You Are Probably Making at Least 1 of These 4 Retirement Mistakes

No one’s perfect, but these all-too-common retirement mistakes can be costly. Check the list to see if it you are at risk.

A Post-It Note reads "OOPS!!" It is surrounded by other Post-It Notes that read ERROR.
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We might wish for the journey through retirement to be a nice leisurely stroll, but too often it can feel more like hacking your way through a thorny jungle.

After all, there are plenty of ways for things to go awry, and some mistakes can prove especially costly, sapping your money along with your retirement joy.

But those mistakes aren’t inevitable and, with the right planning, you can improve your odds of avoiding the pitfalls. Let’s explore four common mistakes people make with their retirements:

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1. Deferring taxes

It sounds wonderful in theory. Contribute regularly to a traditional IRA or 401(k) and you can defer the taxes on that portion of your income. But that short-term advantage comes with a long-term drawback. Those taxes eventually come due, and not only on the money you originally contributed but also on all the interest you gained over the decades.

That’s why a Roth IRA or a Roth 401(k) could be the better option. With a Roth, you don’t get to defer taxes on your contributions, but your money grows tax free and, when you begin making withdrawals in retirement, you pay nothing. Over the long haul, it can be a much better deal.

Unfortunately, not everyone has caught onto this. About 23% of taxpayers have a traditional IRA where the taxes are deferred, while just 10% have a Roth IRA, according to the Urban-Brookings Tax Policy Center. In addition, the average balance in traditional IRAs is $168,000, while the Roth average is $41,000. If your money is in a traditional IRA, you may consider converting to a Roth. You’ll pay taxes when the conversion happens, but your money will now grow tax free.

2. Neglecting year-end planning

As the year draws to a close, it’s important to set aside time to make sure you’ve considered any tax-reduction opportunities and also make plans for the coming year. People think of April 15 as the tax deadline, but in reality Dec. 31 is the key date, because most of the tax maneuvering you can do needs to happen within the calendar year.

One tactic for lowering your tax bill that you may not have considered is “bunching” itemized deductions. What does that mean? Many people don’t itemize deductions, because the standard deduction is higher than what their itemized deductions would total. But through bunching, you bunch as many itemized deductions into a single year as possible. For example, you can make two years’ worth of charitable donations in one year. If that sounds difficult, think of it this way: You can make a donation on Jan. 1 and another on Dec. 31 of the same year. Those donations are nearly a year apart, but they count for one tax year. Then the next year you use the standard deduction. Basically, you alternate from year to year.

Another tactic to consider as the year winds down is tax-loss harvesting. This is when you sell some investments at a loss to offset gains you made with the sale of other investments. That lowers your overall net gain, reducing your tax bill. However due to its complexity, this strategy is not for everyone and you should consult your tax professional before considering.

Finally, if you are 72 or older, make sure you have taken any required minimum distributions from your tax-deferred retirement accounts. Otherwise, you face hefty penalties. Those RMDs are another reason to consider a Roth conversion.

3. Ignoring long-term care and health care costs

According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2021 may need about $300,000 to cover health care expenses in retirement. Meanwhile, long-term care continues to be a major expense for many retirees. It’s important to plan for these potentially significant expenses.

One option to consider is Medicare Advantage plans, which may have lower out-of-pocket costs than original Medicare and often offer benefits original Medicare doesn’t cover, such as vision, hearing and dental. You’ll want to compare what’s best for you, of course. For example, with original Medicare you can go to any doctor or hospital in the nation that takes Medicare, and in most cases you don’t need a referral to see a specialist. With Medicare Advantage, you must use providers within the plan’s network to get the best cost, and you may need a referral to see a specialist.

Medicare generally doesn’t pay for long-term care, but there are other options to consider to help defray those costs. For example, you can purchase an annuity with a long-term care rider. Also, many life insurance policies allow you to use part of your death benefit while you are alive to help pay for long-term care. There is also traditional long-term care insurance, but that is usually too costly for most people.

4. Failing to plan how to fill your free time

Even when people do a bang-up job planning their retirement-related money matters, they forget another critical component of a successful retirement: what to do with all that spare time. At some point, endless rounds of golf or TV binge watching become redundant, so plan ahead for how you will give some meaning to your later years. That could mean volunteering, starting a business, traveling, developing new hobbies or taking on part-time work.

Even if your primary working years are behind you, your life still needs purpose. This can be important for both your physical and mental health. Depression can be a significant concern in retirement, with about 28% of retirees suffering from the condition, according to a study published in Healthcare, a peer-reviewed journal. Participating in community groups or finding activities that improve self-esteem are among the ways the study suggests can help.

With so many factors at play, planning for a secure and satisfying retirement can get complicated. That’s why it’s a good idea to find a financial professional with experience helping retirees.

That person can serve as your guide, assisting you in getting the most out of retirement and helping you to avoid making the mistakes that have undermined retirement for so many others.

Ronnie Blair contributed to this article.


Bluestem Wealth Management LLC is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Bluestem Wealth Management LLC are not affiliated companies.


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Jordan Sester, Investment Adviser Representative
Founder, Bluestem Wealth Management

Jordan Sester is founder and wealth adviser at Bluestem Wealth Management. He works with retirees and pre-retirees to discover their needs and goals, then helps them create a strategy to achieve them. He holds his Series 65 securities license along with his life and health insurance licenses in the state of Kansas. He has a master's degree in business from Washburn University, as well as a bachelor's degree in economics.