Dave Ramsey Warns of 3 Retirement Mistakes That Could Leave Savers $110,000 Worse Off

A poorly timed investment decision could leave an American nearing retirement with $110,000 less than they might have had by staying invested. A hypothetical scenario involving a 62-year-old with $500,000 in retirement savings illustrates how selling during a market downturn and missing a recovery can have significant financial consequences.

Personal finance personality Dave Ramsey has described personal finance as 80% behaviour and 20% financial knowledge. He discussed the principle during an episode of his show on 16 October 2026.

Although Ramsey's 80/20 principle does not specifically identify the three retirement mistakes examined here, it highlights the importance of financial habits alongside investment knowledge. Panic selling, insufficient contributions, and inadequate cash reserves can weaken retirement plans.

1. Selling Investments During a Market Crash

Selling investments out of fear can turn a temporary market decline into a lasting financial setback. A 25% fall would reduce a hypothetical $500,000 portfolio to $375,000. Recovering that loss would require a gain of approximately 33.3%.

An investor who remains invested would return to $500,000 if the market fully recovered. However, someone who sold at the bottom and moved the proceeds into cash earning 4% would have approximately $390,000 after a year. The difference between those outcomes would be $110,000. This comparison assumes a full market recovery within one year and a 4% cash return over the same period. It is an illustration, not a prediction or guaranteed loss.

2. Failing to Maximise Retirement Contributions

Workers aged 60 to 63 can boost retirement savings through higher 401(k) catch-up contributions. For 2026, the standard employee contribution limit is $24,500. Eligible workers in this age group can contribute an additional $11,250, bringing their potential annual contribution to $35,750, subject to their employer's plan rules.

Contributing an additional $11,250 annually for four years would add $45,000 to retirement savings. Assuming a 6% annual return, those contributions could grow to approximately $59,000 by age 67. However, many workers contribute considerably less. The 2025 PLANSPONSOR Participant Survey found that 39.2% of respondents contributed 5% or less of their income to retirement plans. Another 39.7% retained their employer's default contribution rate. Workers should therefore review their contribution levels rather than automatically accepting their employer's default.

There is also a tax consideration. From 2026, employees whose previous-year Social Security wages from the same employer exceeded $150,000 must make eligible catch-up contributions on a Roth basis, where the plan offers the required option. This means paying income tax upfront rather than receiving an immediate deduction.

3. Retiring Without Enough Cash Reserves

Even a substantial retirement portfolio may lack flexibility if all the money is invested. Retirees who need regular withdrawals for everyday expenses may have to sell investments when markets are falling. Someone with $500,000 in retirement savings who withdraws $40,000 annually could consider keeping one to two years of planned withdrawals in cash. This reserve could cover living costs without forcing investment sales during a downturn.

Borrowing from retirement accounts or making hardship withdrawals can also reduce savings. The FINRA Foundation's 2025 National Financial Capability Study, based on 2024 responses, found that 12% of non-retired respondents with retirement accounts had taken a loan from their accounts during the previous year. Another 11% had made a hardship withdrawal.

Paychex reported that hardship withdrawals recorded in its 401(k) data during 2025 were 365% above the average for the previous five-year period. These figures illustrate how financial emergencies can put retirement savings at risk even before workers leave employment.

Four Steps That Could Protect Retirement Savings

Savers can take several practical steps to prepare for retirement and avoid costly decisions. First, calculate monthly expenses, including housing, healthcare, food, and insurance. Compare these costs with anticipated investment income and Social Security benefits.

Second, consider building a cash reserve covering one to two years of planned withdrawals. High-yield savings accounts, and short-term US Treasury securities are potential options.

Third, automate retirement contributions and review annual 401(k) limits. Eligible workers should consider whether higher catch-up contributions fit their budgets.

Finally, establish a plan for market downturns. Decide in advance how to cover living expenses, when to rebalance investments, and how to avoid reacting to short-term market movements. Building retirement savings is only part of the challenge. Having a plan for managing and accessing that money can be equally important, particularly when markets become unpredictable.