Mistake 1: Ignoring the Sequence of Returns Risk and Using a Poor Investment Strategy

You can do almost everything right for 30 years, then get crushed by bad timing in the six years that matter most. That is the sequence of returns risk in a nutshell. It is not the average return that sets your retirement path; it is the order of returns right before and right after you retire.

Picture this. You leave work, the market drops, and you start pulling money to pay the bills. The market eventually recovers; it always does, but you now have fewer dollars left to recover with. Those dollars are your little workers. You laid some off at the worst possible time, and they are no longer compounding for you.

What Is Sequence of Returns Risk?

The risk is most dangerous in a tight window, usually the 3 years before and the 3 years after your retirement date. Some planners stretch it to 5 and 5. The point is the same. Volatility in that window, especially deep drawdowns paired with withdrawals, can do lasting damage to your retirement income.

• Retire in a down market and keep taking withdrawals, and you lock in losses that your portfolio can no longer rebuild.
• Why it can cost millions, the hit to your compounding power plays out for decades.

Markets recover, but early losses mean fewer “workers” compounding later. That is the sting.

How to Avoid It: The 3-Bucket Strategy

Buckets help you turn a messy market into a simple plan. Think about your money by time horizon, not just a single mix of stocks and bonds.

1. First 3 Years Bucket: Cash and cash-like. This is your boring money, and boring is beautiful here. Think high-yield cash, T-bills, CDs, and short-term bonds. The goal is to cover about 3 years of retirement income needs without worrying about the market.
2. 4 to 10 Years Bucket: Middle-of-the-road investments. Some bonds, some diversified stock exposure. This bucket refills the first bucket on a schedule, giving you time for recoveries between taps.
3. 10+ Years Bucket: Long-term growth. More stock exposure, more patience. Roth IRAs can shine here, since they are often tapped last and can double as an inheritance tool.

If the market throws a hissy fit, your first bucket still plays nice. If the market rallies, great, your long-term bucket participates. If you miss a little upside in the cash bucket, that is fine. You bought insurance against panic selling at the worst time.

Start building buckets years before retiring. Do not wait until the week you hand in your badge. Accumulation is simple: you save and invest. Decumulation is a different sport, and the rules change.

Quick Tip for DIY Investors

If you have been managing your money solo, this is the crunch time that requires extra attention. Accumulation rewards consistency. Decumulation rewards design.

Mistake 2: Skipping Proper Tax Planning

If there is an easy way to tip a big pile of money into Uncle Sam’s lap, it is entering retirement without a tax plan. Taxes touch every withdrawal decision you make. They affect which accounts you use, when you convert, how you give, and what you end up keeping.

Why Tax Planning Matters in Retirement

Decumulation is not as simple as “spend the taxable accounts, then the traditional IRA, then the Roth.” That one-size order can backfire. You want flexibility and to manage future required minimum distributions (RMDs) before they become a problem.

A balanced, tandem approach often works better. Blend withdrawals from your brokerage account and your IRA to keep your tax bracket steady, avoid surprise capital gains jumps, and reduce future RMDs.

Common traps to watch:

• Accidentally triggering higher IRMAA brackets for Medicare premiums, which have a two-year lookback from age 65.
• Pushing yourself into a higher capital gains bracket with large taxable sales.
• Locking into a single tax position and losing flexibility later.

Top Tax Strategies to Use

You have knobs you can turn in retirement. Use them.

1. Roth Conversions: A favorite for heavy pre-tax savers. Moving funds from an IRA to a Roth when your bracket allows can reduce your future RMDs and keep more of your growth compounding tax-free. The savings can be huge over time.
2. Qualified Charitable Distributions (QCDs): Once you hit age 70.5, you can give directly from your IRA to charity. Those dollars skip your taxable income and count toward your RMD when you reach RMD age. If you give each year, this is a clean way to give and cut taxes.
3. Withdrawal Coordination: Blend brokerage and IRA withdrawals to hold your bracket steady, reduce IRMAA hits, and keep future RMDs from ballooning.

Work with a financial planner and CPA who can coordinate the moving parts. Tax planning is not a one-time checklist. It is a yearly rhythm.

Real Impact

High earners who saved a lot pre-tax can see six or even seven figures in lifetime tax savings with smart conversions and coordinated withdrawals. That is not hype; it is math over decades.

Mistake 3: Underestimating Healthcare and Longevity Risks

Healthcare costs and longer lifespans can quietly bust a plan. Fidelity’s estimate says a typical couple will spend about $300,000 on premiums and deductibles in retirement, and that estimate excludes long-term care. That last part matters. A bad long-term care event can run into the seven figures, depending on length and severity.

The Hidden Costs of Healthcare

If you retire before 65, plan for a serious line item. You might use COBRA for a limited time or shop the exchange for coverage. Either way, build that cost into your cash flow plan so it does not surprise you.

