6 Common Retirement Savings Mistakes to Avoid

So you say you’re already contributing to a 401(k) or some other type of retirement account? Congratulations—you’re working on making your future self very happy. That’s because the secret to retirement savings is that you can’t make up for lost time.

And if you’re making progress, you want to make sure that you’re doing retirement right … right?

Knowing just how much to save is one of the hardest financial challenges there is. You might try a calculator, or talk to a financial planner to figure out your big picture.

And, in the meantime, you should avoid any little missteps that might put a crack in your nest egg. That’s why we asked several Certified Financial Planners to pinpoint six common pitfalls they see when it comes to saving and investing for retirement, and how you might avoid them.

1. Having No Clue How Much You Need to Save for Retirement

More than half of surveyed Americans (56%) say they haven’t even attempted to calculate how much they’ll need to save in order to live comfortably in retirement, according to the 2014 Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI). But in much the same way you should have a figure in mind when you’re saving for a car or house, knowing what your long-term retirement goal is can help you figure out a savings plan to help you reach it.

Seeing such a large number may feel overwhelming, but it could also light a fire under you too. “If you see you need $2 million for retirement, that could jump-start savings,” says Kevin O’Reilly, CFP® and principal of Foothills Financial Planning in Phoenix. Just remember that you do have compound growth to help you build your investment—and the younger you are, the more time is on your side.

Online retirement calculators, like this one can help give you an idea of the total amount you may need in retirement, based on factors like how much you have saved so far and various estimated expenses. Just be honest and meticulous when entering the information, or else it’s “Garbage in, garbage out,” cautions Erika Safran, CFP® and founder of Safran Wealth Advisors in New York City.

Many retirement calculators use a replacement ratio when doing their calculations, which is simply the percentage of your current income that you think you’ll need to have for retirement. An 85% replacement ratio is a good general rule of thumb to follow, but your number could be different depending on what your individual retirement goals are.

2. Having No Clue How Much You Might Spend in Retirement

If a giant number does more to stress you out than get you saving, start smaller. Ask yourself, what might your budget in retirement look like? You probably won’t know the answer to that unless you’re currently keeping a budget. After all, if you don’t know where your money goes today, you may be even more clueless about where it could go in the future. “I think it’s a good idea even prior to retirement to keep a log of spending,” O’Reilly says. “I get people who have no idea what they’re spending on daily expenses.”

The LearnVest Money Center is one tool that can help you keep tabs on your spending because it records and categorizes your daily financial transactions. But if you’d prefer to use the old pen and paper method, write down every regular expenditure you currently have, large or small, to figure out where your take-home pay is going on a regular basis. That could be anything from dining, groceries, utilities, clothing, car maintenance and fuel, entertainment, your children’s needs, medical bills, travel, your mortgage—the more you can keep track of, the better.

Then go through that list and try to predict which of those costs might increase and decrease in retirement. For example, you may have your mortgage paid off by the time you retire, and smaller costs, like regular dry cleaning for your work suits, could shrink significantly. On the flip side, maybe you’ll travel more internationally after you’re done working, or spend more time on the golf course. The sum of these costs can help give you an idea of how much you’ll be spending in the future.

And to help make doubly sure that what you’re estimating is realistic, consider trying your future budget on for size through some real-time experimentation. “I’ve seen people test-drive their [projected retirement] budget for a while before retirement, to make sure it’s realistic,” says Joseph Hearn, vice president of Teckmeyer Financial Services in Omaha and author of the Intentional Retirement blog.

3. Underestimating the Cost of Health Care

Speaking of your retirement budget, here’s one cost where many people tend to keep their head in the sand: health care. Only 36% of Americans have thought about how much they’ll need to pay for health-related expenses throughout their retirement, according to AARP’s 2013 Health Care Costs Survey.

And why should they worry—won’t Medicare take care of those bills once they turn 65?

Not so fast. Research by Fidelity shows that a 65-year-old couple retiring in 2013 will need approximately $220,000 to cover medical bills throughout their retirement—beyond whatever Medicare pays for. Most dental care costs and eye examinations, for example, are not covered by Medicare. And most importantly, the government won’t foot the bill for long-term care—which can add up, considering the median annual cost of a private nursing home room is nearly $84,000!

To get a sense of what your future medical costs might be, try AARP ‘s Health Care Costs Calculator. It lets you plug in data such as your age, weight and information about any present health issues, and arrives at a figure for estimated out-of-pocket expenses you’ll incur after you retire. This number should be something you keep in mind as you try to determine what your total retirement costs might be.

4. Responding Rashly to Market Volatility

A Dow Jones nosedive? Escalating inflation? Recession? When the economic weather grows stormy, it may seem natural to distrust the markets and dash to the nearest safe money harbor. “The mistake people make is to convert [some of their 401(k) holdings] to cash” during a crisis, says Safran. “But cash doesn’t provide any growth.”

Indeed, O’Reilly recalls a client of his who insisted on sitting on a fortune in cash because of the 2008 crash, but missed out on the resurgence in the stock market that took place thereafter. “That particular decision has probably cost him several hundred thousand dollars,” O’Reilly says. “Many people sold their stock after the crash and guaranteed losses by never getting back in the market to enjoy the gains—they bought high and sold low.”

One of the best protections against market volatility is diversification—making sure you don’t hold all your investment eggs in one basket. “If your portfolio is already diversified, you’re probably OK,” Safran says.

5. Not Being Truly Diversified

Most people can recite with ease the three basic asset classes within a retirement portfolio: stocks, bonds, cash. But they may either ignore the need to further diversify within the stock and bond categories—or may not even realize what it means to be truly diversified beyond those basic building blocks.

Case in point: You may have stocks spanning a variety of sectors—technology, health care and financial services, for instance—but if all those are U.S.-based stocks, you’re not as diversified as you think. If you’re not sure how to allocate your portfolio, talking to a financial planner can help.

6. Keeping Fees Shrouded in Mystery

The financial institutions that handle 401(k)s for employers often charge a fee, sometimes called an expense ratio, to cover such things as administrative costs, customer service and online transactions. Some take a flat fee, while others take a percentage of a given account. Either way, how much the fee actually adds up to—as well as its very existence—often remains a puzzle to retirement savers. “Finding out what the fee is can be hard to tackle,” O’Reilly says.

The fee’s consequences, however, can have a monumental effect on your earnings—even the seemingly innocuous single percentage fees. “If you’re paying 2% or so in fees, that’s a huge chunk,” says O’Reilly. According to Department of Labor calculations, a 1% hike in a 401(k) fee can, over a 35-year period, reduce your account balance by 28%.

A general rule of thumb is to look for low-cost index funds in a retirement account, because these fees typically fall between 0.1% and 0.2%. O’Reilly believes that a fee of up to 0.5% is reasonable. He notes that the financial planning industry is making efforts to increase transparency of the charges associated with 401(k)s, but until then, you may have to dig for the fine print to figure out what you’re paying.

And if you’re not afraid to rock the boat a little, you can try broader action to make sure you’re not being gouged by these administrative costs. “Employees who don’t like the 401(k) fees they see can mention it to their employer and see if [the company] wants to change the plan,” Hearn says.

Read More from LearnVest:

5 Ways to Retrain Your Brain to Save More for Retirement

I Started Saving for Retirement—When It Was Almost Too Late

The 7 Biggest Retirement Mistakes Financial Planners See