I’m a Financial Advisor: 5 Retirement Mistakes That Aren’t Talked About — And How To Avoid Them

Confused woman making calculations

You’ve probably heard countless stories about the common retirement planning mistakes people make. They spend too much money supporting their adult children. They forget to factor taxes into their withdrawal strategy. They retire too early. Or, worse yet, they don’t have a retirement plan at all.

Unfortunately, many people also routinely fall into money traps post-retirement. They claim Social Security before age 70 (when their benefit amount is highest). Or, they spend down their assets too quickly during the initial years of their retirement, guaranteeing financial stress in the years ahead.

However, some people experience situations that don’t get discussed as often as they should. Financial planners shared a handful of client stories to help illustrate these potential retirement pitfalls. That way, you’re aware of them and can avoid falling victim to them.

Gambling With Retirement Assets

You don’t need to hit the casino to gamble away your retirement savings. Risky, speculative investments can shrink your nest egg faster than you can say, “Black Jack!”

“A man aged 61 in Arizona put a large amount of his investable assets into a little-known cryptocurrency with a high promised return. The client ultimately lost over 56% of his assets when the cryptocurrency became practically worthless,” said Jonathan Bird, certified financial planner and wealth advisor at Farnam Financial.

Are You Retirement Ready?

“The client needed to diversify his assets to reduce his risk exposure. He will need to wait several years longer to retire and will have to reduce retirement expenses significantly.”

  • What to do instead: Invest in well-known, stable assets that are statistically proven to hold their value or appreciate over time. Ask your financial advisor if your portfolio is too aggressive for your risk tolerance and retirement timeline.

Failing To Update Beneficiaries

When you die, your beneficiaries will receive the assets you bequeathed to them. But if you don’t stay on top of your financial documents, you could leave your riches to the wrong person.

“A widow in Arizona aged 61 was unable to retire on time after her husband passed, and she found out his ex-wife was listed as his beneficiary. She fought the case in court but didn’t win. She had to start from scratch, all because they forgot to make sure their beneficiaries were up-to-date,” Bird said.

  • What to do instead: Update your beneficiaries as needed any time you experience a major life change, like divorce, marriage, the birth of a child or the death of a beneficiary. Plan to review your beneficiaries at least annually.
Are You Retirement Ready?

Letting Emotions Make Your Investment Decisions

If you’re nearing retirement age, you’ve been through a recession or two in your lifetime. These economic conditions can make your emotions run high, possibly leading to irrational behavior.

“I had a client who planned to retire in their early 60s. They had enough saved and planned to take their pension and Social Security and make up the difference with their retirement account balances,” said Kevin Lao, certified financial planner and founder of Imagine Financial Security. “Long story short, their retirement was pushed back a decade because of 2008-2009. The husband panicked and moved a large chunk of his equity positions into a fixed annuity within his 403b plan.

“The problem: that annuity was not liquid, and he missed out on getting back into equities for the next several years. Fast forward to their retirement in 2020, mental health challenges impacted their daughter, and their two grandchildren (14 and 10 years old) are now living with them full-time. Needless to say, they can’t travel like they anticipated.”

  • What to do instead: When the market’s volatile, take a deep breath and center your thoughts. If you’re unsure how to proceed, call your financial advisor or a financially savvy friend. Chances are, they’ll tell you to leave your investments alone because the market will stabilize and rebound. “When planning for retirement, you need to remove emotions and follow a well-defined, disciplined process,” Lao said.
Are You Retirement Ready?

Not Enjoying Life Pre-Retirement

Retirement is a significant milestone that you look forward to for decades. But, unfortunately, tomorrow isn’t promised to any of us.

“My client saved every penny he earned, never spent a dime he didn’t have to. His goal was to retire at 70 and travel the world with his wife. Unfortunately, two years before retirement, his wife died of cancer,” said Bryan Wisda, certified financial planner and president of Almega Wealth Management.

“The old saying of not putting all your eggs in one basket is true. Here, against my advice, he never found a happy medium to enjoy the years with his wife. Ultimately he did retire, got remarried, and traveled the world, but there is a part of him missing.”

  • What to do instead: Diligently save for your future — but don’t forget to live for today. “My advice is to work with your financial advisor to find the happy medium between enjoying life and saving for retirement. Maybe that means putting off retirement [for] a few years,” Wisda said.

Underspending During Retirement

You spend years amassing your fortune. It’s only natural to hesitate to spend it. Unfortunately, underspending can be just as devastating to your life as overspending.

“A couple here in Tampa comes to mind where the husband was a successful attorney and worked into his early 70s. I started to work with them in their late 70s,” said Chris Shoup, certified financial planner and founder of Southshore Financial Planning. “Over the years, travel and outdoor hobbies they loved became more difficult because of health challenges. They often voiced regrets [about] not enjoying more healthy years together. They also had higher portfolio balances than they had intended to leave to others.”

Are You Retirement Ready?

Peter Bobolia, certified financial planner at Family First Financial Planning, has seen this scenario play out for his clients, too. He said it’s “a common conversation with clients who have clearly amassed enough in their 60s and do not need to continue working unless they enjoy it.

“People are understandably concerned with overspending and running out of money in retirement. It can certainly cause financial planning problems if you spend $2k too much every month. 

“[However,] while spending level is, of course, extremely important, it is an entirely different use of money to satisfy life’s goals and dreams on that boat that you always wanted or a trip to Europe. I love to show people that they can spend $20-$50k on trips or multiple trips without any major financial impact.”

  • What to do instead: Work with a financial professional to determine a retirement date and withdrawal strategy that aligns with your assets and supports your lifestyle and legacy goals. “A comprehensive financial plan earlier in life may have given [the couple] the confidence to retire sooner. Flexible financial planning that monitors and can course correct along the way can also help with avoiding the risk of underspending throughout retirement,” Shoup said.

More From GOBankingRates


See Today's Best
Banking Offers