Kevin O'Leary Says Americans Are 'Ruining' Their 401(k)s And Don't Even Realize It

Kevin O'Leary has spent years sounding the alarm about Americans' 401(k) habits. He's shared his concerns in several interviews, explaining that many Americans are ruining their 401(k)s and their potential for a successful retirement. Even worse, he explains, many people don't even realize it.

Here are some of the mistakes that O'Leary says American workers regularly make, even if they're contributing to retirement plans, along with some of his suggestions on how to build wealth more effectively.

Most people make several small mistakes, not one big one

O'Leary explains that people fail to reach their retirement goals not because of one big mistake but because of several small decisions that they make over time. Most notably, he says that people feel like they're being responsible with money because they have retirement accounts, yet make several small decisions in their financial habits that leave them short when it comes time to retire.

Too many people set up a 401(k) and forget about it

Having a 401(k) and managing it successfully takes time. O'Leary says too many people set up their accounts and forget about them. They know retirement contributions come out of their paychecks, but many people don't know their balan

ce or the fees they're paying.

Additionally, O'Leary says people assume the account will run on autopilot and provide enough money for them to retire on. In reality, though, to retire successfully, workers should regularly increase their contributions, check their balances, and reassess their investments based on performance.

Overspending and debt are detrimental to retirement savings

O'Leary is especially against high-interest debt and overspending. He says that many people spend far more than they should, which reduces the amount of money they can allocate to retirement. High-interest debt, like credit card debt, can trap people with high payments and rising balances. Additionally, many people overspend, not because they're trying to, but because they aren't tracking where their paychecks go. That, in addition to rising costs, can lead many people to contribute less money to their retirement.

Catching up at a later date is usually a myth

Although many people believe they'll be able to catch up on their retirement savings later, especially when they turn 50 and can make catch-up contributions, the biggest rewards come from investing early and consistently. Additionally, the younger you start investing, the more compound interest has time to take effect. Ultimately, making retirement contributions is a habit, and waiting to invest until you're much older means compound interest won't work as effectively as it would if you had started earlier.

Your 401(k) is only one part of your retirement plan

Some people make the mistake of relying too much on their 401(k) plan without making a broader retirement strategy. Similarly, O'Leary says some people rely too much on Social Security, believing that it will be enough to fund their retirement lifestyle. In reality, workers will likely need several types of investment accounts and income streams to afford housing, food, and healthcare in retirement.

Underestimating health care costs can cause sticker shock later

O'Leary explains that another serious mistake people make is underestimating how much health care will cost in retirement. Data from Fidelity found that people will need over $170,000 starting at age 65 in order to pay for health care in retirement. That number doesn't include extra funds that people may need for long-term care facilities. All that to say, it's important that people think long-term when it comes to their retirement contributions. After all, affording retirement is more than being able to pay for home repairs and groceries. It might also come with serious health care costs, too.

Work with a financial advisor to get on track for retirement

Many people don't feel prepared for retirement and aren't sure where to start. Working with a financial planner can help people understand whether or not they're contributing enough to their accounts. A financial advisor can also review your asset allocation and adjust it based on your risk tolerance and age. You can tell them your retirement goals, and they may suggest steps you can take now to achieve them in the future.

Why so many people listen to Mr. Wonderful

Kevin O'Leary is also known as Mr. Wonderful, and while some people think he's curt, many others appreciate his no-nonsense advice. When there's economic uncertainty, some people prefer financial experts and business leaders who don't sugarcoat their advice. O'Leary is an example of that, and his goal ultimately is to help people build wealth and financial security.

Bottom line

If you want to reach your retirement goals, O'Leary says it starts with good habits and consistency. He recommends that people track their spending, avoid high-interest debt, and start investing early.