By Walter Updegrave
April 7, 2015

We tend to think the mistakes that derail retirement are the ones that are inflicted on us: an investment that implodes; an adviser who dupes us; a market crash that decimates our nest egg. In fact, the costliest errors are ones we make ourselves, often without realizing how much damage we’re doing. Here are four of the biggest, plus tips on how to avoid them.

Mistake #1: Stinting on saving. Asked by researchers for TIAA-Cref’s Ready-to-Retire survey what they could have done differently to better prepare for retirement, nearly half of the near-retirees polled said they wished they’d saved more. Good answer. Because over the course of a career, failing to push yourself to save can cost you big time.

To see just how much, let’s take the case of a 25-year-old who earns $40,000 a year, gets 2% annual raises and contributes 10% of salary to a 401(k) or similar plan each year—a good effort, but hardly Herculean. Assuming our hypothetical 25-year-old folows that regimen over a 40-year career and his investments earn 7% a year before fees of 1.5% a year for a 5.5% net return, he would end up with a nest egg of just under $740,000.

That’s a tidy sum to be sure. But look how much more he could have with a more diligent savings effort. By stashing away just two additional percentage points of pay each year—12% vs. 10%—his nest egg at retirement would total just under $890,000. That’s an extra $150,000. And if he can pushes himself to save 15%—the target recommended by many pros—he would be sitting on a nest egg of roughly $1.1 million, fully $360,000 more than its value with a 10% savings rate.

Of course, some people are so squeezed financially that they simply can’t save more than they already are, or for that matter save at all. But unless you’re one them, then you may be effectively giving up hundreds of thousands of dollars in future retirement spending by not pushing yourself to be a more committed saver. To avoid that, look for as many ways as you can to save at least 15% of your income consistently.

Mistake #2. Getting a late start. Call this mistake “the price of procrastination.” It’s the potential savings balance you give up by failing to get going early with your savings regimen. To put a dollar figure on this error, let’s assume that our fictive Millennial above takes the advice of retirement pros, saves 15% a year, earns 5.5% after expenses annually on his savings and ends up with that $1.1 million nest egg at 65.

But look how much that nest egg shrinks if he postpones his savings regimen. For example, if he puts off contributing to his 401(k) for five years until he hits age 30, his age-65 nest egg would total about $875,000 instead of $1.1 million. So procrastination cost him $225,000. If he waits 10 years to age 35 to begin saving for retirement, his nest egg would weigh in at roughly $680,000, putting the cost of a late start at $420,000.

The way to avoid or at least cut the cost of procrastination is to start your savings regimen as soon as possible—and do your best to maintain that regimen despite the inevitable ups and downs you’ll experience during your career.

Mistake #3. Overpaying for investments. Many investors are simply unaware of how much high costs can dramatically reduce a nest egg’s growth. Consider: By getting an early start and saving 15% of income a year, the 25-year-old builds a $1.1 million nest egg. But that assumes he earns 7% a year before investing costs, and 5.5% a year net after annual expenses. If he cuts his annual expenses by half a percentage point to 1% a year, his nest egg would total just over $1.2 million at retirement. And if manages to whittle investing costs down to 0.5% a year, he’s looking at an eventual nest egg of $1.4 million. In short, higher-cost investing options are effectively costing him as much as $300,000 in potential retirement savings.

Granted, your potential savings from cutting costs may be limited if you do most of your savings through a 401(k) that’s short on investment options. Still, you can at least reduce the cost of this mistake by sticking as much as possible to inexpensive index funds and ETFs (some of which charge as little as 0.05% a year) in your 401(k), IRAs and taxable accounts.

Mistake #4. Grabbing Social Security without a plan. Many people put more thought into which breakfast special to order at Denny’s than when to claim their Social Security benefits. That’s a shame, because taking the money at age 62 (still the most popular age for claiming, according to a recent GAO study) or shortly thereafter can cost you tens or even hundreds of thousands of dollars. Each year you postpone claiming benefits between age 62 and 70, your payment rises roughly 7% to 8%, which can significantly increase the total amount you collect throughout a long retirement. Married couples have the biggest opportunity to boost their potential lifetime benefit by coordinating when they claim.

For example, if a 62-year-old man and his 59-year-old wife earning $75,000 and $50,000 respectively each take benefits at 62, they stand to collect just over $1 million in joint benefits, according to estimates by Financial Engines’ Social Security calculator. But if the wife takes the benefit based on her earnings at age 63, her husband files at age 66 for spousal benefits based on his wife’s work record and then switches to his own benefit at age 70, their projected lifetime benefit jumps to roughly $1,250,000. Or to put it another way, by taking benefits as soon as possible, this couple may be giving up $250,000 in lifetime benefits.

The potential increase for singles isn’t quite as impressive, as the benefit for only one person rather than two is at stake. But the upshot is the same: Whether you’re single or married, taking benefits without a well-thought-out plan can be a costly error. And, as with the other mistakes above, it’s one you can likely minimize or avoid with a little advance planning.

Walter Updegrave is the editor of If you have a question on retirement or investing that you would like Walter to answer online, send it to him at [email protected].

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