The Biggest Portfolio Mistakes Retirees Make And How to Build a Retirement Strategy That Actually Fits

One of the most common mistakes I see retirees make has nothing to do with picking the wrong stock. It has everything to do with using the wrong strategy.

Too many people enter retirement with cookie-cutter portfolios built from generic advice. Some manage their own investments and rely on what worked in the past. Others hire advisers who place them into standardized allocations like a 60/40 portfolio without digging deeper into their actual financial needs.

Both approaches can quietly put retirement security at risk.

The real issue isn’t whether you’re self-managing or working with an adviser. The issue is whether your portfolio is tailored to your life.

We’re living longer and, in many cases, retiring earlier. That means your portfolio may need to support you for 25 to 35 years. Add in market volatility, inflation, healthcare costs, and potential changes in income, and the margin for error shrinks quickly.

Let me give you an example of what happens when portfolios aren’t aligned with reality.

Consider John, age 62, retiring with a $2 million portfolio invested entirely in NASDAQ stocks. For years, this strategy worked beautifully. The market was strong, and growth was impressive. But in 2022, the NASDAQ fell roughly 33%.

John’s $2 million portfolio dropped to approximately $1.34 million. Now add withdrawals. If he was taking 5% annually to fund retirement income, the damage compounds. Between market losses and withdrawals, the total decline approaches 38%.

Here’s the math problem many retirees overlook: recovering from a 33% loss doesn’t require a 33% gain. It requires a much larger return to get back to even. The deeper the decline, the steeper the climb.

This is what we call sequence of returns risk when market downturns early in retirement permanently damage a portfolio because withdrawals are happening at the same time.

Now let’s look at the other side of the equation.

Lisa also retires with $2 million. Her adviser places her in a standard 60/40 stock-bond portfolio. That’s often presented as the “appropriate” retirement mix. But here’s the question most advisers never ask deeply enough: how much does Lisa actually need from her portfolio?

After a comprehensive review, we discover Lisa only needs $40,000 per year from her investments. That’s just 2% of her portfolio. She doesn’t need the stability that a heavy bond allocation provides because her withdrawal rate is modest.

In fact, a deeper analysis shows that Lisa could potentially take on more equity exposure, perhaps a 90/10 allocation, because her cash flow needs are relatively low compared to her portfolio size. Over a long retirement, that difference in allocation could result in millions more in ending wealth.

The problem wasn’t that 60/40 is “bad.” The problem was that it wasn’t personalized.

Bonds absolutely have a role in retirement portfolios. They help manage volatility and provide a buffer during market downturns. They can protect against sequence of returns risk and create a pool of more stable assets for withdrawals. But the right bond allocation depends on your specific income needs, not your age alone.

Age-based investing is too simplistic. Retirement planning should account for:
– Expected cash flow needs
– Inflation
– Longevity
– Market risk tolerance
– Healthcare costs
– Survivor needs if a spouse passes away
– Changes in spending throughout different life stages

Spending rarely stays flat in retirement. Many retirees spend more in the early “go-go” years, less in the middle years, and potentially more again later due to healthcare. A portfolio must reflect that flexibility.

This is why I always emphasize two critical steps.

Step one is building a comprehensive financial plan. Before we ever talk about asset allocation, we define income sources, spending goals, Social Security timing, tax strategy, inflation assumptions, and risk tolerance. We stress-test the plan against potential market downturns.

Step two is designing the portfolio to support that plan. Not the other way around.

When you start with the portfolio instead of the plan, you increase the risk of a mismatch. And mismatched portfolios create unnecessary retirement anxiety.

A well-designed retirement strategy isn’t about chasing the highest return or blindly following a template. It’s about aligning your investments with your life.

If your withdrawal rate is high, your bond allocation may need to be higher to protect income stability. If your withdrawal rate is low and you have strong guaranteed income sources, you may have more flexibility to pursue growth.

The key takeaway is simple: retirement portfolios should be engineered, not copied.

Generic advice might feel safe because it’s common. But common doesn’t mean correct for you.

Your retirement deserves more than a template. It deserves a strategy built specifically around your goals, your risks, and your future.

You should always consult a financial, tax, or legal professional familiar about your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns.

Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.