The 7 biggest money mistakes people make before they retire (2024)

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They invest in variable annuities.

"Annuities are set to create a cash flow in retirement," Hall said. "A variable one is one that can invest in the market."

An annuity is an investment that gives you a monthly payout after a period of time, sort of like funding your own pension. Deferred annuities — the most common type — have a set payout amount on maturity.

Hall pointed out two problems with variable annuities: They are vulnerable to market fluctuations and they have high internal expenses. Fees as high as 3% can eat away at your retirement savings.

That's the reason Hall put variable annuities on the top of his list of money mistakes before retirement.

"You're giving away 3% a year, almost," he said. "When you start to compound it, it becomes a pretty massive differentiator."

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They pay off low-interest debt — such as a mortgage — too quickly.

The idea of being completely debt-free is alluring, especially if you're approaching retirement. It's particularly tempting to get rid of what is likely your biggest monthly debt payment — your mortgage.

"Debt isn't always a negative thing," Hall said. "Individuals get so concentrated on paying off low-interest debt. Sometimes people pay off debt quicker than they need to."

He noted that the stress you feel from holding debt is an important consideration. But with historically low mortgage interest rates in recent years, you might be able to earn more by investing the extra money you're putting toward paying off your mortgage early.

"It's time in the market, not timing the market," Hall said. "The longer you can give your money to work for you, the greater the probability you'll have some success with it."

In other words, don't pay off your mortgage — or another low-interest debt — first and invest later. Invest now and pay the debt more slowly.

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They take their Social Security benefits too early.

If you are close to retirement now, the age at which you can get 100% of your Social Security benefits is 66. That will go up to 67 for people born in 1960 or later. If you defer taking benefits after you reach full retirement age, your benefits continue to increase by 8% per year until you hit age 70.

"That's a substantial increase," Hall said, adding that an 8% annual return is better than you would probably get from the stock market.

Deciding when to take benefits is a balancing act. If you delay, you give up years of extra income, but you also increase your income in later years. The benefits of delaying until 70 outweigh the costs if you live past 82, according to Hall.

"The hard thing about making the right decision is that you're not always guaranteed to be correct," he said.

After all, the one thing most of us can't know is how long we will live.

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They endanger their retirement by helping other family members financially.

Hall doesn't want to discourage parents from helping their children afford college or make a down payment on a house. But he wants them to understand the consequences of their actions on their own lives and specifically their retirement.

"People need to recognize what the total impact is," he said. "You have to understand the trade-off."

He suggests thinking 20 years out before you give a chunk of money to a family member. If you do, you might decide to let your child take out a few more student loans, rather than hurting your chances for an easeful retirement.

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They don't have emergency savings.

A recent study by the Federal Reserve Board found that 40% of US households wouldn't have enough money for monthly expenses if they had to cover an unexpected expense of $400 or more. That's better than 2013, when the figure was 50%, but it's still high.

Instead, many people turn to 401(k) loans. While Hall acknowledged that there are some scenarios where a 401(k) loan makes sense — such as paying off high-interest credit cards — it's not a good idea to dip into your retirement for emergencies. In the worst-case scenario, if you lose your job you could be forced to pay the loan back or take the money as an early withdrawal. If you do, you'll have to pay hefty penalties and taxes.

Hall said that he sees a lot of 401(k) loans taken out of the balance rather than being repaid. To avoid that, make sure you maintain emergency savings.

"Those who are able to establish an emergency fund and maintain it are able to ride those life moments when something pops up that you're not expecting," Hall said.

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They take on additional debt without considering how it will affect their cash flow in retirement.

"A lot of baby boomers really valued having large homes," Hall said. "Millennials like smaller homes. In some cities, large homes are sitting on the market with no one to buy them."

Buying too much home and not getting enough market value back out of it as a risk for people who are near retirement. In addition, Hall noted that big houses cost more to maintain, which can be a strain on a fixed retirement income.