5 Retirement Planning Mistakes That Could Wipe Out Your Savings

Warren Buffett once said, “It’s good to learn from your mistakes, but it’s better to learn from other people’s mistakes.” This wisdom is especially true when it comes to your retirement planning.

The last thing you want to do is to run out of money too early. Avoiding these 5 frequently-made retirement planning mistakes can help reduce the likelihood of that happening:

1. Not Having a Plan to Generate Income in Retirement

When you retire, you’ll likely find yourself in one of two situations. You might be living off your retirement savings, watching your nest egg shrink with every purchase – a stressful way to spend your golden years.

The alternative is having your money work for you, with different sources of income arriving monthly and quarterly like clockwork. This income can fund your retirement dreams, from helping your grandkids to buying that vacation home you’ve always wanted.

Traditional fixed income options like CDs, savings accounts, and bonds are no longer as viable as they once were. When you factor in taxes and inflation, these “safe” investments actually guarantee you’ll lose money.

Many retirees fear investing in the stock market due to volatility and the risk of losing principal. This creates a challenging situation where traditional “safe” investments aren’t keeping pace with inflation, but market investments feel too risky.

The solution? Your retirement income strategy should include several streams of income from different non-correlated sources. This diversification helps protect you during inflation, market downturns, and recessions.

Having multiple income sources also provides peace of mind, knowing you’re not dependent on any single investment or strategy. This approach can help you maintain your lifestyle regardless of market conditions.

2. Mishandling Social Security Benefits

Here’s a shocking statistic: according to Forbes[1] , 96% of Americans lose an average of $111,000 in Social Security income. Filing for Social Security could be one of the most important financial decisions you’ll ever make.

Many people focus solely on getting the biggest benefit check. This is a critical mistake because filing for Social Security has a domino effect on other aspects of your retirement, including:

• Your taxes
• IRA and 401(k) withdrawals
• Medicare premiums

With Social Security’s trust fund projected to run out between 2034 and 2035, your filing strategy becomes even more crucial.

Many so-called experts claim that delaying Social Security to get the biggest benefit check is a “no-brainer.” However, this advice doesn’t consider your complete financial picture.

When making your Social Security decision, you need to consider all your income sources. This includes pensions, investment portfolio returns, real estate income, and business income.

The timing of your filing can significantly impact your overall retirement strategy. It’s not just about maximizing your monthly check – it’s about optimizing your total retirement income while minimizing taxes and healthcare costs.

3. Not Planning for Taxes in Retirement

Think you’ll pay less in taxes in retirement? Think again. When you add up money from your IRA and 401(k) withdrawals, Social Security benefits, and other investment income, you could actually end up paying more taxes in retirement.

Consider Bob and Carol, who saved just over a million dollars in their IRAs and 401(k)s. What they didn’t realize was that they owed $572,000 in taxes to Uncle Sam on their retirement accounts.

Today’s federal tax rate of 37% is historically low compared to the 70% rate in the early 1980s. With our national debt at an all-time high, higher taxes could be the next shoe to drop.

There’s a crucial difference between tax preparation and tax planning. Tax preparation is looking backward and filing your annual return, while tax planning looks forward and uses tax law to your advantage.

The savings from proper tax planning can be significant – often tens or hundreds of thousands of dollars. This is money you could use for travel, a vacation home, or to cover the rising costs of healthcare.

Starting tax planning in your 50s gives you the opportunity to make adjustments before retirement. This proactive approach can help you keep more of your hard-earned money.

4. Underestimating Healthcare Costs

According to MarketWatch[2] , a healthy average couple at age 65 will spend $662,156 on retirement healthcare expenses. This number becomes even more concerning when you consider inflation’s impact on medical costs.

Don’t assume Medicare will cover all your healthcare expenses. The reality is you’ll still have significant out-of-pocket costs.

Even routine medical events can lead to staggering expenses. A single overnight hospital stay or emergency treatment can result in tens of thousands of dollars in bills.

Long-term care presents another challenge. At age 65, you have a 70% chance of needing some form of long-term care during retirement. Current costs are staggering:

• Private nursing home room: $108,500 annually
• Semi-private room: $95,000 annually
• Home health aide: $62,000 annually

Healthcare inflation is growing faster than general inflation. What costs $662,000 today could be significantly more expensive in 5, 10, or 20 years.

Planning for these expenses requires a comprehensive strategy that considers insurance options, savings vehicles, and investment approaches specifically designed for healthcare costs.

5. Taking Too Much Investment Risk

As Warren Buffett says, “It’s insane to risk what you have in order to obtain what you don’t need.” The closer you get to retirement, the less risk you should take because you have less time to recover from financial setbacks.

Don’t follow outdated strategies like the 60-40 rule or “100 minus your age in stocks.” Your portfolio should be uniquely tailored to your situation and regularly rebalanced every 6-12 months.

In meetings with thousands of families each year, advisors find that 99% of people are taking far more investment risk than they know or need at their stage of life. What people say about their risk tolerance often doesn’t match their actual portfolio allocation.

Wild swings in the stock market can leave you unknowingly invested too conservatively or too aggressively. Neither scenario serves your retirement goals well.

A properly diversified portfolio goes beyond a simple mix of stocks, bonds, and mutual funds. It should be tailored to your specific situation, goals, and risk tolerance.

Regular portfolio reviews and rebalancing are crucial, especially during times of significant market volatility or after major life events.

Take Action Now To Protect Your Retirement Savings

B.O.S.S. Retirement Solutions, a five-time winner of the Best of State Award, offers a free B.O.S.S. Retirement Blueprint^TM for those with at least $200,000 in retirement savings. This comprehensive plan addresses all these potential mistakes and more.

To schedule your free analysis, call 800.637.1031. Remember, it’s not what you make, it’s what you keep.

The sooner you address these common retirement planning mistakes, the better positioned you’ll be for a secure and comfortable retirement. Don’t wait until it’s too late to protect your hard-earned savings. A comprehensive retirement game plan is essential, especially if you retire during economic uncertainty or market volatility. Saving and investing alone are no longer enough – you need a strategy that addresses all these potential pitfalls.