Avoid These 7 Financial Mistakes Retirees Make - The Retirement Manifesto (2024)

1. I’m only semi-retired so I can’t say this with certainty, but I think #1 is the biggest threat for many or most. I can see that most folks won’t be able to predict all of the things they’ll get involved with in retirement. Like picking up new hobbies that might cost money, or getting a travel bug. For me personally, I have no idea what new muses I’ll have in 20 years, but I know that I’ll gravitate toward some new hobby and it’ll likely cost money!

   See Also

   Ganja Tourism, Sneaker Smuggling, Solar Potential and #MoneyTalk

   1. Ironically, Dave, I just read an article this morning that says most retirees over-spend in their first year of retirement, primarily due to spending on building up the “toys” and “hobbies”. We were careful to try to get all of that spending completed before I retired, and are actually tracking below our estimated spend rate for our first year. No complaints!

2. Thanks for sharing, I am always looking for something to “watch out for.” Now that I am completing year #4 in retirement I can say #4 of the Most Common Mistakes, Not Understanding Tax Implications, took a bite out of me once, a big bite. Not that I didn’t understand taxes, I was just used to things working differently when I was employed and should have paid more attention. Oh well, it didn’t kill me and things worked out well.

   Enjoy the journey

   1. “The Hiker”!? I like your new nic, Kirk! You’re not alone in getting hammered by the tax details. It’s an incredibly complex area, and one we tend not to focus on too much when our employer is taking care of all of the admin for us. I had to start paying quarterly estimated taxes this year, will be interesting to see how things pan out by the time I do our taxes next year. Looking forward to sharing some creole cuisine with you, my friend!

3. Awesome post, my friend. Mrs. Groovy and I are coming up on three years of retirement and we attribute our success thus far to points one and two. We’ve tracked our spending all the while and it’s a great way to stay disciplined. Our goal was to spend less than $4,000 a month and thus far we’ve been spending $3,200 a month. We also went into retirement with a relatively small equity exposure (40% of our portfolio) to guard against the dreaded sequence of return risk. This strategy dampened our returns over the past three years, of course, but our portfolio is still up nearly $200,000 and we’re rapidly approaching that wonderful state of affairs in which a 2008-like market crash wouldn’t hurt us at all. And I hear ya about point six. Fifty percent of our portfolio is in tax-deferred accounts and we’ll get hit pretty hard by the taxman once we start taking RMDs. Hope all is well at World Headquarters. Cheers.

   1. $3,200 a month! You’re my hero, Mr. G! I recall reading about your plan to follow Kitce’s reverse glide path strategy, glad it’s worked out well for you. Yeah, you’re in an interesting spot with your tax-deferred $$ – you’re held hostage by those wonderful ACA subsidies, what a unique dilemma. Enjoy it while it lasts, clearly worth taking full advantage of those subsidies while you can! And yes, all is great at the World HQ, thanks for asking! 🙂

      1. Mr. Groovy and Fritz…I’d like to build on the comment about the reverse glide path strategy once in retirement. Both Kitces and Karsten (Big ERN) have studied the concept of a RISING equity glide path in retirement, esp’y for early retirees who are looking at 30+ years of retirement. My questions for Mr. Groovy….1) Have you started raising your equity % from the baseline of 40% from 3 years ago?, 2) If so, are you “passively” doing this through the natural rise of the market (i.e. not rebalancing) or taking an “active” approach and buying more equities from your cash position?, 3) If we all agree that a correction will happen, how does one know when to start raising the equity portion? My personal opinion…we would start retirement at a baseline % (i.e. Mr. G’s 40%) and hold there as long as the market is climbing. Once the market starts a correction, then buy more to not only hold the 40%, but to actually increase it. The rate of increase is still TBD as I read more about ERN’s results in his fantastic series on SWR. Welcome your thoughts.

4. Fritz, if you are looking for a side hustle you can set up a 30 minute phone chat for those people like me (mid 40’s) looking for a guide to bounce ideas off of. I would be willing to pay for basic advice from you on a personal level. Nothing technical just “what would you do if you were me.” Just an idea.

