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Six Most Common Retirement Mistakes

Retirement should be a time of relaxation and living a worry-free lifestyle. But that is not the reality for many older Americans whose retirement years turn into financial nightmares. So even if you think you made all the right moves before your retirement, don't assume you are in the clear. Avoid turning your golden years into a struggle to survive by avoiding these six typical mistakes retirees make when it comes to their finances.

Mistake #1 - Maintaining Your Same Lifestyle in Retirement

You shouldn't be forced to live a life of deprivation after retiring (read our article on how to determine when you should retire), but most people won't be able to stick to the same level of spending they had when they were still bringing home a paycheck. Think about cutting back on those little expenses like eating out or spending money on entertainment. That is not necessarily a bad thing. More free time gives you the chance to learn to cook and concentrate on long put-off hobbies. It's also important to have a plan for how you will spend your time in retirement. Will you take up a new hobby? Will you go back to school or take a class? What groups will you join? According to a Federal Reserve Board study, a full 1/3 of those who retire eventually reverse retirement and return to work on either a full or part-time basis1. Some return to work for financial reasons, while others are due to boredom or a desire to be part of a group.

Mistake #2 - Applying for Social Security Too Soon

Try not to claim your Social Security benefits as soon as they become available (read our article on factors to consider in determining when to start Social Security). If you take your benefits as early as possible, you could be leaving a lot of potential money on the table (read our article on whether you should consider taking Social Security at 62). Those who are lucky enough to have substantial retirement savings or another source of income may find it beneficial to hold off until their benefits reach their maximum level. If you are married, don't forget that electing to start Social Security benefits early may also have a significant impact on survivor income when one spouse passes away. If both spouses are receiving Social Security benefits, only one of those benefits will continue for the surviving spouse. In many cases, especially those where Social Security makes up a majority of the retirement income, this loss of income can result in financial difficulties. If you feel you made the wrong decision or things have changed since you decided when to start Social Security, you may have options that many aren't aware of (read our article on Social Security strategies if you think you've made a mistake with timing). If you are still evaluating when to start Social Security, It's also important to focus on "optimizing" your Social Security benefits and not just "maximizing." Maximizing benefits is based on something completely out of your control. Life expectancy. But optimizing your benefits takes age, income sources, taxes, and other factors into consideration.

Mistake #3 - Making Mistakes When it Comes to Taxes

For many, taxes may very well be the largest expense you have in retirement, but tax planning can be complex. Many retirees fail to take advantage of available strategies when it comes to paying taxes. It is easy to make the wrong tax move (read our article on tax strategies to consider throughout the year). It is always a good idea to consult with a financial advisor that specializes in tax planning for retirees to help guide you through your options. Should you convert to a Roth IRA? Can you delay taking Required Minimum Distributions (RMD)? Should you utilize Qualified Charitable Distributions (QCD)? These are just a few of the strategies that you may need to consider.

It's also important to stay on top of legislative action and changes that may have recently happened or could be impacting your retirement in the coming years. These have the power to impact not only your taxes but future retirement withdrawals and estate planning strategy. 

A financial advisor that specializes in working with retirees can help keep track of ongoing legislation and keep you and your portfolio up-to-date and prepared for potential changes. Lastly, be sure that your financial advisor will coordinate with the other financial professionals (tax advisor, attorney) on your team.

Mistake #4 - Underestimating the Cost of Healthcare in Retirement

If taxes are not your largest expense in retirement, then it likely will be healthcare. The decisions you make regarding healthcare can have a lasting impact on your retirement success and minimizing the possibility of running out of money at some point in the future. Also, be aware that there are two components to planning for healthcare expenses.

1. Ongoing medical expenses (doctor visits, hospital stays, prescriptions, etc.)

2. Long-term care expenses (No.. Medicare Won't Be Enough)

You can also make a strong argument that there is a 3rd component if you choose to retire before Medicare eligibility at age 65 (possibly sooner if you qualify for Social Security Disability). Important numbers to be aware of:

  • The estimated annual healthcare costs, not including long-term care, for an average healthy 65-year-old couple retiring in 2019 is $12,286².
  • For 2021, the average national cost of nursing home care for a private room was $105,850 ² and for a semi-private room is $93,075. ³

Mistake #5 - Investment Decisions

There are two primary components to mistakes we see with managing investments in retirement:

1. Maintaining your current investments in retirement

Your investment portfolio performed well, so why is your retirement the ideal time to take another look at it? Since you won't be generating new income from work, you will need to rely on your investments to see you through. That means you want to invest in generally more conservative investment products. But beware of being too conservative in retirement. Over what could be a 30+ year retirement, inflation could be a significant risk. Allocating too much of your portfolio to CDs or bonds could result in losing purchasing power over time. 

2. Making emotionally-driven investment decisions

From social media posts to advertisements and news outlets, we're often bombarded by news that could affect our investment decisions. After absorbing information day in and day out, it's nearly impossible not to let it affect your decisions about money. If there's something scary on the news, should you drain your portfolio and stuff it under the mattress? Do you need to look at rebalancing assets amidst this market volatility? Working with a financial advisor that specializes in retirement income planning can bring an objective, scientific and education-based perspective to the question of what to do with your assets.

Mistake #6 - Refusing to Downsize or Manage Housing Costs

This goes hand-in-hand with wanting to maintain the same lifestyle after retirement. Retirement might be the perfect time to sell your larger home and move into something smaller and more manageable (read our article on factors to consider in using your home to help fund retirement). Perhaps even an apartment or condo. Not only will it relieve you of a costly mortgage and home maintenance, but any extra equity in your home could provide a cushion of cash for you that could cover additional living expenses or future long-term healthcare costs. This doesn't mean that selling your home is a necessity. There could be any number of reasons to stay in your home, both financially and emotionally. Just be sure your housing costs are reasonable based on your retirement income and won't put stress on your finances now or in the future.


1. https://www.federalreserve.gov/econresdata/feds/2016/files/2016053pap.pdf

2. https://www.annuity.org/retirement/health-care-costs/

3. https://www.seniorliving.org/nursing-homes/costs/

What worked for you before retirement may not work during retirement.

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