Don’t Make These 7 Retirement Mistakes
Retirement rarely falls apart because of one dramatic decision. It usually unravels through a series of avoidable mistakes what many advisers call “wealth busters.”
Here are seven of the most common retirement mistakes that quietly erode savings over time.
1. Not Having an Emergency Fund
One of the top regrets retirees report is failing to build adequate cash reserves. Without an emergency fund, unexpected expenses often land on credit cards, home equity lines, or loans from family members. High-interest debt late in life can undo decades of careful saving. Even more surprising, about 10% of workers eligible for a 401(k) match fail to contribute enough to receive it leaving free money on the table.
2. Funding Adult Children at the Expense of Retirement
Roughly 1 in 4 parents tap retirement savings to support adult children. About 22% delay retirement entirely to continue financial help. The long-term math is costly. Giving $605 per month for 10 years at a 6% return equals nearly $100,000. Stretch that to 20 years and the opportunity cost approaches $300,000.
3. Taking Early Withdrawals From Retirement Accounts
Pulling money from a 401(k) or IRA before age 59½ typically triggers taxes and a 10% penalty. In many cases, early withdrawals reduce the usable amount by 30% or more. Beyond the immediate hit, you also lose decades of potential compounding.
4. Ignoring Sequence-of-Returns Risk
Retiring into a market downturn can permanently damage a portfolio. A 19% loss early in retirement combined with 3.5% inflation can shorten portfolio life by years. Recovering from a 34% loss may require gains of 45% or more a difficult climb while taking withdrawals.
5. Underestimating Inflation
Even 3% annual inflation over 20 years reduces purchasing power to roughly 55 cents on the dollar. Recent inflation spikes of 7% to 9% have shown how quickly expenses can rise. Ignoring inflation can quietly shrink retirement income over time.
6. Using the Wrong Withdrawal Strategy
The traditional 4% rule suggests withdrawing 4% annually to reduce the risk of running out of money over 30 years. However, younger retirees may need to withdraw closer to 2.5% to 3% to account for longer retirements. Withdrawal rates should be flexible and adjusted based on market conditions.
7. Failing to Plan for Taxes and Required Minimum Distributions (RMDs)
Letting tax-deferred accounts grow unchecked can lead to large required minimum distributions later in retirement. Higher RMDs increase taxable income and can push retirees into higher tax brackets. Strategic Roth conversions and proactive tax planning can potentially save substantial amounts over time.
Retirement security is not just about how much you save. It’s about how well you avoid the traps that quietly drain wealth.
Preparing for market downturns, maintaining three to five years of safe assets, managing taxes strategically, and protecting against inflation are all part of a comprehensive plan.
The biggest retirement mistakes are often the slowest to notice and the most expensive over time.
Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.
IMPORTANT DISCLOSURES:
• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.
• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.
• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.
