10 Costly Retirement Mistakes and How to Avoid Them

Picture this: You're 67, finally retired, and suddenly realize your money might not last as long as you thought. Or worse, you're paying thousands more in taxes than necessary because you withdrew from the wrong account first. These aren't hypothetical scenarios, they happen to real people every single day.

The thing about retirement mistakes is that they often feel like the right decision at the time. Claiming Social Security early sounds reasonable when you're eager to stop working. Skipping that estate planning appointment feels fine when you're healthy and retirement feels far away. But these seemingly small choices can snowball into five or six-figure losses over the course of your retirement.

Here's the truth: Most retirement mistakes aren't about being careless or uninformed. They're about not knowing what you don't know. So let's change that. We're going to walk through the 10 most expensive retirement mistakes Americans make, and more importantly, how you can sidestep every single one of them.

This is the mistake that keeps on taking. You can claim Social Security as early as 62, but doing so permanently reduces your monthly benefit. We're not talking about a small haircut, either. If your full retirement age is 67 and you claim at 62, your benefit drops by 30%. That reduction follows you for the rest of your life.

Let's say your full retirement benefit would be $2,000 per month. Claim at 62, and you'll get about $1,400 instead. Over 25 years of retirement, that's a difference of $180,000. And if you're married, the impact multiplies because survivor benefits are based on what you were receiving.

On the flip side, if you wait until 70 to claim, your benefit increases by 8% for each year past your full retirement age. That same $2,000 benefit becomes $2,480 at 70, adding up to an extra $144,000 over those same 25 years.

How to avoid it: Consider treating Social Security as longevity insurance. If you have other savings to tap in your early retirement years, delaying Social Security can provide a larger guaranteed income stream later when you might need it most. For married couples, it often makes sense for the higher earner to delay claiming to maximize survivor benefits. You can explore more claiming strategies here.

If you're planning to retire before 65, healthcare costs can be a rude awakening. Without employer coverage and before Medicare kicks in, individual health insurance can run anywhere from $500 to $1,500+ per month per person, depending on your location and the plan you choose.

Even after you're Medicare-eligible, costs don't disappear. Medicare Part B premiums, supplemental insurance (Medigap), Part D prescription coverage, and out-of-pocket expenses all add up. And if your income is high enough, you'll pay Income-Related Monthly Adjustment Amounts (IRMAA) on top of standard premiums.

Then there's long-term care, which Medicare doesn't cover. A nursing home stay can easily cost $100,000 or more annually in many parts of the country.

How to avoid it: Build healthcare into your retirement budget as a major line item, not an afterthought. If you're retiring before 65, research your pre-Medicare coverage options carefully, including marketplace plans, COBRA, and retiree health benefits. Consider maximizing contributions to a Health Savings Account (HSA) before retirement, it offers triple tax advantages and can be used for Medicare premiums and other healthcare expenses in retirement.

Here's a mistake that's easy to make: You retire with money in a 401(k), a Roth IRA, and a taxable brokerage account. When you need cash, you just pull from wherever feels convenient. But the order in which you withdraw from different account types can dramatically affect how much you pay in taxes over your retirement.

Pulling too much from a traditional 401(k) or IRA in a single year pushes you into higher tax brackets and might trigger IRMAA surcharges on your Medicare premiums. Meanwhile, your Roth IRA sits untouched, even though withdrawals from it are tax-free and don't count toward your taxable income.

Many retirees also forget about Required Minimum Distributions (RMDs), which begin at age 73 for most people under current law. If your tax-deferred accounts are too large, RMDs can force you to take distributions you don't need, creating an unwanted tax bill.

How to avoid it: A common approach some retirees use is to draw from taxable accounts first, then tax-deferred accounts, and finally Roth accounts. This allows your Roth to grow tax-free as long as possible while managing your taxable income each year. Some people also explore Roth conversions in lower-income years before RMDs begin. Our guide on withdrawal sequencing strategies explores these considerations in depth. A tax professional or financial adviser can help you map out a personalized withdrawal strategy.

When people plan for retirement, they often think, "I'll probably live to about 80." But what if you live to 95? According to the Social Security Administration's actuarial tables, a 65-year-old man today has about a 40% chance of living to 85, and about a 20% chance of reaching 90. For women, those odds are even higher.

Planning for average life expectancy is dangerous because there's a 50% chance you'll live longer than that. If you build a retirement plan that runs out of money at 85 and you live to 92, those last seven years could be financially devastating.

How to avoid it: Consider planning for a longer lifespan than you think you'll need. Many financial planners suggest planning to at least age 90 or 95. Building in guaranteed income sources like Social Security and possibly annuities can provide a safety net. The key is balancing optimism (you want to enjoy retirement) with prudence (you don't want to outlive your savings).

Carrying debt into retirement means your fixed income has to stretch even further. A mortgage payment, car loan, or credit card balance doesn't pause just because your paycheck did. And when you're living on a fixed income from Social Security, pensions, and retirement savings, every dollar going to debt service is a dollar you can't spend on living expenses or healthcare.

The psychological weight matters too. Debt in retirement can create constant financial stress that undermines the very freedom retirement is supposed to provide.

How to avoid it: In the years before retirement, consider prioritizing debt paydown alongside retirement contributions. High-interest debt like credit cards should typically come first. As for whether to pay off your mortgage before retiring, that decision involves weighing the interest rate, your tax situation, and your comfort level with having a payment. Some retirees feel more secure with a paid-off home, while others prefer to keep liquidity and invest the difference.