   1. Hey Melissa, I’ve considered it, but have decided against coaching at the moment. The blog takes more of my retirement time than I planned, and I’m also working on a book. I really can’t justify commiting more time than that in my early retirement years, it’s too important for me to get outside and play! I hope my words are helpful to you, thanks for being a reader!

5. I’m guilty of #6 as well. However, we have 35 years left before RMD so I think we can deal with it. I plan to start our Roth IRA conversion soon.
   Also, you probably did very well on the tax savings. The tax rate is lower now for you, right? I’d love to see a post with more detail about that.
   When you contributed to the 401k, you’re saving at the top of the tax bracket. Now that you’re withdrawing, your effective tax rate should be much lower than that. Show us the numbers.

   1. Hey Joe! I wish I had 35 years before I had to worry about the RMD! And yes, the tax savings were nice during my career, but in reality a lot of my before-tax 401(k) contributions were made early in my career, when I was much lower on the earning scale. Roth wasn’t available at the time, so I haven’t really worried about how much better it could have been. I’m content with what we have, I just have to optimize our conversion to the top of the marginal tax brackets each year. I do expect our effective tax rate to be lower in the coming years, tho this year was more profitable than I expected due to a final payout of a large long-term option incentive from my employer. Looks like that rollover will have to wait until next year!

6. All is sound advice. But let me add a thought. Don’t be hustled into believing that in your retirement your financial holdings should focus on income. Most planners will assume you will need income from your investments upon retiring. Yes, that’s true. But don’t get stuck exclusively with bond and/or CDs.

   Rather, be sure to have at least some of your holdings in common stocks. Seek out big companies that pay decent dividends, so you’ll have some income from them. Or, if you prefer mutual funds or exchange traded funds, a good idea is to invest in the “dividend aristocrats.” These are large companies that have a history of paying decent dividends which increase year after year. In this way, you’ll have some income from the dividends and, importantly, have securities that will participate in the growth of the economy. Bonds and CDs do have a place in your portfolio, but mostly as a repository for money waiting to be investing .

   1. Great advice, Ed. I would add that inflation is a risk which many folks under-appreciate. You need some of that common stock exposure to help keep up with inflation, as well. Looking forward to our lunch on Thursday!

7. I’m still educating myself on one of these — #6, as my late husband had a municipal deferred comp account. Can you provide more information on the tax implications once you reach 70? Or point me to a good source for further self-education?

   1. Hey Lori, I’m sorry to hear about your husband’s passing, and give you credit for educating yourself about the issues. I’m not sure if a “muni deferred comp” has the same rules as a 401(k), but in a 401(k) you are required by law to withdraw a certain % of the account each year starting at Age 70 1/2. The withdraw is taxable, and is added to any other income you have (e.g., pension, social security). I’d encourage you to find a good CPA in your area, and take them out to lunch to talk through your situation. It should be something any licensed CPA can help you with. Good luck, and let me know if you have any further questions.

8. #7 The “love letter” concept is a great one. The one thing you didn’t mention is you should read your love letter to your wife while you’re still alive. Your spouse shouldn’t be reading it for the first time after you die. Your spouse needs to understand why you do what you do with your money now, not after death. The love letter should be a nice reference or reminder.

   The same goes for wills and inheritance. I’ve got more that I need to take care of, but for example, my son knows my wishes/recommendations of what he should do with his inheritance should I pass sooner than later. I’m in no way controlling what he does with it, but he knows what my fatherly advice is (to pay off various real estate assets).

   1. Good point, Hobo. I do go through our Net Worth statement with her, and I did read through the love letter the first year I put it together. Now, she just prefers to know it’s available if she ever needs it, but I agree it’d be good to go through the details with her, especially now that we’re retired and have moved into the Withdrawal phase of life. Great advice. Also, good point about inheritances. I need to spend time with our daughter and son-in-law on that one, too. I actually thought at one point about putting in writing that it all go into an SPIA, they could enjoy the income stream, and I’d never have to worry about them doing anything foolish with the inheritance…

9. I can retire in 52 days. I’ll be 60. I am in the position where I will have a large amount of tax deferred income to pay taxes on when I’m 70 1/2. That is my biggest concern right now. I’m trying to figure out ways to reduce this burden, and am really tired of people saying that “it’s a nice problem to have”. It’s a BIG problem. Any advice? Thanks, and I’ll see you on the retirement side!!!

