The Retirement Mistakes That Don’t Show Up Until It’s Too Late

Most retirement plans look solid on paper. The real question is whether you miss something that could quietly cost you later. After decades of helping families retire, I've learned this. People don't run into trouble because they didn't plan. They run into trouble because they planned for the wrong thing or they assume the hardest part was behind them.

You might feel like you've done everything right and still find yourself stressed by taxes, income gaps, or the hidden surprises you can't plan for. We're going to walk through the seven most common mistakes that retirees make that can derail what they thought was an otherwise solid plan. Most of them are avoidable once you know where to look.

Phil, let's start with mistake number one.

They're scared to make the transition. People get in the habit of saving and preparing for retirement.

Yep.

They get really scared when it's time to make the transition. They don't say they're scared, but there's a fear. And trying to make that leap, that jump. It's hard. And I don't know if there's a one-size-fits-all solution. I don't believe there is. But people have to learn to let go of what's behind. And sometimes that's a lot easier said than done.

Yeah. I think people are creatures of comfort. And when you spend a lifetime putting away money to build your nest egg, it can be uncomfortable to move away from that and again and I guess start enjoying that money and all of a sudden you lose the security of the paycheck.

Yep. That's gone. So, it's easy to feel pretty comfortable when the paycheck's coming in because you don't have to dip into your savings, right?

Right.

You just live off the income and so all of a sudden that stops. The other one though that I think is part of this mistake, getting across that hurdle, going from a saver now to a spender, I think it's really difficult because people, they always think they're going to run out. They don't know if they've saved enough. it. They're just not sure. No matter how much they've planned, sometimes planning, as you say, it's always good on paper, but I don't know that it's so easy to take it to the street.

Yeah. Yeah. That's true. That's true. And one of the things that we deal with a lot and something that our clients come to us and seek our counsel for is planning to leave money to beneficiaries, kids, charities, whatever it may be. And so part of that thought in that, okay, when I'm gone, I want to leave x amount of dollars prevents them from transitioning into retirement and pulling money from the nest egg that they've worked so hard to enjoy in retirement. They're afraid it's going to derail what they've promised themselves they're going to do.

And a lot of that comes from where they came from, so how they were raised. You got to leave something to your children.

Yeah.

And even back to biblical times, it talks about leaving an inheritance, but it doesn't say that you have to be a miser.

Yeah.

And avoid living.

They can have all the money in the world, but because they have been in this habitual nature of saving for 20, 30, maybe 40 years in a career, they're scared to death to spend anything.

Yeah.

Not because they don't have it, but it's ingrained that all you do is save and protect. And then all of a sudden they begin to circumvent the idea that they get to live in retirement.

True.

I think that's so stressful. And retirement is not supposed to be full of stress.

Greatest stress in retirement comes just before you retire.

True.

Just after.

It's true.

And I know a lot of you are dealing with that. There's a way around it and part of this is psychological, has nothing to do with the money.

The second mistake, which is underestimating longevity and health care costs. But let's talk about healthcare. That by itself, statistically speaking, experts are telling us now that the estimated cost for an average retiree health care costs are going to be $300,000.

$300,000.

And that number is growing.

Yep.

That's just the health care part.

Yeah.

That's not the vacations. That's not the golfing. That's not all the fun stuff that you think you're going to be doing. That's not all the things that are going to supposedly bring you fulfillment. That's just the healthcare, Phil. And this is why it's mistake number two.

But most people when they're planning for retirement are planning for the travels around the world, the golf courses that they're going to be able to play, the things that they're going to be able to do with their kids or their grandkids. They're not thinking about health care. Nobody wants to plan to spend 300,000 on healthcare. Nobody wants to talk about that.

But isn't it interesting that when we do surveys with onboarding of a new client?

Yep.

And we ask them what things are most important to you. One of the top things is their health.

Yep. That's true.

