Saving and investing for retirement are essential, but they’re often not enough on their own. Many people approach retirement age believing they’ve done everything right, only to discover unexpected gaps in their plans. These overlooked details may not seem major, but they can greatly affect your comfort and financial security in retirement.
Below are five common retirement planning mistakes, along with straightforward ways to address each one. By knowing what to look for, you’ll be better prepared to secure the retirement you’ve envisioned.
Starting the Real Planning Too Late
It’s common to find diligent investors who’ve maxed out their 401(k), built solid portfolios, and even acquired rental properties. Despite these efforts, questions about specific retirement details, such as monthly income requirements, exact income sources, and anticipated tax situations, often remain unanswered.
Investing wisely is crucial, but it isn’t the same as having a comprehensive retirement plan.
The solution is to clarify these details early. Considering retirement at 62 instead of 67? Calculate precisely how much additional savings are required. Thinking about relocating to a lower-cost area? Analyze how taxes could change based on your specific circumstances.
Working through real numbers can uncover possibilities that haven’t yet been considered. Early retirement might be achievable with flexibility on location or housing choices. Without running these calculations, your retirement decisions are essentially guesswork.
Making Social Security Decisions in a Vacuum
Social Security decisions are often among the costliest mistakes retirees make. The rules are complex, stakes are high, and many rely on informal advice from neighbors or articles online.
For every year Social Security is delayed between age 62 and 70, the monthly benefits change considerably. Taking it at 62 locks in roughly 75% of the full benefit, while waiting until 70 can increase it to about 132%.
This decision needs proper context. For instance, someone delaying Social Security until 70, assuming their other income sources cover expenses until then, could increase their monthly benefit from around $2,200 to about $2,900. Over a typical retirement span, this could mean a $200,000 difference.
Every situation is unique. Sometimes claiming benefits early makes sense, especially with health concerns or if the money is needed to avoid tapping retirement accounts that are still growing.
Make this critical decision based on a thorough analysis of your financial situation rather than assumptions.
Underestimating Healthcare Costs
Some retirees mistakenly assume Medicare provides free healthcare.
Medicare Part B will cost most retirees $185 per month in 2025, and that’s just the premium. Deductibles and co-pays also apply. Prescription drug coverage (Part D) and supplemental coverage (Medigap) require additional monthly premiums.
A healthy 65-year-old couple should budget at least $6,500 per year for healthcare costs in retirement, assuming they remain healthy. In high-cost states like New Jersey, expenses may be even greater.
Long-term care is the true wildcard. Approximately 70% of people will need long-term care during their lifetime. Home health aides typically cost $25-$35 per hour, assisted living averages between $4,500-$6,000 per month, and skilled nursing care can easily reach $8,500-$12,000 per month.
Medicare doesn’t cover long-term care. Medicaid does, but only after most assets have been depleted.
Factor these potential costs into retirement planning. Consider options like long-term care insurance, earmarking additional investments, or discussing expectations and available resources openly with family.
Getting Investment Strategy Wrong
During working years, an investment timeline is typically long-term. Market drops aren’t a significant concern because recovery time is abundant.
However, retirement changes this dynamic. Immediate expenses require readily available funds, yet the portfolio still needs growth to maintain purchasing power over 20-30 years.
Two common mistakes frequently occur. The first is becoming too conservative prematurely. Shifting everything into CDs or money-market accounts might feel secure, but inflation can greatly diminish purchasing power. At just 3% inflation, purchasing power is cut in half every 24 years.
The second mistake is remaining too aggressive for too long. A significant market drop at age 68 leaves little time for recovery compared to younger years.
Most retirees benefit from a balanced approach: sufficient conservative investments to cover several years of expenses, with the remainder invested for growth. The exact mix depends on individual situations, risk tolerance, and other income streams like pensions or Social Security.
Ignoring Tax Planning
Taxes don’t disappear during retirement; they typically become more complex.
Most retirees have savings across various account types. Traditional 401(k)s and IRAs incur taxes upon withdrawal, Roth IRAs offer tax-free withdrawals, and regular investment accounts generate taxable gains and dividends. Withdrawal strategies significantly impact total tax bills.
Withdrawing solely from traditional retirement accounts initially might seem logical, but this approach can push retirees into higher tax brackets, increasing the taxable portion of Social Security benefits. A balanced withdrawal approach across account types usually results in substantial tax savings.
Required minimum distributions (RMDs) begin at age 73 and further complicate matters. Large traditional retirement accounts may force unwanted withdrawals, potentially driving retirees into higher tax brackets.
Why This Matters
Most retirees simply want confidence that their finances will hold up and want to avoid unpleasant surprises. Begin by clearly understanding your current position. How much money will you actually need each month? Where will that money come from? What healthcare expenses can you expect? How will taxes affect you? These questions don’t need immediate answers but are essential to consider proactively.
Get a Second Opinion on Your Retirement Plan
If any of these concerns resonate, you’re not alone. These five areas represent common pitfalls that comprehensive planning can address.
Perhaps you’ve invested diligently but haven’t yet connected all the pieces. Maybe you’re unsure if your Social Security strategy is sound, or if your investment allocation matches your timeline. Or perhaps you’d simply like someone to clearly and honestly assess your current retirement readiness.
At Byrne Asset Management, each client receives personal attention. There are no mass-produced solutions or product-driven approaches. Conversations begin by fully understanding your specific circumstances and retirement goals.
Comprehensive planning proactively addresses Social Security timing, tax-efficient withdrawal strategies, healthcare budgeting, and tailored investment allocation.
Ready to feel more confident about your retirement? Explore our website to learn how Byrne Asset Management can help or contact us directly at 609-497-1776. We’re here to help you build a retirement plan you can count on.