What is the most reported retirement planning mistake? (2024)

FAQs

What is the most reported retirement planning mistake? ›

According to professionals, the most common retirement planning mistakes are time-related, like outliving savings or not understanding how inflation can affect a portfolio over time.

1) Not Changing Lifestyle After Retirement

Among the biggest mistakes retirees make is not adjusting their expenses to their new budget in retirement.

Behind the numbers (Visual Capitalist):

The number one mistake? According to 49% of financial planners, it's underestimating the sizable impact inflation has on the value of retirement savings."

According to U.S. Census Bureau Data, the average retirement age for women in 2016 was 63, compared to 65 for men. Other sources, like Forbes, quote the average retirement age at 65 for men and 62 for women as of 2021, which means women are retiring even earlier than men as time goes on.

Embrace the 30X thumb rule: Save 30X your annual expenses for retirement. For example, with annual expenses of ₹25,00,000 and a retirement in 20 years, aiming for a ₹7.5 Cr portfolio is recommended.

For Social Security purposes, full or normal retirement age typically means age 66 or 67, depending on when you were born. Early retirement for you could mean retiring at 62 but it could also mean retiring at 40 if you're interested in the FIRE movement.

1. Paying for Healthcare. You will face sizable out-of-pocket costs for health insurance premiums, copays and uncovered services. According to research from the brokerage firm Fidelity, an individual aged 65 in 2023 could need roughly $157,500 saved after taxes to pay for healthcare expenses in retirement.

What should you not do with your retirement money? ›

Cashing out Savings

If you cash out all or part of your retirement fund before age 59½, your plan sponsor will withhold 20% for penalties and taxes so that you won't receive the full amount. You will lose future earnings since most people never catch back up.

Compliance: Plan audit requirement

A question many employers raise each year is “Does my plan need an audit?” In the past, the answer generally has been that an audit is required when the number of plan participants as of the beginning of the plan year is 100 or more.

The 4% rule limits annual withdrawals from your retirement accounts to 4% of the total balance in your first year of retirement. That means if you retire with $1 million saved, you'd take out $40,000. According to the rule, this amount is safe enough that you won't risk running out of money during a 30-year retirement.

Similar to the price of gas, we cannot predict future market returns; therefore, one of the biggest mistakes retirees make is failing to plan for the combination of market volatility and withdrawing money from their investment accounts, also known as sequence of returns risk.

“In similar research that we conducted a decade ago, we also found a strong relationship between happiness and planning, as retirees who expressed the highest levels of satisfaction were also those who took concrete steps to put their emotional and financial lives in order at least five years before retirement.

The average retirement savings for all families is $333,940, according to the 2022 Survey of Consumer Finances. The median retirement savings for all families is $87,000.

The 3% rule in retirement says you can withdraw 3% of your retirement savings a year and avoid running out of money. Historically, retirement planners recommended withdrawing 4% per year (the 4% rule). However, 3% is now considered a better target due to inflation, lower portfolio yields, and longer lifespans.

Housing. Starting off with one the biggest expenses in retirement. Housing expenses add up, as this considers not just things like mortgage or rent but also paying property taxes, homeowner's or renter's insurance premiums, and any maintenance or repair costs for the property.