Top Retirement Mistakes Even Experienced Investors Tend to Overlook

Experienced investors might believe they have everything figured out, but even minor missteps can disrupt years of planning and put their financial future at risk. That is why it is essential to stay vigilant, plan smartly, and avoid common pitfalls.

Consulting a financial advisor can help steer clear of retirement planning errors. This article highlights some of the most frequent retirement mistakes and how to avoid them to enjoy a financially secure retirement.

Below are some of the top retirement mistakes you should avoid if you’re planning to retire in the next five years:

1. Not paying attention to tax diversification

When it comes to diversification, most people think about spreading their investments across different asset classes, risk levels, and market sectors. While this approach helps in reducing risk and balancing returns, tax diversification is an equally critical but often overlooked factor. Ignoring it could cost you a lot in taxes when you make withdrawals later in life.

Tax diversification refers to investing in options that are taxed differently. It provides investment flexibility and helps you minimize your tax liability. For instance, let’s consider a scenario where you have built a portfolio filled with stocks. You have multiple stocks from different companies from various sectors, industries, and market caps. While this is excellent diversification for risk management, all your stock investments will still be subject to capital gains tax when you finally sell them. This lack of tax diversification could leave you with a hefty tax bill at the time of withdrawal and put you in a higher tax bracket for the concerned year. Now, if you also consider adding a Roth Individual Retirement Account (IRA) to the mix, you could diversify your portfolio from the tax point of view. Contributions made to a Roth IRA are made with after-tax dollars, but withdrawals, including growth, are tax-free in retirement. If your investment portfolio is a mix of taxable investments like stocks and tax-advantaged accounts like a Roth IRA, you can manage your withdrawals effectively. You can pull some money from the taxable stocks and the rest from the Roth IRA. This blend can reduce your overall tax liability since the Roth IRA withdrawal will not increase your taxable income.

Tax diversification also includes considering tax-deferred accounts like traditional IRAs or 401(k)s, which provide upfront tax benefits when you contribute to them but are taxed upon withdrawal. Including these accounts in your portfolio can help you manage your taxes well.

2. Not having a fixed withdrawal rate

Not knowing how to use the wealth you have built is one of the biggest retirement mistakes to avoid. Without a structured plan for withdrawing your money, you risk depleting your funds too quickly and facing financial struggles later in life. Even seasoned investors can fall into the trap of thinking that a successful portfolio gives them the freedom to spend lavishly. However, this mindset can lead to unnecessary financial strain during retirement.

A fixed withdrawal rate helps balance your current financial needs and preserve your savings for the years ahead. One of the most widely used benchmarks is the 4% rule, which suggests withdrawing 4% of your portfolio’s value annually during retirement. You can use this benchmark or adjust the rate based on your lifestyle, financial goals, and inflation. Failing to establish a withdrawal strategy can lead to overspending, particularly in the early years of retirement when you may feel financially secure. Without a clear limit, it becomes easy to splurge, leaving you with less money for your essential expenses like healthcare later. Remember that retirement is not the end of financial planning, and you must always have a strategic plan in place when it comes to managing money.

You can consider your expected expenses, health, and life expectancy, as well as the inflation rate, to determine the right withdrawal rate for you. These factors can help you plan ahead and ensure you only draw as much as you need and allow the rest of your money to grow. For example, if inflation is rising, you may need to increase your withdrawals to maintain your purchasing power. However, if your portfolio is struggling due to market lows, you might choose to withdraw less.

3. Not preparing for financial emergencies

Building a strong investment portfolio is undoubtedly important for achieving your long-term financial goals. However, even the most well-planned portfolio cannot protect you from the unexpected unless you are prepared for financial emergencies. Emergencies, such as sudden medical expenses, job loss a few years before you retire, or urgent home repairs, demand immediate access to cash. Relying solely on your investments to cover such needs could leave you high and dry if your assets are not easily liquidated. Having a portfolio filled with high-performing stocks, bonds, or real estate may look great on paper. It may seem like you are financially secure, but what happens when you need cash instantly? Can you sell those investments at short notice without incurring losses or penalties? For example, if you are in a situation where you need to sell your stocks during a market downturn, you will walk home with relatively lower returns. Similarly, withdrawing money from retirement accounts like a 401(k) before maturity, which is at the age of 59.5, could result in penalties and taxes, and ultimately lower returns.

This is why you must have a separate emergency fund. An emergency fund is a financial safety net of liquid cash that can be accessed instantly without disrupting your long-term investment strategy. Experts generally recommend saving three to six months’ worth of living expenses in a high-liquidity account. Some individuals prefer maintaining reserves for up to eight months for added security.

If you do not currently have an emergency fund, you can start building one by moving some of your money around. Evaluate your investment portfolio and identify assets that can be liquidated. A financial advisor can help you here. You do not necessarily have to liquidate your investments. You can also divert new savings towards building your emergency fund. This can help you avoid tax liabilities that come with selling assets.

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4. Not planning for healthcare expenses

Ignoring healthcare planning can be one of the costly mistakes most retirees make. It can leave you exposed to unexpected medical expenses and disrupt your long-term financial security. It is essential to ensure that your financial plan includes not only immediate healthcare needs but also potential long-term care expenses. For example, a Health Savings Account (HSA) is a powerful tool for managing healthcare costs. Contributions to an HSA are tax-deductible, and withdrawals for qualified medical expenses are tax-free. Additionally, after age 65, HSA funds can be used for retirement income, though withdrawals for non-medical expenses will be taxed at your ordinary income tax rate. If you have already maxed out your HSA contributions, you can consider setting aside additional funds in a high-yield savings account or other accessible financial instruments. While HSAs are incredibly versatile, you must still explore additional options, such as Medicare, too. Medicare provides essential coverage for those 65 and older. However, it does not typically cover long-term care, which is why purchasing a dedicated insurance plan can also be a smart move.

