The 7 Biggest Retirement Planning Mistakes

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Retirement readiness is near an all-time low. Just 14% of adults are very confident they will live comfortably after quitting work and 60% have less than $25,000 in savings, according to the Employee Benefits Research Institute’s most recent Retirement Confidence Survey.

Not saving enough is easily the biggest retirement planning mistake. It may be understandable, given the tough jobs picture. But if you are working you should strive to save at least 10% of every paycheck. Meanwhile, here are seven other common retirement planning mistakes to avoid:

  • Assuming you have control over when you quit Most people assume they will retire at a certain age. In fact, two in five retire earlier than planned, says Katie Libbe, head of consumer insights at Allianz Life. Why? Job loss. Illness. You can’t even be sure you’ll be able to work part-time. So it’s critical that you start saving early—while your health and career are on steady footing.

(MORE: 7 Ways to Stretch Your Nest Egg)

  • Ignoring the tax impact of distributions In retirement, the name of the game is creating tax-efficient income. It’s helpful to have several kinds of accounts; from fully taxable to tax-deferred (401(k)) to tax-free (Roth IRA). That will give you the most flexibility when drawing down assets. Avoid taking early distributions. Nearly half of workplace retirement plan participants cash out their balances when they change jobs, Libbe notes. That triggers penalties and sets back the long-term growth of their assets.
  • Not saving enough for medical costs Retiree health care plans are fading away. The average couple retiring today at age 65 will spend $285,000 in health-care costs in retirement. Even for those on Medicare, out-of-pocket expenses for people in retirement have jumped 50% the past decade. You must understand how to plan for this expense.
  • Failing to lock up lifetime income Guaranteed income pensions are fading away too. A huge challenge for today’s retirees is converting savings to a reliable income stream so that they can be sure to cover fixed expenses for life. Social Security helps. An immediate fixed annuity is a good way to shore up this need.

(MORE: The Jobless Generation)

  • Retiring too soon Staying on the job a few extra years can boost your retirement income by a third or more because it lets you avoid tapping savings right away and delay taking Social Security benefits, which increase about 8% every year you wait. Half of all Americans don’t even wait to their normal retirement age (66 for most) before collecting Social Security. If you are healthy, try to wait to age 70.
  • Underestimating longevity Some 60% of Americans live longer than they expect. At age 65, a woman can expect to live to an average of 84; the average for men is 81. But many will make it to 95 or even 100. To be safe, plan accordingly.
  • Drawing down retirement savings too rapidly If you don’t want to outlive your money, keep your annual drawdown rate to 4% of assets. At that rate, if you begin withdrawals at age 65 you should have income to age 95.

MORE: 6 Myths About Saving for Retirement