Approaching retirement is an exciting yet often overwhelming transition. For those who have accumulated wealth over the years, it’s crucial to ensure your retirement plans are as robust and secure as possible by avoiding these common pitfalls.

The goal of retirement planning is not just to enjoy your golden years but also to protect your assets and avoid financial pitfalls that could derail your future. This blog explores the most common retirement planning mistakes and offers strategies to help avoid them.

Disclaimer: The content provided here is for educational purposes only and does not constitute specific investment advice or a solicitation to buy or sell any securities.

1. Neglecting to Plan for Healthcare Costs

Healthcare costs are one of the biggest retirement expenses, and they often surprise retirees who haven’t planned adequately. According to a 2023 report, the average couple retiring at age 65 will need around $315,000 to cover healthcare expenses throughout retirement. This figure includes premiums, deductibles, and out-of-pocket costs but doesn’t account for long-term care, which can add significant costs.

How to Avoid This Mistake:

• Research Medicare and Supplement Plans: Medicare will cover certain healthcare costs but doesn’t cover everything. Exploring supplemental plans or long-term care insurance options is important to help bridge the gap.
• Establish a Health Savings Account (HSA): If you are eligible, contributing to an HSA can provide a tax-advantaged way to help save for healthcare expenses in retirement.
• Create a Healthcare Budget: Include potential medical expenses in your retirement budget and set aside a portion of your retirement savings specifically for healthcare.

2. Underestimating the Longevity of Your Retirement

It’s not uncommon for people to underestimate how long they will live in retirement. In the U.S., life expectancy for a 65-year-old couple is about 20 to 30 years, according to the Centers for Disease Control and Prevention (CDC). While many plan for 20 years, failing to account for the possibility of living longer can cause financial stress.

How to Avoid This Mistake:

• Plan for a Longer Retirement: Many retirement experts suggest planning for at least 30 years of retirement. By planning for a longer retirement, you can ensure your income and savings last throughout your life.
• Diversify Your Income Streams: Consider exploring a range of income options for retirement to ensure long-term financial stability. Diversification may include a combination of investment income, pensions, rental properties, or other financial tools that suit your needs.

3. Ignoring Inflation

Inflation can erode your purchasing power over time. Even modest inflation rates can significantly impact your retirement income over 30 years. For example, if inflation averages 3% per year, something that costs $1,000 today will cost nearly $2,427 in 30 years.

How to Avoid This Mistake:

• Explore Inflation-Protected Investments: Some types of investments, such as U.S. Treasury Inflation-Protected Securities (TIPS), are designed to help adjust for inflation and may offer potential protection against rising costs.
• Build Flexibility into Your Retirement Plan: Make sure your retirement plan allows adjustments to accommodate rising costs. A flexible plan can help you maintain your lifestyle even if inflation outpaces expectations.

4. Relying Too Heavily on Social Security

Social Security is an essential part of retirement for many Americans, but it cannot cover all your living expenses. In 2024, the average monthly Social Security benefit is $1,900, but many retirees need much more than this to maintain their standard of living.

How to Avoid This Mistake:

• Maximize Social Security Benefits: If you can afford to, consider delaying the start of Social Security benefits until you reach full retirement age or even 70. This can help increase your monthly payments.
• Develop Other Income Sources: Social Security should be part of your retirement income. It’s important to have other sources of income, such as investments, rental properties, or pensions, to help ensure you can maintain your desired lifestyle.

5. Failing to Account for Taxes in Retirement

Many people need to consider the tax implications of their retirement income. Required Minimum Distributions (RMDs) from traditional IRAs and 401(k)s, for example, are taxed as ordinary income. This can push you into a higher tax bracket, potentially reducing your after-tax income.

How to Avoid This Mistake:

• Consult a Professional: Working with a financial advisor can help you plan for the tax implications of your retirement income. They can help you strategize to minimize taxes and preserve your wealth.
• Diversify Your Tax Strategy: A mix of tax-deferred, tax-free, and taxable accounts gives you flexibility to manage taxes during retirement. Roth IRAs, for example, allow tax-free withdrawals, whereas traditional retirement accounts are taxable upon withdrawal.

6. Spending Too Much, Too Soon

It’s tempting to spend lavishly early in retirement, especially after working for many years, but overspending in the early years can jeopardize long-term financial security. Some retirees fall into the trap of “lifestyle inflation,” where they begin spending more on non-essential luxuries as soon as they stop working.

How to Avoid This Mistake:

• Create a Realistic Budget: Establish a clear budget for essential and discretionary expenses. Being mindful of your spending can help ensure you don’t deplete your savings too quickly.
• Consider a Withdrawal Strategy: Retirees use various strategies to withdraw funds from their accounts, such as the commonly discussed 4% rule. These strategies help you balance your income needs and preserve your assets over time.

7. Ignoring Estate Planning

Estate planning is essential for helping ensure that your wealth is transferred to your heirs according to your wishes. Without a clear estate plan, you risk your assets being distributed based on state law, which may not align with your desires.

How to Avoid This Mistake:

• Create or Update Your Will: Confirm that your will reflects your current wishes. This includes naming account beneficiaries and specifying how your assets should be distributed.
• Consider a Trust: A trust can help avoid probate, minimize estate taxes, and provide more control over the distribution of your wealth.
• Include Healthcare Directives: Besides financial planning, healthcare directives specify your wishes for medical care should you become incapacitated.

8. Not Adjusting Investments as You Age

When you’re younger, taking a more aggressive investment approach is common. However, as you approach retirement, it’s important to reassess your portfolio’s risk. Taking on too much risk in retirement can lead to significant losses that might be hard to recover.

How to Avoid This Mistake:

• Rebalance Your Portfolio: As you approach retirement, consider reallocating your assets to help reduce exposure to volatile investments. A diversified portfolio that balances equities and bonds can help preserve your wealth.
• Use Target-Date Funds: These funds automatically adjust your asset allocation based on your target retirement date. It’s an easy way to help ensure your portfolio stays aligned with your retirement goals.

Final Thoughts: The Importance of Professional Guidance

Retirement planning can be complicated, especially for high-net-worth individuals. Mistakes can be costly, but the right strategies and team of professionals can help you navigate the complexities of preparing for a more secure and comfortable retirement.

CKS Summit Group is here to help guide you through the retirement planning process. Our experienced team can provide you with the educational resources you need to create a retirement plan that addresses all aspects of your future, from healthcare costs to taxes, estate planning, and more.

Contact us today to schedule a complimentary consultation. 

Disclaimer: This blog post is intended for informational and educational purposes only. The content is not a substitute for professional advice and does not constitute a solicitation to buy or sell securities. It is important to consult with a financial advisor before making any financial decisions.