   1. 52 Days!! Woot Woot! Welcome to The Starting Line – you’re going to love it over here. You’re right about the tax deferred being a big problem. I’d suggest you read the New Tax Law Loophole (https://www.theretirementmanifesto.com/the-new-tax-law-a-loophole-for-retirees/) for some specifics on how I’m dealing with it. You’ll definitely want to start topping off your marginal tax bracket every year, the article should help you to understand the strategy. Congrats again on your retirement!

10. Nice additions to the post, Fritz. While we have 7 years before needing to really decide on SS, that is definitely a big variable we’ll need to consider. Right now, we are looking at 62 for low income bride, and FRA for me. But that could change with changing health. As a military retiree, much of our pension income would stop (and about 25% of our SS) if I died first – so we are paying attention to genetic probabilities.

    Since SS projections assume we are earning at current rates until FRA, it will be interesting to see how our projections change when W2 income drops to zero. Bride’s projection is definitely more sensitive than mine, as she still has $0 years in her 30 year record.

    1. Hey Kev, I agree the SS details are interesting, and ever changing. Best thing to do is exactly what you’re doing, pay attention to the detail, and hold off making a decision until you have to. Interesting about the military pension drop-off at your death, didn’t realize that. Mine will drop 50%, but we bought a 20-year term life insurance policy to help bridge her income if I were to die early. Doesn’t cost much, and brings a bit of peace of mind. Might make sense in your situation, too.

11. Hi Fritz
    Not in the same order as above!! Too hard to keep paging back…
    1) We have about 50% of our savings in tax-free pension savings. In UK our tax-rules are different. If you earn more than £55/60k p.a. approx, then your private pension savings at the point of investment are ‘given back’ 40%. A huge incentive, particularly on the growth phase, when you are building them. When you come to withdraw them, in many cases, you will withdraw them at 0- 20/25% tax depending on your retirement income. Even better, the unused ‘pension pots’ can be left free of Inheritance tax. (Complex rules – UK residents, please take financial advice, it will be worth it! )
    2) Taking the UK state pension. My husband collected his at 68, rather than 65, which gave him a lovely 10%bonus p.a. Sadly this has now been reduced to 5%. I still have a couple of years to decide when it is best for me, but my state pension will be lower than his (long story). A few spreadsheets to come…
    3) Trying out your proposed retirement income. We called it our Pension Diet. We did this for nearly 2 years in advance of retirement. Very informative. We also used that time to clear up no longer required ‘regular payments’ that just keep going until you cancel them… How many people check all their accounts and credit cards every month for more than a year to identify things they had forgotten about (maybe a future post for someone!!). My ones were Ancestry, and FindMyPast among others. Family history was a major interest prior to blogging, but I sort of forgot about them, when it came to looking at my annual costs!
    4) Inflation is a real concern for me. My pension rises at 3% p.a max, so I do worry about a return to the 70’s and hyper-inflation. (My first mortgage was set at 14.5%!) For the debt conscious, it not only knackers your income, but erodes your savings. The only people it helps are those with loads of debt. Ask those who lived in Zimbabwe about 1990’s…
    5) Agree about the ‘be prepared!. You have to die sometime. Hopefully some years hence. My letter to my husband is the reverse of yours, I sort out all the accounts, and do everything financial.. But there is a large envelope in the filing cabinet addressed to husband / children, saying – come the day you need it, this us what you need to know, and who to contact, including people like my cousin who will arrange to get our investments sorted out. Like you I update it every year. Power of Attorney/wills already in place. Makes sense, but so many people are scared of making a will. I had a serious conversation with a 30 year old a few weeks ago and he said, I’m far too young – I said you are only 1 motor accident away. It costs a small amount, and saves untold worry. DO IT!

