Retirement planning is complex, and one wrong move can cost you thousands in taxes, healthcare expenses, or missed benefits. In this guide, we break down the most common retirement mistakes we see made by those who don’t work with a financial advisor, from claiming Social Security too early to overlooking Medicare requirements and tax traps. Understanding these pitfalls can help you protect your retirement income, reduce taxes, and avoid costly surprises.

Key Takeaways

• Retirees often make costly mistakes like claiming Social Security too early, overspending, or keeping an undiversified portfolio.
• Maintaining appropriate stock exposure and true diversification reduces long-term risk and keeps pace with inflation.
• Missing Medicare deadlines or lacking long-term care planning can lead to lifelong penalties and higher healthcare costs.
• Smart tax planning — including Roth conversions, early IRA withdrawals, QCDs, and proper withholding — can significantly reduce lifetime taxes and unnecessary tax penalties.
• Updating estate plans, managing cash flow, and avoiding emotional investment decisions help ensure long-term financial stability.

1. Applying for Social Security Too Early

• Age 62 is the earliest you can collect Social Security retirement benefits (unless you have been widowed), however social security payouts at 62 do not look the same as social security payouts at the full retirement age.
• People often ask if you can work and still collect social security. The short answer: It depends. Yes, if you are full retirement age or older (generally, age 67). Yes, if you are younger and earn less than $23,400.
• Your benefits will increase an average of 8%/year for every year you delay, up to age 70.
• The biggest increases in benefits occur between age 62 and full retirement age, which is age 67 for anyone born in 1960 or later.
• The crossover point for collecting at age 67 vs 62 is about age 78, not including the time value of money. (This is an inexact calculation, as it depends on several variables.)
• Waiting as long as age 70 can be a good strategy for the higher earner of married couples, as your spouse can collect your entire benefit after your death. This survivor protection is an often-overlooked benefit.

2. Not Updating Your Estate Plan Regularly

• Estate planning is a critical component of a financial plan.
• Many people rely solely on beneficiary designations. While this can avoid probate, some people don’t realize a beneficiary designation overrides your will. In addition, a beneficiary designation does not address incapacity planning.
• Estate planning protects your wealth and your loved ones, making sure that if something happens to you, your assets are distributed according to your wishes. This only happens if you frequently review your estate planning documents to make sure they still match your wishes.
• Considering estate planning costs is crucial. If you inherit an IRA, you will want to comply with the new tax rules. Otherwise, you could find yourself with a tax bomb now or in the near future.
• If you have kids from a prior marriage, you will want to make sure you update your estate planning so you protect your new spouse without disinheriting your kids.

3. Not Having a Long-Term Care Plan

• No one likes to think about aging, but just as everyone needs an estate plan, everyone needs to think about what the plan will be when they can no longer take care of themselves at home.
• Many people think they can just remain in their home, but that can be a lonely solution, and not realistic if you need a lot of assistance. Further, if you stay at home too long, you may end up in a nursing home for end-of-life care using this approach.
• Continuing Care Retirement Communities can be a great option for people who are relatively healthy and qualify financially.
• Planning for the cost of assisted living can ease the stress of uncertainty and boost peace of mind.
• Long-term care planning reviews many of your alternatives and how to pay for them.

4. Overspending

• You may have heard about the 4% rule, commonly referred to as a “safe” withdrawal rate.
• Our work with clients has led us to update that to a 5% rule for many people with a diversified portfolio with a significant allocation to stocks.
• Whatever assets you build up for retirement, a healthy individual can expect to take annual distributions of about 5% of the beginning balance plus a small annual adjustment for inflation and have the money last their lifetime (assuming appropriate asset allocation, discussed below).
• If you have $2,000,000 saved, that translates to $100,000 of distributions on top of your Social Security, or $8,333/month.
• If you are withdrawing substantially more than that each year, it is very likely you will run out of money before you run out of life, no matter how you are invested.
• We also see people who don’t realize they take 5%/year for spending plus additional distributions for large, one-time expenses such as vacations, real estate taxes, insurance premiums and other items.
• In the above example, they might take $8,000/month for living expenses (8 x 12 months = $96,000) plus $20,000 for vacations and $10,000 for real estate taxes, totaling $96,000 + $20,000 + $10,000 = $126,000, which is 6.3% of $2,000,000!
• While your portfolio may be able to sustain that for a few years, if the following years include a sustained bear market, you may struggle to make up the difference.

5. Not Owning Enough Stocks

• Stock ownership builds wealth over the long term. Stocks are risky in the short term, which is why a diversified portfolio also includes an allocation to fixed income investments, such as bonds, CDs, and treasuries.
• Not only do stock prices go up over time, but stock dividends also increase exponentially, which is why long-term investments are vital to establish before going into retirement.
• One of the biggest risks to your financial planning is not stock market volatility, but the rising cost of living (inflation).
• Even in retirement, most people need a 60%-70% allocation to stocks in order to maintain distributions in excess of the cost-of-living increases.
• This assumes many things, including not making some of the other mistakes in this blog.

