Retirement should be a time to relax and enjoy the fruits of your labor. But for many, that dream is threatened by costly and often avoidable financial missteps. Whether you’re on the brink of retirement or navigating the first few years, steering clear of these common mistakes can make the difference between a comfortable retirement and outliving your savings.
Here are the 7 biggest financial mistakes retirees make—and how to avoid them.
1. Claiming Social Security Too Early
One of the most common mistakes is taking Social Security at age 62, the earliest eligibility age. While tempting, this can reduce your monthly benefit by up to 30% compared to waiting until full retirement age or later.
Why it matters: Waiting until age 70 can significantly increase your monthly income for life, which can help hedge against longevity risk.
2. Underestimating Healthcare Costs
Medicare doesn’t cover everything—and long-term care can be devastatingly expensive. Many retirees are unprepared for out-of-pocket expenses like dental, vision, hearing aids, or nursing home care.
What to do: Consider a Medicare Supplement (Medigap), a Health Savings Account (HSA), or long-term care insurance before retirement.
3. Withdrawing Too Much Too Soon
Taking large withdrawals from retirement accounts in the early years can shrink your portfolio quickly, especially during a market downturn—a risk known as sequence of returns risk.
Best practice: Use the 4% rule as a guide, but tailor your strategy to your actual spending needs and market conditions.
4. Failing to Account for Inflation
Prices go up—even in retirement. A fixed income today might not stretch as far 10 or 20 years from now.
Solution: Include inflation-adjusted investments like Treasury Inflation-Protected Securities (TIPS) or diversified equities in your retirement portfolio.
5. Overlooking Required Minimum Distributions (RMDs)
Once you turn 73 (or 75 if you were born after 1960), you’re required to take annual withdrawals from traditional IRAs and 401(k)s—whether you need the money or not.
Tip: Missing an RMD can trigger a hefty 25% penalty. Plan ahead with tax-efficient withdrawal strategies or Roth conversions.
6. Neglecting Tax Planning
Retirees often assume they’ll be in a lower tax bracket, but required distributions, Social Security taxation, and other income sources can push them higher than expected.
What to consider: Tax diversification (Roth, traditional, taxable accounts), timing withdrawals, and working with a retirement tax advisor.
7. Not Having a Withdrawal Strategy
Too many retirees take money out of their accounts without a long-term plan. Without coordination, taxes, market conditions, and longevity risk can eat away at your savings.
Smart move: Create a sustainable withdrawal plan that accounts for taxes, market performance, and required spending.
Final Thoughts
Avoiding these seven mistakes can greatly increase your chances of a secure, enjoyable retirement. It’s not just about how much you’ve saved—it’s about how you manage those savings once the paychecks stop.
Do you still have questions? Contact Canter Wealth to speak with a financial advisor and build a custom retirement plan that aligns with your goals.
Disclaimer:
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