    1. Erith, your wisdom continues to impress me. Great comment, and interesting to read about the U.K. specifics. I love your #3, a friend of mine called it a “Retirement Test Run” and attempted to live at retirement spending level for his last 2 years of work. Amazing minds think alike! Also, I do worry about inflation, especially since my pension is fixed for life. You’re fortunate to have an inflation adjustment in yours. Even if you hit the 3% max, at least you’ll only have to deal with the gap between the ceiling and actual. Not many folks are as fortunate. Finally, great reminder for everyone to “Do It” – you never know when the end will come. Thanks for stopping by, I always appreciate your insight.

12. Great idea, some wisdom for the kids on what I believe they should do with whats left to them. While they have seen the will, that’s simply percentages, I should share with them what I would do if it were me (without sharing the numbers).

    1. Looks like both you and I have some talking we need to do to our kids. Excited to see you tomorrow!

13. Hello Fritz and fellow subscribers, greetings from Tampa. Another great post Fritz. I definitely have concerns about 6 & 7. Presently, we have 69% in before tax retirement assets, 28% Roth and 3% non-retirement. I am retired and 60, but my wife who is 10.5 years younger will work another 8 years. With her modest income working for a school district as a social worker we can stretch our taxable assets until we run out about the time my RMDs kick in. Because of her modest income we reduce her taxable income down significantly because of maxing out her 403B and deductions for healthcare, my alimony payments and married filing jointly standard deduction. The delta between the taxable income and the 12% tax rate of $77,400 is what I rollover to claim as taxable income. We are careful to harvest LT Cap Gains and qualifying dividends to our taxable investments so that we are below the MFJ threshold of $78,500, and thus, not having to pay tax. We factor in our taxable dividends that are not qualifying as part of income. This results in an average tax rate of 7-9% until my wife retires and would result in a shift to 53% Roth by the time my RMDs kick in while greatly minimizing taxes. Of course, I managed this carefully on a monthly basis and do not make the rollover until I know what mostly like will be my taxable income in December. Moreover, this is depended on current tax laws which can change and if I decide to get a gig job.

    As far #7, after 25 years in healthcare administration, primarily in oncology care, I have seen firsthand cancer patients lose all of their wealth fighting this dreadful disease because they have lost their job in the process or because they had inadequate insurance. Therefore, it is imperative that healthcare costs and adequate insurance is factored in everyone’s retirement budget before Medicare kicks in. As a rule of thumb, one out of three will get cancer, and there is a 40% probability of succumbing to the disease.

    1. Eduardo, congrats on your execution of a very sound before-tax conversion strategy. Yes, 69% is frighteningly high, but you have a plan and you’re working it down as efficiently as possible. Well done. Also, thanks for your firsthand reminder of the realities of cancer. I can’t imagine anyone going without health insurance, in spite of the huge expense prior to Medicare. It’s simply not worth challenging the odds. Thanks for a great comment.

    2. For couples 10+ years apart, a different, more advantageous, RMD chart applies. Check into it.

       1. Thanks Frank. Is there a link for more information to a more advantageous RMD if couples are 10+ years apart?

          1. Found it Frank. Its call the IRS Joint Life Tables. I have updated my pro formas and it does help reduce our tax burden. Thanks.

14. Fritz,
    You’re doing great work sharing these tips. This type of information needs to be shared widely and read by all retirees, even if they have financial advisers they “trust”. Safe investing of a lifetime’s worth of savings cannot be completely outsourced to anyone in exchange for a 1% management fee.

15. Pingback:

16. We are “guilty” of #6. Past 2 years we took out $25K each from our 457 accounts. This year, we are going to do a Roth conversion–up to the top of the 25% tax bracket.

    I turn 70-1/2 in 2023 and hubby turns 70-1/2 in 2024. Question is whether we match how much we take out of our similarly valued 457 accounts. To maximize how much I am able to shrink my 457 (and upcoming RMDs) should I take out more now and let hubby do more Roth conversion in the extra time that he has?

    1. Donna, it sounds like you’re doing what you can to minimize the RMD bite. Theoretically, I would agree that it would seem to make sense to have you do the larger conversion from your account since you’ll reach the RMD deadline a year before hubby. Good thought.

Comments are closed.