute to a 401(k) each year, so you do have room to invest in other opportunities.

04 of 07

Making Risky Loans With Too Much of Your Net Worth

A meeting at a startup company to discuss private loan options

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Private loans can pay 10% or more, but they also come with serious risk. Don't put all your retirement money into one strategy if you're going to venture into this volatile field. The borrower could go bankrupt, and you could lose your hard-earned retirement dollars. 

Many types of investments offer high yields. Private loans are just one of them. Diversify if you're going to go with a high-yield strategy. Risky investments should compose only small portions of your retirement money, and you should be sure you understand your risk tolerance.

By the same token, don't overload on safe investments, either. "Safe" can translate to "risky" over the long haul because safe investments typically don't earn as much. You could end up shortchanging yourself if you lean too far in this direction as well. For example, if inflation completely eats away at your interest-rate return, it's not a good investment.

05 of 07

Putting Too Much Money Into Real Estate Deals

A couple meet with a real estate agent to discuss purchasing property for investment purposes

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Some real estate deals promise high-percentage returns, but they're not a liquid asset. If a real estate project goes south, you can do little but ride it out until the property hopefully sells and you get some money back. You could end up with almost no income and an asset that remains frozen until the real estate market recovers or the land is sold or developed.

Real estate can be a good addition to a retirement portfolio, but it's important to consider your risk assessment when it comes to an investment in which you have so little control. Consider investing in a real estate investment trust or purchasing an investment property with a modest operating account that can be used to take care of problems when they arise.

06 of 07

Overlooking Fees and Costs

A middle-aged couple discusses fees on their retirement accounts while looking at a computer and paperwork

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The fees and costs associated with maintaining your investments might not seem like such a big deal when you're in your 30s, especially if they're just a minuscule percentage. But they can really add up over the course of three or four decades. Compare fees at the beginning and keep an eye on them as your investments grow.

Depending on your investment vehicle, it might make sense to change plans if your fees and costs skyrocket or if you realize they're higher than you thought. It's always better to have a firm idea of costs right out of the starting gate. 


That 1% fee will be a lot more in terms of dollars and cents several years from now, particularly when you consider interest and dividends compounding on a lesser balance. 

Brokerages don't always advertise their fees, so be careful. You might have to ask repeatedly to get the answers you need, but your persistence can actually save you tens of thousands of dollars down the road. 

07 of 07

Being Unrealistic About Your Financial Needs

A senior retired couple enjoys time at home together

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People frequently err when it comes to guesstimating how much they'll need annually in retirement. Underestimating isn't always the problem; many folks think they'll need more than they actually will.

You might be just making ends meet on $4,200 a month now, but odds are that you won't need that much once you retire. Look at your current budget and cross out the items you won't be spending money on when you stop working. Commuting costs and lunches on the go come to mind, not to mention the portion of your paycheck that you've been funneling to retirement savings. Moreover, you'll likely fall into a lower tax bracket. That's fewer dollars that you'll have to give to Uncle Sam. 

For many people, retirement doesn't mean not working at all. Some retirees are bored when they leave the workforce and want to continue working part time. You may not want to continue that 50- to 60-hour grind in your 70s, but you might decide to pick up a part-time job just to get out of the house for a few hours a week. Whatever income you earn means using your savings a little less. 

Having more saved than you need is always better, but for a variety of reasons you might not need as much as you think you will. 

The Bottom Line

Your retirement funds are meant to provide you with a reliable and consistent income stream to live off of once you stop working full time. Take the time now to lay out a sound investment plan and be serious about it before you invest in something new. Don't gamble with money you can't afford to lose.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. "Retirement Topics—401(k) and Profit-Sharing Plan Contribution Limits."

  2. U.S. Securities and Exchange Commission. "Assessing Your Risk Tolerance."

  3. U.S. Securities and Exchange Commission. "Updated Investor Bulletin: How Fees and Expenses Affect Your Investment Portfolio."

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