Long-term care insurance deserves special attention in your portfolio as it covers the cost of long-term care services, such as assisted living or nursing home care, which are not covered elsewhere. Without proper insurance, these expenses can quickly deplete your savings.

Note that healthcare planning is an investment in your overall financial well-being. While it might not resemble traditional investments like stocks or bonds, tools like HSAs, insurance policies, and savings accounts play an equally vital role in protecting your wealth during medical emergencies. Neglecting this aspect of your financial plan can be one of the biggest retirement planning mistakes you may make.

5. Not waiting until full retirement age to withdraw Social Security benefits

Claiming Social Security benefits early is another common financial mistake to avoid in retirement. While the option to start withdrawing as early as age 62 may seem tempting, withdrawing Social Security too early results in a reduced monthly benefit. When you claim your benefits before your full retirement age, which varies based on your birth year, typically between 66 and 67, your monthly checks can be reduced by as much as 30%. On the other hand, waiting until age 70 to claim your benefits can increase your monthly check and boost your income by 8% per year beyond your full retirement age.

Your employment status can also impact your Social Security checks. A lot of people continue to work in their early years of retirement. However, what they forget is that their paychecks have the potential to lower their Social Security checks. If you are still working, whether full-time or part-time, while claiming Social Security benefits early, your earnings could reduce your monthly checks. For 2025, the Social Security Administration (SSA) imposes an earnings limit of $23,400 for individuals under full retirement age. For every $2 you earn over this threshold, $1 is withheld from your benefits. In the year you reach full retirement age, $1 in benefits is deducted for every $3 you earn over the threshold.

The key to avoiding early withdrawals is preparation. Before making the decision to claim your benefits, you must assess your financial situation to ensure you have sufficient alternative income sources to cover your expenses. A well-structured retirement plan that includes savings, investments, or other passive income streams can allow you to delay claiming Social Security and maximize your benefits.

6. Not revisiting the retirement plan periodically

One of the biggest mistakes retirees make is not understanding that their financial needs, goals, and risk tolerance evolve over time. Ignoring these shifts can leave your finances misaligned with your actual requirements. When you are younger, your focus is often on building wealth, taking calculated risks, and investing for long-term growth. In retirement, however, your priorities shift. Your risk appetite decreases, and liquidity becomes more critical as you will need readily accessible funds to cover daily expenses, healthcare, and other essentials. Failing to revisit and adjust your retirement plan to reflect these changes can leave you exposed to unnecessary risks or liquidity issues.

For example, you might have had a portfolio heavily weighted in stocks during your working years. However, in retirement, you need to shift a portion of your investments into lower-risk assets, such as bonds or cash equivalents. Not only does this provide stability, but it also ensures that your funds are available when you need them.

It is important to make it a habit to revisit your retirement plan annually or whenever significant life changes occur. You can partner with a financial advisor and assess your current portfolio to make adjustments that align with your changing needs.

7. Not planning your 401(k) rollovers properly

The 401k rollover mistake that costs retirement savers billions is improperly handling your account after you quit your job. After leaving a job, you can no longer contribute to your old 401(k) plan. Your old account will also likely incur higher fees. This is why a lot of people turn to IRAs. However, it is important to handle the rollover properly to avoid unnecessary taxes and penalties. The best approach is a direct rollover, where the funds are transferred directly from your old 401(k) plan to the new IRA custodian. In this case, the check is made out to the new IRA provider, ensuring that no taxes are withheld. This is different from an indirect rollover, where the funds are given to you first, and you have 60 days to deposit them into the IRA. If you fail to complete the transfer within this timeframe, the IRS treats the amount as a withdrawal, subjecting you to income tax and, if you are under 59.5 years, a 10% early withdrawal penalty.

Failing to plan your 401(k) rollover properly can result in high fees, tax penalties, and undue stress. Hence, to avoid costly errors, it is recommended to always consult with a financial advisor or tax professional.

To conclude

If you are nearing retirement, make a conscious effort to avoid these common mistakes. Even seasoned investors might overlook them, assuming their strong portfolio can sustain them through retirement. However, these errors can have significant financial consequences. So, be proactive and discuss your plans with a financial advisor to ensure you are well-prepared and avoid costly missteps.

Use the free advisor match tool to get matched with experienced financial advisors who can help you avoid costly retirement mistakes and prepare for a financially secure retirement. Answer a few simple questions based on your financial needs and get matched with 2 to 3 financial advisors who may be best suited to help you.

For additional information on retirement planning strategies that can be tailored to your specific financial needs and goals, visit Dash Investments or email me directly at dash@dashinvestments.com.

About Dash Investments

Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.

Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs providing institutional-caliber money management services that are based upon a solid, proven research approach. Additionally, each client receives comprehensive financial planning to ensure they are moving toward their financial goals.

CEO & Chief Investment Officer Jonathan Dash has been profiled by The Wall Street Journal, Barron’s, and CNBC as a leader in the investment industry with a track record of creating value for his firm’s clients.