Kevin O'Leary Warns This Common 401(k) Habit Is Holding Workers Back

Kevin O'Leary is a well-known businessman and one of the investors on the hit TV show Shark Tank. He frequently gives interviews in the media, sharing his advice on how Americans can save more and grow their wealth.

Over the past year, he's given specific advice about preparing for retirement, including the best ways to stretch retirement dollars further. Here is the most common 401(k) mistake O'Leary says holds workers back from retiring on time, as well as several other concerns O'Leary has about how Americans manage their money.

The most common 401(k) mistake

O'Leary says that the most common 401(k) mistake people make is not saving enough for retirement. It sounds self-explanatory and simple on the surface, but O'Leary's primary concern is that Americans have not developed the habit of saving.

Too many people spend money without thinking, he says. They buy expensive meals when they don't earn enough, get into high-interest debt, and don't have any money left over to contribute meaningfully to their retirement funds. Being aware of spending patterns is the only way to understand where money goes and how to allocate more of it to future savings.

The high-interest debt trap

One of O'Leary's biggest pieces of advice is to pay down high-interest consumer debt. He explains that high-interest debt prevents people from investing meaningfully for retirement. Instead of investing in their futures, people with high-interest debt are constantly paying interest on past purchases.

He urges people to work to pay down their high-interest debt so that they can create more cash flow. It's only by making more space financially that people can focus more on their future retirement savings goals, rather than past purchases.

Developing discipline

Paying down high-interest debt and redirecting extra cash flow towards retirement savings is easier said than done. 

O'Leary stresses that one of the key ingredients to building long-term wealth is discipline. Having the discipline to be consistent with money habits, regularly contributing to a 401(k), and tracking everyday spending are the keys to ensuring you can build long-term wealth.

The truth about Social Security

O'Leary has news for those who aren't focusing on retirement investing because they know they'll get Social Security funds. He explains that Social Security was never meant to be people's only source of retirement income. 

In fact, a recent Social Security and Medicare Board of Trustees report found that by 2033, Social Security will only be able to pay out 77% of expected benefits. Thus far, there is no pending legislation to solve this discrepancy.

For that reason, O'Leary says that workers need to build their own retirement savings so that they have multiple streams of income. Social Security alone will not be enough to sustain most people in retirement.

Considering health care costs

It's not fun to talk about, but sometimes old age also means increased health care costs. O'Leary reminds people that these costs may be more than they expect. For example, the average 65-year-old retiree should plan to spend over $170,000 on health care during their retirement years, according to 2025 data from Fidelity Investments.

That's why having multiple streams of income is important. Social Security income that might or might not be able to pay out fully during retirement won't be enough to sustain most people. Rather, workers need to look at the reality of how much it will cost to maintain their quality of life, pay for their expenses, and afford health care as they age.

Taking the first step

If you plan to retire within the next few years, it's an adjustment to go from living on a salary to living on a fixed income that you need to draw from to pay for necessities. So, one of O'Leary's suggestions for people is to practice living on their retirement income before they retire.

By living on a budget and tracking spending, the transition to your retirement years can be much smoother. Again, practicing the discipline that O'Leary speaks about so much can go a long way in helping you adjust to retirement living and help your retirement funds last for the long term.

Harsh, but truthful advice

Some people think O'Leary's advice comes across as harsh or mean. However, those who appreciate his frankness say it's helpful for someone to speak the truth about the state of Americans' finances. 

After all, the cost of living has risen significantly in recent years, and in order for Americans to enjoy their retirement years, it will take planning and conscious effort.

Bottom line

Kevin O'Leary doesn't sugarcoat his advice, and he wants to help Americans retire comfortably. What that takes, he explains, is for people to reexamine their money habits. 

The most damaging money mistake that people have is not developing disciplined habits at all. O'Leary says living below your means, consistency, and discipline are the best ways workers can become more financially resilient in retirement.

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