Top 10 Retirement Mistakes and How to Avoid Them

Top 10 Retirement Mistakes and How to Avoid Them

Planning for retirement can feel overwhelming, especially given all the variables from taxes and inflation to longevity and market risk. Unfortunately, many retirees discover too late that they’ve overlooked key details that could’ve protected their income, savings, and overall quality of life.

Here are the top 10 most common (and costly) retirement mistakes and how to steer clear of them.

1. Not Having a Written Retirement Plan

Without a roadmap, retirement becomes a guessing game. Many people think that just having a 401(k) or IRA is enough, but without a clear income distribution strategy, they often run out of money too soon or live too frugally out of fear.

Solution: Create a written plan that details how much income you’ll need, where it will come from (Social Security, pensions, investments), and how long it needs to last. This plan should also address taxes, inflation, and healthcare costs.

2. Underestimating Healthcare Costs

A 65 year old couple retiring today may need over $300,000 just to cover healthcare expenses in retirement, and that doesn’t include long-term care. Many people falsely assume Medicare covers everything, that is not the case.

Solution: Budget for Medicare premiums, deductibles, co-pays, and prescription costs. Consider long-term care insurance or hybrid policies that combine life insurance with living benefits. Use Health Savings Accounts (HSAs) during your working years to build tax-free savings for future health costs.

3. Claiming Social Security Too Early

Claiming Social Security at 62 locks in a permanent reduction, up to 30% less than if you waited until full retirement age. Many people do this out of fear or lack of awareness.

Solution: If you have other sources of income, delay claiming until age 67 or 70 to get the maximum benefit. Social Security increases by about 8% per year after full retirement age providing guaranteed growth and inflation protection. This can be especially beneficial for surviving spouses or those with a family history of longevity.

4. Relying Too Heavily on the Stock Market

A downturn in the early years of retirement (known as “sequence of returns risk”) can drastically reduce the longevity of your portfolio. Even well-balanced portfolios are vulnerable without a protected income source.

Solution: Shift a portion of your assets into a structured income plan. Consider creating a “retirement paycheck” that isn’t affected by market volatility for your essential living expenses, and use investments for growth and discretionary spending.

5. Ignoring Taxes in Retirement

Many retirees are shocked to find that their Social Security is taxable, their Medicare premiums rise with income, and withdrawals from 401(k)s and IRAs trigger ordinary income taxes. All while the deductions they once had, may no longer be applicable.

Solution: Build a tax-diversified retirement strategy. Use Roth conversions before required minimum distributions (RMDs) begin, and draw from a mix of tax-deferred, taxable, and tax-free accounts. Pay attention to marginal tax brackets and coordinate with a tax advisor to optimize withdrawals.

6. Not Planning for Inflation

Inflation silently erodes your purchasing power. A 3% annual inflation rate cuts the value of your money in half over 24 years. Without a strategy to keep up with rising costs, retirees may find themselves forced to reduce their lifestyle.

Solution: Choose income sources that offer inflation protection, like Social Security (which is COLA-adjusted), dividend-growing stocks, or certain annuities that increase payouts over time. Maintain some equity exposure for growth to outpace inflation while also securing enough guaranteed income to cover fixed expenses.

7. Carrying Debt Into Retirement

Interest payments can eat into your fixed retirement income, reducing your ability to enjoy retirement. High-interest debt like credit cards or personal loans can be particularly damaging if not paid of quickly.

Solution: Make a debt payoff plan before retirement. Focus on eliminating high-interest debts first, and consider downsizing your home or refinancing if mortgage payments are too high. Living debt-free or with manageable payments can give you more control over your budget.

8. Overspending in the Early Years

It’s easy to overspend in the first 5–10 years of retirement while energy is high and the “honeymoon” phase is in full swing. But depleting assets too quickly early on creates a sustainability problem later.

Solution: Create and implement an income plan. Retirement isn't about spending cautiously. It's about enjoying what you've worked hard for. This is accomplished by having guaranteed income to cover living expenses and discretionary income to spend as you wish.

9. Failing to Account for Longevity

Many people base retirement planning on average life expectancy, but living longer than expected means outliving your savings. Longevity is one of the biggest risks in retirement.

Solution: Plan for your money to last until age 90–95. Use lifetime income products to create guaranteed income for as long as you live. Consider survivor benefits for your spouse, and don’t overlook longevity insurance.

10. Going It Alone Without Professional Help

Retirement planning involves more than picking investments. Taxes, healthcare, income timing, risk management, and estate planning are all interconnected. Missing one piece can jeopardize the whole plan.

Solution: Work with an advisor. They can help you stress-test your plan against real-world risks, ensure tax efficiency, and guide you through key decisions at every phase of retirement.

The Bottom Line

You only retire once, but a financial professional helps people retire every day. Avoiding these common pitfalls starts with awareness, planning, and taking proactive steps today.

A secure and confident retirement doesn’t happen by accident. It happens by design.

Ready to Avoid These Mistakes in Your Own Plan?

Schedule a Complimentary Retirement Readiness Review today and find out how long your money will last, how to reduce taxes, and how to generate reliable income for life.