Many people enter retirement with solid savings and good intentions, only to be caught off guard by avoidable missteps. From underestimating healthcare costs to taking Social Security too early, even small oversights can lead to major financial consequences. In this article, we’ll explore some of the most common—and costly—retirement planning mistakes, so you can sidestep them and protect your financial future.
Also, check out these 10 factors that will determine if you can successfully retire.
Underestimating Healthcare Costs
We all know healthcare is expensive, but it's easy to underestimate your healthcare costs in retirement. Failing to plan for out-of-pocket costs, long-term care, or Medicare premiums can be a huge financial blow.
Claiming Social Security Too Early
Taking Social Security before full retirement age permanently reduces your monthly benefit. Waiting a few more years can significantly increase your income for life. However, there is a lot to consider when making this decision.
Read this to see if you should delay taking Social Security.
Being Too Conservative With Investments
Avoiding all risk might feel safe, but inflation will quietly eat your purchasing power. Some exposure to growth (like stocks) is usually necessary to maintain long-term wealth. Money you'll need in the next five years shouldn't be in the stock market, but that can still mean that a significant portion of your nest egg could be invested.
Here are the 10 best Vanguard funds.
Not Having a Withdrawal Strategy
Randomly pulling money from accounts can lead to higher taxes or selling during a market dip. Coordinated withdrawal plans, such as the 4% rule or bucket strategies, help your money last longer.
Did you know that the creator of the 4% rule recently updated his findings?
Ignoring Required Minimum Distributions (RMDs)
Forgetting to take RMDs from traditional retirement accounts after age 73 (or 75, depending on birth year) can lead to a 50% penalty on the amount you should’ve withdrawn. It's important to consult an expert so you don't run into this penalty.
Carrying a Mortgage or Debt Into Retirement
You may want to consider paying off any debts before you retire. High monthly payments can strain a fixed income. If you choose to carry debt it needs to be part of a carefully planned budget in retirement.
Overlooking Taxes
Tax planning is an important part of any retirement plan. Withdrawals from traditional IRAs and 401(k)s are taxed as income, while withdrawals from Roth accounts are not. You need a proper tax plan to optimize your tax strategy.
Check out these 15 states that don't tax retirement income.
Not Having Long-Term Care Insurance (or a Backup Plan)
Needing help with daily tasks later in life is common and expensive. Without insurance or a financial cushion, costs can quickly wipe out savings.
Not Tracking Expenses or Budgeting
The need for a budget doesn't disappear when you stop earning income. Without a clear understanding of what you're spending, it's easy to outpace your savings — even if you're not splurging.
Not Adjusting After Major Life Changes
It may be tempting to think that retirement means you'll settle in and avoid any further significant life changes. But the death of a spouse, divorce, housing moves, or medical diagnoses all impact finances. Delayed or poor decision-making during transitions can be costly.
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