Don’t Let These Pitfalls Derail Your Future

Let’s start with one of the biggest culprits: lack of cash reserves. If you don’t have an emergency fund, you could be forced to rack up debt or withdraw from your retirement accounts—both of which come with a hefty cost.

Another common issue? People not taking advantage of their 401(k) match. Around 10% of eligible employees skip it entirely. That’s free money left on the table! And let’s not forget the parents supporting adult children at the expense of their own retirement. One stat that floored me: 23% of parents give their adult kids $600 a month, while only saving $490 for themselves. Over 20 years, that could mean sacrificing $300,000 in potential growth.

The Hidden Cost of Early Withdrawals

Pulling money out of your retirement account before age 59½? You might as well hand half of it to the IRS. Between federal and state taxes and a 10% early withdrawal penalty, you could walk away with just 50-60% of what you originally had.

We ran the numbers: a $100,000 withdrawal today could’ve grown to $600,000 over 30 years at a 6% return. That’s the power of compound growth—and why you want to leave those retirement funds untouched if possible.

Sure, there are exceptions for things like education or first-time home purchases, but those withdrawals are still taxed. So use caution and think long-term.

Withdrawal Strategies That Actually Work

One of the most important parts of retirement planning is determining how you’ll draw down your portfolio. We recommend sticking to sustainable withdrawal rates:

• Ages 50–60: 3%
• Ages 60–65: 3.5%
• Ages 65–70: 4%

Don’t fall into the trap of thinking you can safely withdraw 10% annually just because the market might return that in a good year. Markets fluctuate, and down years early in retirement can wreck your plan.

Tax Efficiency Can Make or Break Your Plan

Many people wait until RMDs kick in to access their traditional IRAs, but that can lead to massive tax bills later. Instead, take advantage of your lower tax brackets in early retirement. Strategic withdrawals or Roth conversions now can mean less tax pain in the future.

If you have a mix of tax-deferred, taxable, and Roth accounts, you have flexibility. Use that flexibility to create a tax-smart drawdown plan that supports your long-term goals.

Don’t Underestimate Inflation or Sequence Risk

A 3% annual inflation rate may not sound like much—until you realize it cuts your dollar’s value in half over 20 years. And we’ve seen 7-9% inflation in recent years, which puts even more pressure on your savings.

Then there’s sequence of return risk—when the market dips early in your retirement and you’re forced to sell investments to generate income. That combination can drain your portfolio faster than you think. The fix? Keep a cushion of safe money, like cash or CDs, to draw from during those rough market years.

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.

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