Retirement should be your reward after decades of hard work, but it’s easy to stumble into pitfalls that can jeopardize your financial stability or quality of life. Here’s a breakdown of common retirement mistakes and how to sidestep them.
Underestimating Healthcare Costs
The Mistake: Many retirees assume Medicare will cover everything.
Why It’s a Problem: Out-of-pocket costs for premiums, prescriptions, long-term care, and dental/vision can add up quickly.
How to Avoid It: Budget specifically for healthcare ($300K+ over a 30-year retirement is a common estimate for a couple).
Consider a Health Savings Account (HSA) if you’re still working.
Learn the difference between Medicare Parts A, B, C, and D.
|
Part |
What it Covers |
Provider |
Key Costs |
|
A |
Hospital stays, hospice, nursing care |
Medicare (government) |
Usually free, deductibles apply |
|
B |
Doctor visits, outpatient, preventive |
Medicare (government) |
Monthly premium + 20% coinsurance |
|
C |
All-in-one (A+B, often D), extras |
Private insurers |
Varies, often lower out-of-pocket |
|
D |
Prescription drugs |
Private insurers |
Monthly premium + copays |
Taking Social Security Too Early
The Mistake: Grabbing benefits as soon as you’re eligible at 62.
Why It’s a Problem: It can permanently reduce your monthly benefits by as much as 30%.
How to Avoid It:
Delay taking Social Security until you hit full retirement age (FRA). Wait until full retirement age (FRA) or even 70 for max benefits if possible.
Your FRA depends on the year you were born; if you were born between 1943-1954 your FRA is 66, if you were born between 1955-1959 your FRA increases to 66 and 10 months, and if you were born after 1959 your FRA is 67.
Use online calculators to run different claiming scenarios.
Not Having a Withdrawal Strategy
The Mistake: Withdrawing money without a plan can lead to early depletion or unnecessary taxes.
Why It’s a Problem: Sequence-of-returns risk and tax inefficiency.
How to Avoid It:
Understand required minimum contributions (RMDs).
Mix taxable, tax deferred, and tax-free accounts strategically.
Consider the “bucket strategy”.
|
Bucket |
Time |
Purpose |
Investment Types |
Why it’s Important |
|
1 |
0-2 years |
Cover immediate living expenses |
Cash, savings accounts, CDs, money market funds |
Provides stability and liquidity |
|
2 |
3-10 years |
Provide income after Bucket 1 is used |
Bonds, bond funds, conservative investments |
Offers modest growth and refills Bucket 1 |
|
3 |
10+ years |
Long-term growth and inflation hedge |
Stocks, ETFs, index funds, growth investments |
Allows for higher growth potential over the long run |
Underestimating Longevity
The Mistake: Planning financially as if you’ll live until 75, but living until 95.
Why It’s a Problem: Your money needs to last as long as you do.
How to Avoid It:
Plan for at least a 30-year retirement.
Use annuities (carefully) or longevity insurance in you’re concerned; these can help provide guaranteed income for life, essentially acting as insurance against running out of funds in later years.
Failing to Adjust Your Investment Strategy
The Mistake: Going too conservative (or too risky) too soon.
Why It’s a Problem: Inflation can eat away at overly conservative portfolios, while risky bets can tank your savings.
How to Avoid It:
Maintain some stock exposure for growth.
Gradually adjust risk as you get closer to retirement through a “glide path” approach. This involves shifting your portfolio from more aggressive investments like stocks toward more conservative ones like bonds over time.
Ignoring Inflation
The Mistake: Thinking today’s dollar will stretch as far as tomorrow.
Why It’s a Problem: A 3% inflation rate cuts your purchasing power in half in 24 years.
How to Avoid it:
Using Treasury Inflation-Protected Securities (TIPS) helps protect your retirement savings from inflation because their principal and interest payments increase with inflation. As inflation rises, the value of TIPS adjust upward, ensuring your purchasing power is preserved.
Factor annual inflation into your retirement spending plan.
Overlooking Lifestyle Costs
The Mistake: Assuming your expenses will drop significantly.
Why It’s a Problem: Many people spend more in early retirement on travel, hobbies, and home renovations.
How to Avoid it:
Track current spending to forecast accurately.
Adjust the budget by life stage (e.g., “go-go, slow-go, no-go” years).
|
Stage |
Age Range |
Lifestyle |
Spending |
Key Considerations |
|
Go-Go |
60s to early 70s |
Active, energetic, traveling, hobbies, possibly part-time work |
High – travel, entertainment, new hobbies |
Plans for flexible spending and big-ticket expenses |
|
Slow-Go |
mid-70s to mid-80s |
Slowing down, less travel, more time at home, routine medical care |
Moderate – less travel, more health costs |
Focus shifts to healthcare and home-based activities |
|
No-Go |
mid-80s and beyond |
Limited mobility, more health issues, possible long-term care |
High (again) – medical, caregiving, housing |
Budget for increased medical and care-related expenses |
Not Talking to a Professional
The Mistake: Thinking you can wing it on your own.
Why It’s a Problem: Retirement planning involves taxes, investments, estate planning, and risk management; it’s a lot!
How to Avoid it:
Even one meeting with a fee-only planner can help.
Look for a fiduciary advisor.
A fee-only advisor is paid only by you, not by commissions or product sales, which reduces potential conflicts of interest. A fiduciary advisor is legally required to act in your best financial interest. All fee-only advisors are fiduciaries, but not all fiduciaries are fee-only; some may still earn commissions alongside their fiduciary duty.
