3 Retirement Savings Mistakes You Might Kick Yourself For

Saving for retirement is one of the most important financial moves you might make. Once you stop working, you'll need a way to pay your bills. And Social Security alone won't cut it.

If you earn an average paycheck, you can expect Social Security to replace about 40% of it. Most people need more income than that in retirement, though, which is why saving on your own is so important.

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But there are certain mistakes you risk making in the course of building your nest egg. Here are three you should aim to avoid at all costs.

1. Overlooking the benefits of a Roth account

When it comes to building a retirement nest egg, you have a choice. You could put money into a traditional IRA or 401(k) for the immediate tax break on your contributions. Or you could give up that tax break and save in a Roth IRA or 401(k) instead.

You may be inclined to forgo a Roth so you can make your contributions tax-free. But remember, with a Roth retirement account, not only do you get to enjoy tax-free withdrawals in retirement, but gains in your accounts are also completely tax-free.

Imagine that through savvy investing, you manage to turn $50,000 in Roth IRA contributions into $500,000 over time. In that case, you'll get to walk away with a $450,000 gain without owing the IRS a dime.

With a traditional retirement plan, you'll not only pay taxes on gains eventually, but you'll also be forced to take required minimum distributions (RMDs) down the line. Those could leave you paying extra taxes in retirement and become a huge source of stress.

Imagine being in a position where you have to take a $5,000 RMD but don't need the money. Ignore your RMD, and you could be looking at a $1,250 penalty. Take your RMD, and you'll pay taxes on that sum. It's a lose-lose.

Roth accounts don't come with RMDs. If you want more flexibility down the line, then it could pay to choose one.

2. Not branching out enough

So you found a killer stock for your IRA -- one that's been producing fantastic returns and seems unstoppable. Tempting as it may be to keep loading up on that stock, you should recognize that going all-in on a single company is a recipe for disaster.

One of the most important things you can do as a retirement investor is diversify your portfolio. That way, if a specific stock you own loses value, it won't necessarily take your entire portfolio down in the process.

A good way to diversify within an IRA is to load up on stocks across a range of market segments. Employer-sponsored 401(k)s don't typically let you hold stocks individually. But you can diversify nicely by investing in shares of an S&P 500 index fund.

3. Not paying close enough attention to fees

If you have a 401(k), you're typically limited to different funds, which can make investing a challenge. That's because you don't get complete control over the assets you're putting your money into.

You may be inclined to throw your money into a target date or mutual fund and see where that takes you. But that could leave you paying hefty fees that eat away at your returns over time.

A better bet? Aim to stick to low-cost index funds.

Index funds, by nature, are passively managed. They simply aim to match the performance of the benchmarks they're tied to.

It's also important to see what administrative fees you're being charged to participate in your employer's 401(k). If they're expensive, and you're not getting a workplace match, then it may not make sense to keep your savings in that plan when you could potentially open a lower-cost IRA instead.

It's a great thing to save for retirement, but it's important to do so strategically. Aim to avoid these mistakes so you can approach retirement with no regrets.

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