4 MORE Mistakes to Avoid Before You Officially Retire

The time is quickly approaching. Retirement is looming, and you want to cover all your bases to make sure that your retirement can go off without a hitch. As nerve-wracking as this time of your life may be, your friends at ABRI can help your retirement go smoothly. 

Here are four more mistakes to look out for and avoid as you prepare for your golden years.

1. Not Having a Withdrawal Strategy

A common mistake is not having a withdrawal strategy, which risks depleting your nest egg. The 4% rule (a guideline suggesting you withdraw no more than 4% of your retirement savings annually)can help ensure your money lasts.

While it’s a good framework to begin thinking about what you’ll need, it’s not a strict rule that you should follow, given that it’s not based on your unique needs. With a financial professional in your corner, you can adjust your strategy based on market performance and personal needs.[1]

Set Rules before the Market Tests You

Option 1: Guardrails (dynamic spending rules) 

Set a target withdrawal, then put boundaries around it. If your portfolio is up, you can take a little more. If it drops past a threshold, you’ll pull back to protect the plan. The goal of the plan is simple: to respond to math, not emotions. 

Option 2: Total return (percentage of portfolio value)

Build a diversified portfolio and withdraw a fixed percentage based on the portfolio’s current value each year. This keeps withdrawals proportional to performance and helps avoid draining the account during down markets. The strategy works even better when withdrawals are coordinated across taxable, tax-deferred, and tax-free accounts. Pulling from the right bucket at the right time can meaningfully reduce what you hand over to the IRS. 

Option 3: Bucketing (time-segment your money)

Think of this as attaching a calendar to your savings. Your money is divided into three time-based buckets: short-term cash to cover the next one to three years of expenses, medium-term investments for years three through ten, and long-term growth assets for anything beyond that. You spend from the short-term bucket first, then refill it during strong markets. This way, you’re not forced to sell long-term holdings at the wrong moment just to cover next month’s bills.

2. Overlooking Tax Implications

Different income sources, like 401(k)s, IRAs, and Social Security, have varying tax implications. Without a proper plan for handling your taxes in retirement, you can make costly mistakes by mistiming withdrawals, violating retirement account rules, claiming Social Security at suboptimal times, and more, like incurring penalties, fees, and taxes unnecessarily.

Ultimately, taxes can take a significant chunk of your retirement income. It could be helpful to work with a financial professional to optimize withdrawals and reduce your tax burden.[2]

Build a Retirement Tax Map

Taxes don’t retire when you do. The goal is to keep your income flexible so you’re not accidentally climbing into higher tax brackets later. 

Start here when building your Retirement Tax Map: 

• List every income source that can trigger taxes. This includes pensions, annuity income, 401(k)/Traditional IRA distributions, dividends, capital gains, and even a portion of Social Security. 
• Diversify how your income is taxed. Build a mix of taxable and tax-free sources so you can “blend” withdrawals to keep you in your desired bracket. 

• Time withdrawals. Required Minimum Distributions (RMDs) begin at 73 for most retirement accounts.  Missing them can have serious consequences, so plan the runway earlier rather than later. 

• Don’t ignore state taxes. Where you live can have a real impact on your tax bill. Some states don’t tax Social Security benefits or retirement withdrawals, and some have no state income tax.
• Treat estate planning as part of your tax strategy. What you leave for those who come after matters. A Roth IRA, for example, is often far more tax-efficient to pass on to heirs than assets sitting in a traditional pre-tax account.

3. Neglecting an Estate Plan

Without an updated will, trust, or beneficiary designations, your assets may not be distributed as intended. Estate planning also helps minimize taxes and legal disputes that can diminish your inheritance and split your family up; that’s likely not the legacy you want to leave.

So, consulting an attorney or financial professional can help ensure your legacy is protected.[3]

Build and Fund the Four-Document Foundation

The time for estate planning is now. To make it easier, we’ve compiled a shortlist of documents you need for estate planning. No one actually wants to deal with their estate plan, but it’s something that has to be done.   

A basic will is where most people start. It documents who gets what and who will act as guardian for minor children. But a will alone doesn’t avoid probate, which is why most people pair it with a revocable living trust when they want more control over how assets are transferred. One thing people often miss: a trust only works if it’s properly funded, meaning your assets need to be retitled into it 

The other half of estate planning is making sure someone can act for you while you’re still alive. A durable power of attorney gives a trusted person the authority to handle financial decisions if you’re unable to, and medical directives keep your care preferences legally documented and enforceable. Having a plan in place is a good first step, but execution is what matters.

4. Failing to Budget for Retirement Lifestyle

Transitioning to a fixed income starts with a clear picture of what your post-retirement expenses will actually look like. Track your current spending and project forward, factoring in travel, hobbies, healthcare, and the unexpected costs that always seem to show up. Create a realistic budget and adjust as needed.[4] If you’re not sure where to start, our checklist for pre-retirement can help keep you on track. 

Budget for the Life You Actually Want

You’ve worked hard all your life, and now you want to make the most of what you have left. When setting the budget, start with the non-math first: What do you want retirement to look like? Where do you want to live, what do you want to do with your time, and what does an enjoyable retirement look like? Once you’ve got the lifestyle picture in place, translate it into a monthly number you can justify. Vague planning creates vague spending, which creates unwanted surprises. 

Then get brutally clear on the money side. Have a sure knowledge of how much you’ve saved, what your income sources will be, and how those sources can be turned into a reliable cash flow. Take into account all the pieces we’ve covered above: withdrawal strategy, tax strategy, and more. 

The point is not to limit yourself. The point is to live out your retirement confidently so that you can enjoy life without the additional stress. 

Avoiding Mistakes to Achieve Financial Security

Retirement planning can be intricate, but steering clear of common pitfalls is key to securing your financial future and maintaining peace of mind. As you get closer to retirement, mistakes can have a greater impact, making it even more important to have a solid plan in place.

Partnering with financial professionals, staying informed, and regularly reviewing your strategy can help you build a strong foundation for a rewarding retirement. Contact us today to start planning for the retirement you’ve worked so hard to achieve.

Sources:

[1] What Is the 4% Rule in Retirement Planning?

[2] Taxes in Retirement: A Comprehensive Guide

[3] Why Estate Planning Is Important: Key Reasons Explained

[4] How to Avoid Running Out of Money in Retirement

This information is provided as general information and is not intended to be specific financial guidance. Before you make any decisions regarding your personal financial situation, you should consult a financial or tax professional to discuss your individual circumstances and objectives.

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