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3 Money Mistakes That Will Haunt You for Years

Retirement is a complicated subject, and nobody has all the answers. A third of adults admit to feeling overwhelmed by planning for retirement, according to a survey from the Certified Financial Planner Board of Standards, and roughly half of survey participants revealed that they're not currently doing anything to save for retirement.

Retirement planning can be overwhelming and confusing, and there's no doubt you'll make mistakes along the way. That's OK. The important thing is to learn from them before they wreak havoc on your retirement.

While some mistakes are more harmful than others, there are a few slip-ups that, if left unchecked, are nearly impossible to recover from.

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1. Putting off saving for retirement

Planning for retirement can feel like a lot of work. And when you have plenty of short-term responsibilities to worry about now, it may seem like there's no harm in putting off saving by a few years -- especially if it will be decades before you can even think about leaving your job. In truth, though, when preparing for retirement, the worst thing you can do is nothing.

While you can build a healthy nest egg in a relatively short period of time, it's incredibly difficult. You'd likely need to save thousands of dollars every month to establish a solid retirement fund in just a few years, so if you wait until your 50s or early 60s to start saving, you'll have your work cut out for you.

Even if you don't have much to save now, setting aside whatever you can is better than nothing. The earlier you start saving and the more time your money has to grow, the easier it will be to see significant gains.

For example, say you're 35 years old and can only save $100 per month right now. If you're earning a 7% annual rate of return on your investments, that $100 per month can grow into around $113,000 by age 65. However, if you put off saving until, say, age 50, you'd need to save roughly four times as much per month to have the same amount saved by that age.

2. Not establishing an emergency fund

If you're struggling to save anything for retirement, adding another financial goal may seem counterintuitive. After all, wouldn't putting money into an emergency fund simply take away money that could be put toward retirement?

However, establishing an emergency fund can actually help protect your retirement savings. With a robust emergency fund in place, if you experience a financial hardship -- whether it's suffering a job loss, buying a much-needed new car, or taking care of your child's broken arm -- that money won't need to come from your retirement savings.

Nearly a third of Americans say they have taken at least one loan from their 401(k) account, according to a report from financial services firm TIAA-CREF, and of those who have taken a loan, roughly half said it was to repay a debt. But when you use your retirement savings to pay off other expenses, it can throw off your entire retirement plan. Even if you only borrow, say, $1,000 from your retirement account, if it takes you a year to repay that amount, that's an entire year of potential gains you're missing out on. Over time, that could accumulate to thousands of dollars in potential losses.

With an emergency fund, you can still protect yourself against unexpected expenses while keeping your retirement savings untouched. Ideally, your emergency fund should have enough cash to cover three to six months' worth of expenses. Be sure to continue saving at least a little for retirement while you're building your emergency fund, then once that fund is healthy and strong, you can divert your full financial attention to your retirement account.

3. Relying too heavily on Social Security

Social Security benefits are meant to cushion your personal savings -- not be a sole source of income. The average Social Security check comes to around $1,300 per month, so if you're planning on relying on your benefits to make up for a lack of savings, you may be in for a rude awakening.

There's also a chance that Social Security could see cuts in the relatively near future. With baby boomers retiring in droves, there's more money flowing out of the system in the form of benefits than coming in as taxes from younger workers. According to the Social Security Administration's 2019 Board of Trustees report, benefits could be cut by up to around 25% by 2035 (assuming Congress doesn't step in with a potential solution before then).

So what does that mean for you? Essentially, it means you'll need to beef up your own savings so you're not entirely dependent on Social Security to make ends meet. If you put off saving because you're expecting your benefits to cover most of your expenses, by the time you reach retirement age and realize you can't live on Social Security alone, it will be too late to do much about it.

Mistakes are part of what makes us human, and it's impossible to go through life avoiding all mishaps. Even if you realize you're making a mistake that could potentially hurt your financial future, that doesn't mean your retirement dreams are crushed. As long as you correct the mistake as early as possible, you can still enjoy your golden years to the fullest.

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