What are the Most Common Retirement Mistakes to Avoid?
Retirement is one of life's most significant transitions. Our previous articles have typically revolved around ideas to optimize your retirement plan, investment allocation, or taxes. While those strategies can be very impactful, sometimes the most important strategy is knowing what pitfalls to avoid. Retirement planning tends to go wrong in predictable ways. The mistakes below are some that we commonly see, and most of them are avoidable with a little foresight.
1. Claiming Social Security Too Early
One of the most important retirement decisions is determining when to begin Social Security benefits. While benefits can start as early as age 62, claiming before your full retirement age can permanently reduce your monthly benefit. For many retirees, delaying benefits may result in significantly higher lifetime income, especially for those who expect to live into their 80s or beyond.
The optimal claiming strategy depends on many factors, including health, marital status, other income sources, and retirement goals. Before making this decision, it's worth evaluating how different claiming ages could affect your long-term spending power.
2. Carrying Too Much or Too Little Risk
As retirement approaches, many investors become overly conservative out of fear of market volatility. Others remain heavily invested in stocks without considering how market declines could affect short-term income needs.
The goal isn't to eliminate risk, it's to align your investment strategy with your retirement objectives, spending needs, and time horizon.
A well-designed retirement portfolio should balance growth potential with stability, helping to support income needs while protecting against major market disruptions.
3. Underestimating the Impact of Inflation
At 3 percent annual inflation, your purchasing power cuts in half over roughly 24 years. That means the income that feels comfortable at 65 could feel very tight at 85.
Most people plan for what things cost today. A good plan will stress-test against what they might cost in 20 years, particularly in categories like healthcare and housing, which tend to outpace general inflation.
4. Ignoring Healthcare Expenses
Healthcare is often one of the largest expenses retirees face. While Medicare provides valuable coverage at a somewhat predictable cost, it does not cover everything. Premiums, deductibles, prescription drugs, dental care, vision services, and long-term care expenses can create significant financial strain if not properly planned for.
Building healthcare costs into your retirement projections can help reduce surprises and provide greater confidence in your financial future. This is especially important, if you plan to retire before Medicare eligibility at 65.
5. Underestimating Longevity
Many people worry about not having enough money for retirement. Fewer worry about living much longer than expected.
A healthy couple retiring at age 65 has a meaningful chance that at least one spouse will live into their 90s.* Retirement may last 25 to 30 years, or longer. Planning for longevity means creating a sustainable withdrawal strategy and ensuring assets are positioned to support income throughout retirement, not just during the early years.
6. Neglecting Estate Planning
Estate planning isn't just for the wealthy. Without updated estate planning documents, families may face unnecessary complications, delays, and expenses during difficult times.
Every retirement plan should include a review of:
Wills
Trusts (when appropriate)
Powers of attorney
Healthcare directives
Beneficiary designations
It's also important to ensure these documents remain aligned with current wishes and family circumstances as they change.
7. Failing to Meaningfully Fill Your Time
One of the most common ways a retirement “fails” has nothing to do with finances. Having 50 hours a week of newfound freedom sounds fantastic, but can quickly turn to boredom, or even depression, if not planned for ahead of time. Work often provides structure and purpose that can be difficult to replicate on our own.
A popular phrase is that you need to retire TO something, not just FROM something. For some, this may mean easing into retirement through part-time work or consulting. For others it could mean picking up new engaging hobbies, getting involved in charity work that’s important to you, or even relocating to be closer to family.
How to avoid this specific issue is far too personal and nuanced to be solved with any spreadsheet or formula. So, it’s important to put intentional thought into this as your retirement date approaches.
No retirement plan is perfect, because life isn’t perfect and it doesn’t progress in a straight line. There are unknown future risks and factors outside of our control that can’t be predicted. However, we enjoy helping our clients mitigate known potential risks, and avoid costly mistakes with proactive planning, to drastically improve your odds of achieving a long, happy, healthy retirement.
*https://www.capitalgroup.com/advisor/insights/articles/ir-retirement-longevity.html