01
Not Planning the Withdrawal Order
Retirement accounts are taxed differently. Withdrawals from traditional 401(k)s and IRAs are taxed as ordinary income. Roth IRA withdrawals (if qualified) are tax-free. Taxable brokerage accounts are subject to capital gains rates. Drawing from these accounts in the wrong order can generate a higher lifetime tax bill than necessary.
For example, drawing down Roth accounts early, before traditional IRA funds, can miss years of tax-free growth. Conversely, leaving large traditional IRA balances untouched until Required Minimum Distributions begin can create unexpectedly high taxable income later. A tax-aware withdrawal strategy coordinates these accounts deliberately.
02
Claiming Social Security Too Early
Social Security can be claimed as early as age 62, but each year you delay, up to age 70, increases your monthly benefit by approximately 8%. Claiming at 62 instead of 70 can mean receiving 40% to 50% less per month for the rest of your life.
For someone who lives into their 80s or 90s, delaying Social Security often results in significantly more lifetime income. The break-even analysis depends on health, other income sources, and whether a spouse's benefit is also in play, but the decision deserves careful consideration rather than claiming at the earliest opportunity by default.
03
Underestimating Healthcare Costs
Medicare covers many healthcare expenses in retirement, but not all of them. Premiums, deductibles, copays, dental, vision, hearing aids, and long-term care can add up significantly. Estimates from Fidelity and other sources suggest a retired couple may face well over $300,000 in out-of-pocket healthcare costs over the course of retirement.
Healthcare costs tend to grow faster than general inflation, and they tend to be highest in the later years of retirement, when portfolio withdrawals may already be elevated. Accounting for healthcare as a distinct line item in retirement planning often changes the numbers meaningfully.
04
No Income Plan for a Long Retirement
A 65-year-old today has a significant statistical probability of living into their 80s or 90s. A couple where both partners reach 65 has a meaningful chance that at least one of them lives to 90 or beyond. That's a 25- to 30-year retirement, a planning horizon that most people don't explicitly prepare for.
Portfolio depletion risk (sometimes called "sequence of returns risk") is the danger that a long market downturn early in retirement draws down assets faster than they recover. A retirement income plan that accounts for longevity, through asset allocation, predictable income sources, or other strategies, is different from a plan that simply assumes average returns for 20 years.
05
Ignoring Inflation
A 3% average annual inflation rate cuts purchasing power roughly in half over 24 years. For someone who retires at 65 and lives to 89, the dollars they spend in year 24 of retirement will buy significantly less than the same nominal dollars at retirement. Fixed expenses covered by fixed income sources may feel adequate at 65 but constraining by 80.
Strategies that grow income over time, whether through Social Security delay, equity exposure in a portfolio, or other means, address this differently than strategies built entirely on fixed-income returns. Inflation planning isn't about predicting exact rates; it's about building in flexibility to adapt over a long time horizon.