But I don't see anybody laying out a game plan for how they're going to stay healthy. They don't say, "Okay, you know what? Within all my vacations, I'm going to make sure that I find a gym wherever I go. Whatever my vacation might look like, I'm going to be sure there's a gym in the hotel or a gym down the street so I can go do my fitness."

Stats tell us they're going to spend 300,000 plus during retirement. Huge expense. The more you take care of yourself, the better you can control that cost.

Yeah.

Number one. And number two, guess what? Fulfillment is more likely if you have your health. Because none of this money, I don't care how much you have, a million, 10 million, 20 million, a 100red billion, it doesn't matter if you don't have your health.

That's true.

In fact, I would be willing to bet everybody knows Warren Buffett. Everybody knows who Warren Buffett is. He's 92 years old.

Yep.

Or 93 maybe. I don't know anyone at 60 who would trade with him for his 90 billion dollar of net worth and suddenly become 92 years old knowing your days are really numbered. You got 92 billion, but you're 92 years old, right? Would Warren Buffett trade? 100%. Definitely. He'd give it up to be 60 or 50 or 65. He'd do it in a minute, probably.

So, the Social Security Administration or program was implemented in the mid 1930s.

Yeah.

At that time, the average life expectancy was 61 years old.

61. All right, listen. Do you hear that? 61 years old. 61. People today are living in retirement 30, 40 years.

Yep. Yep.

Back then, you didn't get to live in it for one. No wonder Social Security worked.

Exactly. No wonder it was fine back then. And no wonder it's failing today. And there's a lot more that goes into why Social Security is failing. We don't have time to talk about it today, right? But just knowing that most people are planning for a 25, 30, 35, sometimes 40 year retirement.

Yeah.

It isn't like it used to be. You've got to have one, a much larger nest egg in order to supplement lifestyle for that amount of time, and two, you've got to be willing to make adjustments if that nest egg isn't going to provide for you for that amount of time.

Got to be flexible.

Phil, mistake number three that retirees make, having the wrong withdrawal strategy. So, we're talking sequence of returns. We're talking pulling money from the wrong accounts at the wrong times. What have you seen in your three decades? Why is this such a big mistake?

Well, obviously this ties to the tax...

Yeah.

The tax nature of planning and if you pull from the wrong places and you're paying too much in tax, that's problematic. When you're pulling from the wrong place to start, you could be creating tax on Social Security.

Yep.

Unnecessarily.

That's a good point.

And when you create that tax, we now have IRMAA. So that causes your Medicare costs to go up. And each one of these moves has an effect. There's a cause and effect here. So you make one mistake, it creates another. And sometimes you don't see it until it's too late.

Yeah.

I've seen people make this mistake countless times. And fortunately the clients that I've worked with through the years, Spell, they will listen when I tell them to stop.

Mhm.

The problem is there's a lot of people out there that don't have an advisor telling them to stop. They just think they're doing the right thing.

Yeah.

And so they start pulling money. For example, they might be pulling everything from an IRA.

Mhm.

When they're 60 years old.

Yeah.

And some folks would say, "Well, yeah, do that. Go and get rid of that IRA, but not if you have other income."

Good point.

That could be causing additional tax.

Yeah.

So, it might make more sense to let that IRA grow and wait until you're forced to take the money out potentially.

But there's situations where it does make sense to pull from a taxable account or a pre-tax account first.

There are those situations.

But knowing when and where to pull first, so important, and it is so overlooked and it is partly why a lot of people run out of money before they run out of time.

Yeah.

And maybe what some people are thinking about, if you're listening to this and you're thinking what are you talking about, pulling from different places? You gave a stat earlier. I don't remember if it was this week or last week and you said that a huge portion of our population only has money in a 401k. A massive percentage of the population and it's their largest asset.

And it's the largest asset.

I think what we're talking about, and really it's a luxury. It starts from an early age. If you can put someone in your corner who can provide you with great advice and diversify you across the tax environments, then what we're talking about in terms of withdrawal strategy makes a lot of sense because as you age and you approach retirement and you start taking Social Security and you're talking about things like IRMAA that you mentioned, having the ability to pull money from different tax environments is so important. And people I think make a massive mistake if you have multiple tax environments to pull from. You need a plan to coordinate where the money needs to come from because the average person doesn't know how to test what withdrawals from one account will do from a tax standpoint versus another.

