Preparing your finances for retirement is extremely important. While putting money aside is a big help, there are things you should keep in mind to maximize your retirement savings or prevent yourself from losing them.

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George Kamel, a financial expert and frequent co-host of the Ramsey Show, has put a lot of thought into how to best manage your retirement savings and offered some advice in a recent YouTube video. Here, he lists five big retirement planning mistakes that could cost you millions.

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Lack of advance planning

Planning for retirement is an important step that seems obvious, but more and more people are putting it off and spending their income on the present. The Federal Reserve reported that a quarter of all Americans have no money saved in a retirement account.

Likewise, according to Kamel, a study by Ramsey Solutions found that 48% of Americans have less than $10,000 saved for retirement, which is enough to last about three to four months.

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Many Americans plan to rely on Social Security in retirement, but Kamel strongly advises against it. The Social Security website says the average Social Security benefit was $1,907 in January 2024. While that amount is helpful, the annual total is about $22,000, just $7,000 above the poverty line of $15,060. Even if you think you can live on that amount, Kamel points out that that’s the average, and some people receive less than $900 per month.

Starting your planning early can save you this hassle. Talking to a financial advisor can get you on the right track, but even simple steps like setting aside a percentage of your income or checking an online retirement calculator can make a big difference.

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Retirement too early

For many Americans, retiring early is a dream, but that comes with some risks. If you have large sums of money deposited into retirement accounts, you won’t be able to access those funds until you’re 59½. If you access your Roth IRA or 401(k) early, you’ll face penalties and throw money away. In the same way, withdrawing early also means you miss out on the magic of compound interest growth.

If you can build a lot of wealth early in life and want to retire, that’s your choice. Kamel cautions those considering that option that delaying retirement and working a few more years can make a big difference. The impact of compounding on a few extra years of income can catapult your retirement savings to the next level.

Be stingy with your investments

If you take money from your monthly income and keep it in a shoebox under your bed, you’re technically saving money for retirement, but it’s retirement saving in hard mode. Retirement saving in easy mode requires investing. Kamel states that with retirement accounts, 80 to 90% of the balance is growth. This means that only 10 to 20% was money you put in over the years.

Compound interest means that the money you invest starts earning more money. The way it works is that you get interest on your original investment. The interest becomes part of your investment, making it a larger sum. The next time you invest, you get interest on your original investment and the interest you have accumulated the next time.

This process of compound interest growth increases more and more until you end up with much more money than you originally invested. Although this seems like an obvious investment strategy, it requires a lot of patience. In a world where everyone is trying to get rich quick, it is becoming less and less popular, but no less effective.

Kamel recommends getting started even if you’re in your 40s or 50s and haven’t started saving yet. If you get serious and contribute large amounts to a tax-advantaged retirement account like a Roth IRA or a 401(k), you can still have a large amount for retirement. Keep in mind that as you get older, you’ll need to contribute more of your monthly income to maximize your results.

No diversification

When you set up a retirement account and contribute money, you decide where the investments go. While these accounts offer a tax advantage, they don’t invest your money for you. With 401(k)s, however, your employer limits what you can invest in.

When you have a choice, diversification is important. Diversification means investing in different assets to protect yourself from risk. If you put all your money into a single stock and its value drops significantly, your portfolio will lose value. However, spreading your investments across multiple assets can help protect your portfolio. When you diversify, the value of one asset can increase when the value of another asset decreases.

Kamel recommends investing in mutual funds. These take money from many different investors and buy a wide range of assets, amounting to 120 different stocks. The diversity of a mutual fund can withstand the ups and downs of the market.

In particular, Kamel advises looking for growth equity mutual funds with a long track record. But he goes further and recommends that you diversify your mutual funds and buy growth, growth and income funds, aggressive growth funds and international funds.

Making bad investments

Investing is an essential part of retirement planning. However, you shouldn’t just put your money into anything. Today, more and more investment opportunities are popping up, including new stocks, cryptocurrencies, NFTs, and alternative investments. These investments could lead to impressive gains, but they come with a high level of risk.

As a rule of thumb, Kamel recommends avoiding high-risk investments when planning for retirement. It’s better to do things the old-fashioned way. Consistently put 15% of your income into a Roth IRA and 401(k) to take advantage of tax benefits. Invest in stocks, bonds and mutual funds that are safe but will earn you money over the long term through compound interest.

Once you’ve maxed out these accounts for the year, Kamel advises investing extra money in paid-for real estate or other index funds outside of your retirement accounts.

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This article originally appeared on GOBankingRates.com: 5 Retirement Planning Mistakes That Could Cost You Millions, According to George Kamel