6. Not Having a Diversified Portfolio

• Diversification does not mean owning multiple different mutual funds; it means owning multiple different asset classes.
• An asset class is the type of underlying investment.
• An example of diversification is owning international stocks in your portfolio.
• Relying solely on the S&P 500 may feel safe, but it exposes your portfolio to significant risk that could be reduced or eliminated simply by spreading your holdings across different asset classes. This lack of diversification was especially damaging during the “lost decade” of 2000–2010, when the S&P 500 delivered essentially no return (excluding dividends).
• Diversification into various asset classes with different expected returns over different time periods can reduce diversifiable risk and lower your overall portfolio volatility over the long haul.
• Diversification can also allow for opportunistic rebalancing, which avoids using emotions in trading.
• Trading based on emotions (fear, greed, euphoria) could be its own mistake on this list!

7. Not Filing For Medicare When You Retire At or After Age 65

• Many people know that you need to file for Medicare coverage at age 65, unless you are covered by employer sponsored health insurance through a large employer, defined as one with more than 20 full time employees.
• Many people aren’t aware that if you leave your job after age 65 and are covered by COBRA, you are still required to file for Medicare or be assessed a lifetime penalty. COBRA coverage does not count as Medicare-approved coverage.
• Therefore, as soon as you find out you will be losing your health care coverage after the age of 65, consider filing for Medicare coverage.

8. Enrolling in Medicare Advantage vs Traditional Medicare Supplement Plans

• Medicare Advantage sounds great, as the premiums are very low and it covers “everything” (if you believe the advertising), including medical care and prescription drugs.
• Medicare Advantage (in most states) works like an HMO, and traditional Medicare supplement plans work like a PPO.
• HMO-like plans limit the doctors you are able to visit and offer limited coverage outside your state. If you like to travel, even occasionally, you may want to consider a traditional Medicare Part B supplement plan instead of Medicare Advantage.
• If you have to move states, your coverage may not follow you.
• In order to switch plan types, you often need to pass underwriting and qualify medically, which can be a challenge for people over age 65.

9. Contributing to Your HSA After Medicare Eligibility

• Many people don’t realize that any kind of Medicare coverage (including Part A) prohibits you from being eligible to contribute to an HSA.
• You are required to stop all contributions to your HSA the first day of the month you turn age 65 or six months before you were first eligible for Medicare, whichever is later.
• This highlights the importance of paying attention to HSA rules and how it interacts with retirement health care decisions.

10. Not Doing Annual Tax Planning

• Your tax rate in retirement can fluctuate wildly depending on life circumstances, and the survivor of a couple will find themselves in a much higher tax bracket than when they were married. Tax planning to account for these changes is critical so you avoid April surprises. For example:
  • If you have too many assets in fixed income investments (such as annuities, pensions, interest and nonqualified dividend income), you may find yourself with a lot of income taxed at higher rates than if you invested some of the money in stocks.
  • Partial Roth conversions can fill up your lower tax brackets and potentially reduce your lifetime tax burden, especially if you are married as compared to when one of you will be single.
  • Social Security is 85% taxable if you have more than $35,000 in other income. Make sure you include this income in your tax planning, and consider withholding federal income taxes from the payments
  • Consider not waiting until age 75 to start taking distributions from your IRA. Your required minimum distributions that start at that age are based on the balance the previous December 31. By taking some distributions in earlier years, you can fill up your lower tax brackets and reduce the balance so that future taxable distributions are less.
    • Consider using your IRA distributions to withhold your taxes due for the year.
    • Consider making qualified charitable distributions from your IRA starting at age 70 ½.
  • Consider making quarterly estimated tax payments for anything not covered by your tax withholdings. These can be scheduled in advance with the filing of your tax return for the following year, and are easily canceled if not needed. Engage a trusted advisor to assist with this calculation.

• Plan for Medicare Income Related Surcharges (IRMAA)
  • When your adjusted gross income exceeds a certain amount ($212,000 for 2025 if you are married), you will pay higher Medicare premiums based on your income for both Part B and D. It is crucial this extra tax (that shows up as higher Medicare premiums for one year) be factored into your tax planning.

Taxes and financial planning are complex, but you don’t have to navigate them alone. A financial advisor can help you stay informed about tax law changes, optimize your savings and investments, and avoid costly mistakes. If you need tailored guidance, our team is here to help. Reach out to us at (603) 589-8010 to integrate tax planning into your comprehensive financial strategy.

FAQ: Retirement Planning Mistakes

1. What are some common financial mistakes in retirement?

Common mistakes include claiming Social Security too early, overspending, holding an undiversified portfolio, and not planning ahead for taxes or healthcare costs.

2. How can I reduce my tax burden in retirement?

Coordinating IRA withdrawals, Roth conversions, Social Security timing, and charitable giving can help spread income across years and keep you in lower tax brackets.

3. Do retirees still need growth from stocks?

Yes. Most retirees benefit from keeping significant stock exposure to stay ahead of inflation and reduce the risk of outliving their savings.

4. Why are Medicare and healthcare planning so important in retirement?

Medicare enrollment timing, coverage choices, and long-term care planning can significantly affect both your out-of-pocket costs and your ability to access care.

5. How often should I review my retirement plan?

It’s wise to revisit your retirement plan at least once a year or after major life or financial changes to make sure spending, investments, taxes, and estate documents stay aligned with your goals.