Retirement Planning Mistakes

Planning for retirement is more than just a routine task; it’s a crucial step toward ensuring a comfortable and secure future. Yet, despite its importance, many people make critical missteps that jeopardize their financial stability during their golden years. From delaying the start of savings to underestimating future expenses, these all-too-common retirement planning mistakes can significantly impact your quality of life once you stop working.

Whether you’re climbing the corporate ladder or approaching retirement age, understanding and proactively addressing these pitfalls is essential for long-term financial success.

Avoid these six common retirement planning mistakes:

#1: Delaying the Start of Retirement Savings

One of the most common and easily avoidable retirement planning mistakes people make is waiting too long to start preparing. Perhaps that’s why 56% of working Americans believe they’re behind on their retirement savings, according to a recent Bankrate survey.

Delaying your planning may require you to save more aggressively as you near retirement and can lead to a savings shortfall later in life. To avoid these potential outcomes, it’s wise to begin saving as early as possible. Even if your initial contributions are modest, the compound interest over time can turn these small amounts into a major portion of your retirement resources.

#2: Failing to Maximize Contributions to Tax-Advantaged Accounts

Tax-advantaged accounts such as Individual Retirement Accounts (IRAs) and 401(k)s are powerful retirement planning tools. These accounts offer significant tax benefits, and contributing to them can provide meaningful tax savings both now and in the future.

Failing to maximize contributions to these accounts can be a missed opportunity, especially if your employer offers a 401(k) match. To avoid leaving money on the table, try to contribute the maximum each year to take full advantage of the tax benefits and compound growth these accounts offer.

In 2024, you can contribute up to $7,000 to an IRA and $23,000 to a 401(k) or similar employer-sponsored plan. If you’re over 50, you can contribute an additional $1,000 to an IRA and an additional $7,500 to a 401(k).

#3: Overlooking the Impact of Inflation

Financial planners often refer to inflation as the “silent thief” in retirement planning because it gradually erodes the purchasing power of your savings without any immediate, noticeable impact. Over time, however, inflation can significantly reduce how far your money goes, posing a threat to your financial security in retirement.

One of the most serious retirement planning mistakes people can make is investing their nest egg too conservatively or not investing at all because they didn’t consider the impact of inflation. Fortunately, if you’re still several years from retiring, you can avoid this pitfall by ensuring your investments have the potential to outpace inflation over time.

Generally, investing in equities is an effective way to combat the long-term effects of inflation. If you’re nearing retirement, holding Treasury Inflation-Protected Securities (TIPS) can help you preserve your purchasing power, as these securities are designed to appreciate with inflation.

#4: Misjudging Tax Implications in Retirement

Tax planning is an integral component of a comprehensive retirement plan. Nevertheless, one of the retirement planning mistakes many people make is neglecting or misjudging the impact of taxes on their retirement resources.

Understanding how different retirement accounts are taxed upon withdrawal is crucial for optimizing your financial resources during retirement. Funds from traditional IRAs and 401(k)s, for instance, are taxed as ordinary income at the time of withdrawal. In contrast, Roth IRAs and Roth 401(k)s offer tax-free withdrawals since you contribute after-tax dollars to these accounts.

Furthermore, working with a fiduciary financial advisor like Benchmark Wealth Management to develop a personalized retirement income strategy can help minimize your tax burden in retirement and avoid other costly penalties that deplete your savings. For example, Medicare beneficiaries whose income exceeds certain thresholds may be subject to a surcharge called IRMAA, which can significantly increase your healthcare costs in retirement if you don’t proactively manage your income.

#5: Choosing the Wrong Investment Strategy

When it comes to retirement planning, another common mistake is investing too conservatively or too aggressively for your goals and time horizon.

An overly aggressive approach can expose you to significant volatility and potential losses, which can be particularly harmful if the market dips near or during your retirement years. Conversely, investing too conservatively can result in an eventual savings shortfall, especially since retirement can last 20 to 30 years or more as healthcare improves and people live longer.

