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Many Americans spend years building a portfolio designed to last decades into retirement.
Yet once retirement begins, even a plan that looks solid on paper can feel cramped depending on major decisions. Retirement experts explain the mistakes that cause your retirement accounts to deplete faster than you planned.
Withdrawals from each account proportionally without any strategy
One of the most common mistakes retirees make is withdrawing money without a coordinated strategy.
Christopher Stroup, Certified Financial Planner (CFP) and Owner silicon beach financialThat said, many retirees underestimate how much a strategic withdrawal is needed. “Withdrawals are not just cash flow decisions, they are tax and longevity decisions.”
Stroup points out that attempting to make withdrawals equally across all accounts without considering tax brackets, long-term planning or Roth conversion opportunities can create unnecessary tax pressure and limit flexibility later on.
Part of the strategy includes determining “where the money is coming from,” said Doug Greenberg, president of Pinnacle Wealth Advisors. “The math may show that the rate works but withdrawals from the wrong accounts at the wrong time and taxes quietly destroy the plan.”
Withdrawal order also makes a big difference in the lifetime tax burden on retirement income. “If you withdraw too much from pretax accounts, you could be in a higher marginal bracket, Medicare premium surcharges or reduce your chances of a Roth conversion in the future,” Stroup explained.
Not Planning for Taxes After RMDs Start
Required minimum distributions (RMDs) are designed to ensure that the government ultimately collects taxes on retirement accounts. But some retirees don’t think about taxes on them until they’re actually claiming them.
“Waiting until RMD age to think about taxes often forces larger, less flexible withdrawals later,” Stroup said. Those distributions could push retirees into higher brackets and raise Medicare premiums.
“(Once RMDs start) you lose control. Withdrawals are required whether you need the money or not,” Greenberg said. As with many retirement matters, getting financial advice from a professional beforehand can help avoid tax problems.
Spending increases permanently after strong market years
Strong market performance may increase account balances but may also create a false sense of financial security. Permanently increasing spending during these periods could cause problems when normal market volatility returns.
Stroup reminded retirees that market highs may be temporary and it is better to remain frugal in their discretionary spending. When markets decline, it’s time to use cash reserves strategically and “rebalance thoughtfully,” Stroupe said.
In addition to cashing out during recessions, Greenberg prefers to pull money out of short-term bonds rather than selling stocks in bad times. “I also avoid relying on equities for income from time to time so that clients are not forced to sell during market downturns,” he said.
Letting fear lead to excessive saving and underspending
Ironically, some retirees experience the opposite problem: They withdraw too little for fear of running out of money.
“The result? A growing portfolio and shrinking life experiences,” Stroup said. While financial security is important, a good life is also important. “A plan should support enjoyment, not create artificial scarcity,” he said.
Greenberg said this is often part of an emotional attitude that can be difficult to get rid of. “The math may show they can spend more, but emotionally they’re still in savings mode. It’s not a portfolio problem – it’s a confidence problem.”
Underestimating health care and long-term care costs
One of the biggest mistakes retirees make is underestimating health care and long-term care expenses, thus not withdrawing appropriately to cover them.
“Health care spending does not grow evenly,” Stroup said. “Without modeling for premiums, out-of-pocket expenses and potential long-term care needs, retirees either end up overspending early or feeling blindsided later.”
claiming social security too early
Social Security is one of the few guaranteed and inflation-adjusted income streams available in retirement. While claiming early may put pressure on portfolio withdrawals, claiming too early may result in lower lifetime benefits.
Thus, Stroup said, early claims “often make retirees feel dependent on market performance.”
strategy is important
A retirement plan that looks safe on paper can still feel restrictive if withdrawals are poorly structured. Retirees should always consult a financial or retirement planner to take into account taxes, market cycles, and timing decisions.
“A ‘safe’ plan should not feel restrictive. If it does, the issue is often not the math but the structure. Thoughtful withdrawal sequences, tax-conscious planning and proactive adjustments can transform a rigid plan into a dynamic plan,” Stroup said.