After 65, Medicare takes over the base, then you add supplements. It is simpler, not simple. There are still deductibles, co-pays, and gaps that add up. And again, long-term care is separate. A bad long-term care event can wipe out savings if you have not prepared for it.

Practical steps to bake in:

• Budget $300,000 or more for a couple over retirement for premiums and deductibles.
• Think about the severity and duration of potential care needs, not just averages.
• Stress-test your plan for unexpected medical events and long-term care.

Tackling Longevity Risk

Longevity risk is the polite way to say you might outlive your money. If your plan already trends downward, every extra year stretches the glide path. That is where a strong income base and the right portfolio mix matter.

Run stress tests to age 95, 100, even 105. If your plan survives to 105, then passing at 85 simply means you had extra padding. Social Security and pensions, if you have one, act like built-in longevity insurance. Your investment mix and withdrawal strategy finish the job.

How to Prepare

Use portfolios that pair growth with a short-term buffer, like the bucket approach. Keep enough safe assets to fund years, not weeks, and let the growth engine run for your long-term needs.

Mistake 4: Spending Too Much, or Too Little, in Retirement

Here is a twist. Overspending can sink you, but underspending can rob you of years of joy. You might know the “retirement smile.” Early on, you spend more on travel and experiences, then spending dips, then it creeps up again later, mainly due to healthcare. That curve tells a story, and it is a helpful one.

The Dangers of Overspending

This one is obvious but still common. Early retirement is exciting. You finally have time. You book trips, tackle projects, give gifts, and enjoy hobbies that have been sitting on the shelf. The ages of 65 to 74 are often your travel-heavy years. The risk is losing track of the long game.

Unknowns matter:

• Market returns are not guaranteed.
• Inflation may not behave.
• Tax codes will change over the course of your retirement.

A spending plan with guardrails is your friend. You can spend more when markets do well, then pull back a bit when they do not.

Why Spending Too Little Hurts Too

Savvy savers can get stuck in a scarcity loop. You spent decades saving, and now you are scared to touch it. Understandable, but often unnecessary. If your plan shows a high chance of success, and your buckets are full, you can probably spend more in your early years.

This is where a plan earns its keep. You get a sweet spot spending target, and dynamic rules. If markets drop, you dial back for a year. If markets run, you book the trip and enjoy it. You worked for this season. Use it.

Finding Balance

Ask a simple question each year. Are you on track to reach your goals and still leave what you want to leave? If yes, give yourself permission to enjoy more of it now.

Mistake 5: Messing Up Your Social Security Claiming Strategy

Social Security is not just a monthly check; it is also one of your best longevity tools. Claiming decisions have ripple effects, especially for couples. A decade ago there were more tricks. Some of those are gone, which actually makes this easier. The core choice now is timing.

Why Claiming Timing Matters

For many, waiting to age 70 yields the largest benefit. If you expect a long life and you do not need the check right away, growing that benefit can be a smart move. It becomes a bigger, inflation-adjusted income stream that lasts as long as you do.

For couples, run the numbers for both of you. Your health matters. Your cash flow matters. If a health update alters the situation, claiming benefits earlier can be beneficial. If you are healthy and have other assets, it often makes sense to wait.

Strategies to Maximize

The general play is simple: delay if you can for the largest lifetime benefit. The details for spouses and survivors still deserve attention. This is not individual advice; it is a framework. A tailored plan considers both your earnings histories and ages, as well as your broader tax picture. Walk through the scenarios with someone who can model them for you.

Quick Reference: The Five Big Mistakes

Mistake	Why It Hurts	What To Do Instead
Ignoring Sequence of Returns	Early losses plus withdrawals reduce compounding for decades	Use a 3-bucket strategy, build it years before retiring
Poor tax planning	Overpaying taxes across RMDs, IRMAA, and brackets	Blend withdrawals, use Roth conversions, and QCDs
Underestimating healthcare and longevity	Costs balloon, long lives stress portfolios	Budget for premiums, consider long-term care, stress test to age 105
Spending too much or too little	Either drains assets or steals joy	Set guardrails, adjust spending to markets, and find your sweet spot
Bad Social Security timing	Smaller lifetime income, weaker longevity protection	Delay to 70 if you can, coordinate with spouse and taxes

Bringing It All Together

Retirement success is not about guessing the next hot stock. It is about building a simple system that protects your income, reduces your taxes, and gives you the confidence to spend. Focus on the six-year risk window, get your buckets in place, map your tax plan, budget for healthcare, right-size your spending, and dial in Social Security. Do those well, and you put serious odds in your favor.

Think of it as a checklist you revisit each year. Markets will move. Tax laws will shift. Life will happen. Your plan adapts. Your portfolio supports your goals. Your money works for you, not the other way around.

You only get one shot at your first decade of retirement. Make it calm, intentional, and built on clarity.