There's a persistent myth that once you retire, you should move everything to bonds and cash. The thinking goes: "I can't afford to lose money now that I'm not working." But here's the problem, if you retire at 65 and live to 90, that's 25 years your portfolio needs to last. Parking everything in low-yield bonds might protect you from short-term volatility, but it exposes you to inflation risk and the very real danger of outliving your money.

On the other hand, staying too aggressive in stocks can be equally dangerous, especially in the early years of retirement. If the market crashes right after you retire and you're forced to sell stocks to fund living expenses, you might lock in losses you never recover from. This is called sequence of returns risk.

How to avoid it: Many financial planners suggest maintaining some equity exposure throughout retirement to combat inflation and provide growth potential. One approach some investors consider is maintaining a diversified portfolio that includes both stocks and bonds, adjusting the allocation based on factors like age, risk tolerance, and the size of guaranteed income sources. Another strategy is the bucket approach, keeping 1-2 years of expenses in cash, 3-10 years in bonds, and the rest in stocks for long-term growth. A financial adviser can help you determine an appropriate asset allocation for your specific situation.

Inflation is the silent retirement killer. At just 3% annual inflation, the purchasing power of $50,000 today drops to about $37,000 in 10 years and $27,000 in 20 years. That means if your expenses are $50,000 now, you'll need about $90,000 in 20 years to maintain the same lifestyle.

Many retirees make the mistake of locking in fixed income sources without considering how inflation will erode their purchasing power over time. A pension that feels generous at 65 might feel inadequate at 85.

How to avoid it: Build inflation protection into your retirement plan. Social Security automatically adjusts for inflation through cost-of-living adjustments (COLAs). For the rest of your portfolio, maintaining some growth-oriented investments can help. Treasury Inflation-Protected Securities (TIPS) are specifically designed to keep pace with inflation. Some retirees also plan to gradually increase their withdrawal rate over time to account for rising costs.

Estate planning sounds like something only wealthy people need to worry about, but that's not true. If you have retirement accounts, a home, or any assets you want to pass to specific people, you need basic estate planning documents. Without them, your state's laws determine who gets what, and it might not align with your wishes.

Beyond the will, you need beneficiary designations on retirement accounts and life insurance. These override your will, so outdated beneficiary forms (like one still listing an ex-spouse) can cause major problems. You also need healthcare directives and powers of attorney to ensure someone you trust can make decisions if you're incapacitated.

How to avoid it: Set up a basic estate plan that includes a will, healthcare directive, and durable power of attorney. Review and update beneficiary designations every few years or after major life events. If your estate is complex or you want more control over distributions, consider working with an estate planning attorney to set up a trust. The peace of mind is worth the modest upfront cost.

Once you reach age 73 (under current SECURE 2.0 rules), the IRS requires you to start taking money out of traditional 401(k)s and IRAs whether you need it or not. These Required Minimum Distributions (RMDs) are calculated based on your account balance and life expectancy, and they increase each year.

For some retirees, RMDs push them into higher tax brackets, trigger IRMAA surcharges on Medicare, or make more of their Social Security benefits taxable. If you've been a diligent saver and have large tax-deferred accounts, RMDs can create an unwelcome tax surprise.

How to avoid it: Consider strategies to manage the size of your tax-deferred accounts before RMDs begin. Some options people explore include doing partial Roth conversions in low-income years, making Qualified Charitable Distributions (QCDs) directly from an IRA to charity once you're 70½, or using your IRA to purchase a Qualified Longevity Annuity Contract (QLAC) that defers part of your RMD. An adviser or tax professional can help you determine which strategies might be appropriate for your situation.

There's nothing wrong with managing your own retirement planning. Many people do it successfully. But retirement planning involves complex decisions around taxes, Social Security optimization, Medicare, withdrawal strategies, and estate planning. One misstep in any of these areas can cost you tens of thousands of dollars.

The mistake isn't trying to DIY your retirement plan. The mistake is not recognizing when professional guidance would pay for itself many times over. A qualified financial adviser can help you avoid costly errors, optimize your tax situation, and create a comprehensive strategy tailored to your specific circumstances.

How to avoid it: Consider at least consulting with a fee-only fiduciary financial adviser or Certified Financial Planner (CFP) for a one-time retirement plan review. They can identify gaps in your strategy, suggest optimizations, and help you understand the tradeoffs of different decisions. For ongoing support, some people work with an adviser on a retainer or percentage-of-assets basis. The key is finding someone who's legally required to act in your best interest and whose compensation structure aligns with your needs.

Here's the good news about all these retirement mistakes: They're completely avoidable. You don't have to learn them through painful personal experience. Just by reading this far, you're already ahead of the curve.

The common thread running through all these mistakes is this: They happen when people make irreversible decisions without fully understanding the long-term consequences. Claiming Social Security too early, withdrawing from accounts in the wrong order, underestimating healthcare costs, none of these are inherently wrong moves. They become mistakes when they don't align with your specific situation and long-term goals.

So what's the antidote? Education, planning, and when appropriate, professional guidance. Take the time to understand how different retirement decisions ripple through the rest of your plan. Model different scenarios. Ask questions. And remember, it's okay to admit you need help navigating these complex waters.

Your retirement represents decades of hard work and disciplined saving. Don't let avoidable mistakes undermine what you've built. With the right knowledge and planning, you can sidestep these pitfalls and enjoy the retirement you've earned.

Disclaimer: This article provides general information and education only. We are not certified financial planners or investment advisers. Before making any financial decisions, including retirement planning, Social Security claiming strategies, or investment choices, please consult with a qualified financial adviser or tax professional who can evaluate your specific situation and goals.