To strike the optimal balance, it’s essential to tailor your investment strategy to your age, financial goals, and risk tolerance, adjusting your portfolio accordingly over time. An experienced financial advisor can help you design an investment portfolio that considers your near-term needs as well as your longer-term financial objectives, ensuring you’re properly positioned for opportunities and challenges that lie ahead.

#6: Underestimating Healthcare Expenses

As we age, healthcare often becomes a more significant expense. Unfortunately, underestimating the potential cost of healthcare can pose a serious threat to your financial security in retirement.

According to the Fidelity Retiree Health Care Cost Estimate, an individual turning 65 in 2023 may need to have about $157,500 saved (after taxes) for healthcare expenses in retirement. Meanwhile, the average married couple may need approximately $315,000 saved to cover their healthcare costs.

While Medicare helps defray many of these costs, beneficiaries are still responsible for expenses like deductibles and copays. Furthermore, Medicare doesn’t cover many services and treatments, most notably long-term care. Since it’s estimated that 48% of people turning 65 will need some form of paid long-term care services in their lifetimes, failing to incorporate this possibility into your retirement plan can jeopardize your financial well-being during your golden years.

There are various strategies you can employ to prepare for the potentially high cost of healthcare and avoid this common retirement planning mistake. Examples include:

  • Health Savings Account (HSA). If you have access to an HSA, try to maximize your contributions. These accounts offer triple tax advantages—contributions are tax-deductible, the balance grows tax-free, and withdrawals for qualified medical expenses are also tax-free.
  • Long-term Care Insurance. Consider long-term care insurance, which can cover the cost of home care, assisted living, or nursing home care—expenses Medicare doesn’t cover—if you need them.
  • Budget for Out-of-Pocket Costs. Be sure to include potential out-of-pocket healthcare expenses in your retirement budget, accounting for the impact of inflation on these costs.

By taking proactive steps to account for healthcare costs, you can help minimize the impact of unexpected medical expenses on your retirement plans.

Partner with Benchmark Wealth Management to Avoid These Retirement Planning Mistakes

The road to retirement is often fraught with challenges, and missteps along the way can be costly. By avoiding these retirement planning mistakes and other common pitfalls, you can reduce the risk of falling short of your financial goals, paving the way for a secure and prosperous future.

Remember, you don’t have to go it alone. Benchmark Wealth Management can offer personalized guidance to help you craft a retirement strategy that reflects your priorities and goals and provides peace of mind in your golden years. Contact us to begin your retirement planning journey today.


About Rick

Richard W. Stout III is managing director of Benchmark Wealth Management, LLC, with 25 years of experience in the financial industry. He specializes in financial planning and asset management for individuals, families, and institutions seeking to build and monitor durable and sustainable plans for their financial futures. Rick is a Certified Financial Planner™ professional and holds the Accredited Investment Fiduciary® (AIF®) designation. He obtained his MBA from Rensselaer Polytechnic Institute and his BA in Economics and Anthropology from the University of Connecticut. Rick has earned a Master of Science degree in Personal Financial Planning from the College for Financial Planning. He has extensive background experience in lending, credit review and analysis, and real estate and partnership management. Learn more about Rick by connecting with him on LinkedIn.

About Thomas

Thomas J. Britt is managing director of Benchmark Wealth Management, LLC, with 23 years of experience in the financial industry. He specializes in executive financial planning, retirement planning, investing, as well as the management of trusts and endowments. Thomas is a CERTIFIED FINANCIAL PLANNER™ professional. He holds the Master Planner Advanced StudiesSM, MPAS®, Certified Investment Management Analyst® (CIMA®), and Chartered Retirement Planning Counselor℠, CRPC® designations. Thomas earned a Bachelor of Science in Finance from the University of New Haven, an MBA in financial technology from Rensselaer Polytechnic Institute, and a Master of Science in Personal Financial Planning from the College for Financial Planning. He is also a proud veteran of the United States Navy Submarine Force. Learn more about Tom by connecting with him on LinkedIn.

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