3 Retirement Savings Mistakes That Could Really Hurt You Later

There's a reason workers are encouraged to save as well as they can for retirement. You might need the extra money once your career comes to an end.

If you earn an average paycheck, Social Security might replace about 40% of it, assuming benefits aren't cut. But you do want to have to pinch pennies in retirement after decades of hard work? Probably not, which is why pushing yourself to save well is your best bet.

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But certain retirement savings mistakes on your part could come back to bite you later on. Here are three in particular you'll want to take care to avoid.

1. Taking an early IRA or 401(k) withdrawal to deal with an unplanned expense

There may come a point when you need money in a pinch, such as to repair your car or tide yourself over when you're out of a job. You might think that raiding your IRA or 401(k) is the smartest move in that situation. But it's a decision that might cost you.

Any time you take an IRA or 401(k) plan withdrawal before turning 59 and 1/2, you risk a 10% penalty. Plus, by removing that money from your retirement account, it can no longer enjoy tax-advantaged growth.

Rather than rely on your retirement plan for sudden expenses, build yourself an emergency fund -- ideally, one with enough money to cover at least three months of essential bills in case you end up unemployed. And if you're in a pinch and don't have emergency savings, try to explore some affordable ways you can borrow money temporarily, like a home equity loan.

Of course, in a true emergency, you may have to tap your IRA or 401(k) if you don't have any other options. But it's best to do whatever you can to avoid that if possible.

2. Investing your savings too conservatively

You may be nervous to invest your money in the stock market because it can be very volatile. But if you invest your IRA or 401(k) in too conservative a manner, you risk not having enough money once your retirement starts.

Over time, the value of money tends to erode due to inflation. So it's important to invest your savings in a way that will beat inflation rather than fall behind.

A bond portfolio or CD ladder through the years may not outpace inflation, leaving you with inadequate savings. So even if the stock market falls outside your comfort zone, it's important to push yourself.

You can mitigate the risks of owning stocks, however, by doing a good job of diversifying. That could mean buying stocks across different market sectors or putting money into an S&P 500 or total stock market index fund.

3. Not diversifying your retirement accounts

Just as it's important to diversify your investments, it's also important to diversify your retirement accounts. In other words, don't keep your entire nest egg in the same IRA or 401(k).

The reason? You may end up wanting to retire early, and tapping a traditional IRA or 401(k) too soon could leave you on the hook for a costly penalty. So it's a good idea to keep a portion of your long-term savings in a taxable brokerage account.

Meanwhile, a traditional IRA or 401(k) might give you a tax break up front, but withdrawals are taxed in retirement and subject to required minimum distributions. If you're able to branch out into a Roth account, it helps diversify your retirement income from a tax perspective.

If you earn too much money to fund a Roth IRA directly, you can plan to do a Roth conversion in a year when your income is lower than usual. And if your company's 401(k) plan has a Roth option, you may want to use it for at least some of your money.

Saving diligently for retirement could set you up with a nice amount of money to live on later in life. But try your best to avoid these mistakes, as they could leave you with less savings or savings that are hard for you to access when you need to.

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