2022-12_The Top 5 Financial Mistakes I See Pre-Retirees Make

The Top 5 Financial Mistakes I See Pre-Retirees Make

Dr. Nicholas E. Michels, CFP®

During tough economic times, savings can often be a line item that is sacrificed. But it is more important now than ever to make saving a priority, especially for retirement. 

In 2023 the contribution limits are increasing for most types of retirement accounts, meaning your savings will also increase!

Not saving enough is just one mistake people make in the years leading up to retirement. Here are the top 5 mistakes I often see pre-retirees make when it comes to saving up for retirement. 

1. Not Saving Early Enough

There’s a reason you hear a lot about compound interest—it’s powerful! As you build your savings, the interest you gain earns more interest the longer the money sits there. Therefore, the earlier you start saving, the longer time horizon you have for your savings to compound. A common mistake that pre-retirees make is starting their savings journey much later than they should have. Even if it is just small amounts of money saved early on, the compounding effect will be worth it in the long run. 

For example, if you start saving $400 per month at age 25, you would have $1 million saved by age 65 (assuming a 7% annual investment return). If you don’t start until age 35, you’ll have to save around twice as much to reach $1 million by age 65.

2. Using Retirement Funds to Pay for College

This is a common mistake that pre-retirees make early on, thinking that they will be able to make up for the money taken out of their retirement accounts to pay for their children’s college costs. While it is a great goal to want to pay for your children’s college education, you have to weigh the consequences of what it could do to your retirement. 

If you deplete a good chunk of your retirement funds early on, you are just setting yourself up for a different type of financial strain that cannot be financed. Remember, you can always borrow for college, but you can’t borrow for retirement. If you still want to help your kids out, walk them through the process of applying for scholarships, grants, or financial aid, and encourage them to find a part-time job while they are studying. 

3. Investing Too Aggressively at or Near the Point of Retirement

Unless you’re planning to work part-time, you don’t earn a paycheck in retirement. Since you have to rely on the investments and savings you’ve accumulated during your working years, the last thing you want is the markets hurting your chances of a comfortable retirement. 

When you first start out accumulating your wealth, you have a long-time horizon, and most investors have the ability to be more aggressive when beginning to save for retirement. However, as you get closer to retirement, you want to adjust your investment allocations to be less aggressive. Nobody knows what the market is going to do, but we do know that as retirement approaches, you cannot afford a downturn in the market.

4. Not Having a Withdrawal Strategy

How much will you take the first year of retirement? Figuring that out can be a challenge. The general guideline has been a suggested withdrawal of 4%, however, with financial experts predicting lower rates of return on some investments, that figure has been recently revised to roughly 3%. And with costs rising, that lower withdrawal amount could have a big impact on your budget. Understanding a healthy withdrawal strategy is an important component of your financial plan during retirement. It’s definitely not the time to “wing it”!

5. Not Having a Plan for Your Retirement Lifestyle

So much of retirement planning is based on numbers. Will you have enough money? How will the market affect my investments? But have you thought about what you want your life to look like once you cross that career finish line? 

Free time is a major perk of retirement, but when you go from working full-time to not working at all, it can be a shock to your system. Saying goodbye to your career, your colleagues, and your routines can cause anxiety and depression. But if you plan ahead to fill your time with activities that will fulfill you, you can avoid the negative emotions that can come with this life transition. 

Achieve a more fulfilling retirement by staying active, pursuing new hobbies, or volunteering, which has a multitude of health benefits—such as broadening your social network, keeping your mind engaged, and even lowering blood pressure.

The takeaway here is to be intentional about your time in retirement. Make a list of things you want to do, places you want to go, and people you want to spend time with, and then strategically map out the details so your goals become a reality. It’s easy to lose your identity when you say goodbye to your career, but filling your time and venturing out into new territory will help you build a new identity and give you something to look forward to.

The First Step to Avoiding Mistakes

Planning for retirement is not always a simple process. It involves a lot of decisions to be made today that can drastically impact your future self in retirement. At Michels Family Financial, we will help you do more of what you love, with the people you love. In fact, we are passionate about helping you create a better life for yourself and your family, ensuring that your money is a blessing, not a stress-ridden curse. Through a long-lasting relationship, we can design a comprehensive financial plan that helps you live out your retirement dreams. Get started today by emailing me at [email protected].

About Nick

As the founder, CERTIFIED FINANCIAL PLANNER™ professional, and National Social Security Advisor at Michels Family Financial, a financial firm founded on principles. Dr. Nicholas E. Michels spends his days helping clients find financial confidence, clarity, and results they desire. With 15 years of experience, Nick is passionate about helping others create a better life for themselves and their families, ensuring that their money is a blessing, not a stress-ridden curse. Nick prioritizes financial education, empowering his clients with the knowledge that will help them achieve financial security, peace, and happiness. Nick strives to build long-lasting relationships so he can design comprehensive financial plans that help them live out their dreams, using his proven Complete Wealth Management process.

As an accomplished basketball player, Nick became a two-time first-team All-American and Academic All-American basketball player at Dallas Baptist University and was DBU’s 2008 Male Athlete of the Year. This opened the door for him to spend many years traveling the world with Athletes in Action. Not only was this an amazing experience, but it also taught him a lot about pursuing something with passion and finding different ways to help and serve others. His athletic background helped lead him to this career because it gave him the confidence and ability to clarify needs and help his clients succeed. 

Outside of work, you can find Nick staying active and spending time with his wife, Chelsea, and their three children, Daegen, Kinsley, and Nicholas Brooks. To learn more about Nick, connect with him on LinkedIn.


All information herein has been prepared solely for information purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy. Past performance is no indication of future performance.