It's true. Or what it does to overall performance. They don't understand that.

Mhm.

And a lot of the planners out there, they are suggesting that they know how to do these things but they don't. So they will make decisions for the client or help the client decide where to pull money from and they don't know.

Yeah.

And so you have the blind leading the blind and there are ways to do it but you need the technology to do it. It's complicated, but you need tax software to be able to do these things, to run these possible outcomes. When you do that, you can pretty confidently decide where the money should be coming from, right? First or second or whatever the sequence happens to look like. You really need to do that. It takes time.

Mhm.

But we saw a client just a year ago, not even a year ago, and they were pulling money from the worst place they could pull it given their circumstances.

Yeah.

They had significant earned income because one spouse was still working and they were pulling close to 200,000 a year from a qualified account.

I know who you're talking about.

Oh, so you take those two, put them together, and all of a sudden they were headlong into one of the top tax brackets. Made no sense. Accountant didn't tell them. Nobody warned them. And they were doing this for years. That to me is what pains me more than anything. They had paid professionals.

That's right.

Helping them with their situation and no one ever said a word about it. To me that's criminal.

Yeah. Unfortunately, a lot of these situations like that are buyer beware and the client didn't know.

Yeah. Their accountant didn't say a word.

Whoever's listening today is going through distribution phase now. Maybe you're already into retirement. You're going through distribution. Take the time to get a second opinion on how you're doing it. You might be doing it perfectly.

Sure.

But if you're not, you want to know sooner rather than later because those imperfect distributions can cost you a fortune.

Phil, mistake number four people make in retirement is they keep the same investment mix or allocation that they had when they were 45. Why is that a massive mistake that retirees make?

We'll get right back to today's show, but first I'd like to ask you a quick favor. If you're enjoying this episode, hit that like button and make sure that you're subscribed to our channel so you don't miss what's coming next. And hey, if something in today's episode has you wondering about your own financial plan, why not get a second opinion? Visit omnistarfinancial.com to schedule a consultation with one of our team members. It's quick, it's easy, and it could make a huge difference in your financial future. Now, let's get back to the show.

People get to retirement and all of a sudden they think they have to preserve everything. Got to one, leave some for the kids, and I wish there was a way for me to talk people out of that mentality. I wish I could.

So why does this happen?

So they get to retirement and they think, "Oh my goodness, protection mode." Well, the more you protect, this goes back to investing 101. The more you protect, the more conservative you are, the lower the yield, the lower the return.

Well, you just said we're living in retirement 25, 30, 35, 40 years, not one year. That's right. So, it makes no sense. It is counterintuitive to all of a sudden pull back the risk lever so much that your performance in the assets that are going to get you through retirement, you pull it back so much that they can't grow enough to allow you to sustain the need of retirement income. And we haven't even talked about inflation, but just basic need. You better grow that portfolio.

Now, I'm not saying bat for the fences throughout retirement. Yes, you need some more conservative components in there, but you don't all of a sudden go from an 8020 kind of portfolio investing 80% stock and 20% bonds. You don't all of a sudden hit the brakes and say, "Okay, well, now I'm going to be 10% stock and 90% bonds. You'll never get the growth that you need to make it 30 or 40 years." And then you start to run the risk of running out. So, people can definitely get too conservative and we see it a lot.

Now the flip side of that is you don't want to get too aggressive either, right? And right now, Spell, I think too many people are far too aggressive in the market because we haven't seen a meaningful pullback that was sustainable, and I think people continue to take too much risk and they thwart the very thing they need, and that is better or better than average, if you will. You can't make a 2%, yeah, or 3% kind of return get you through 30 or 40 years unless you got a really big basket of money and your lifestyle is barely modest. It's true.

Mistake number five can also rob the inheritance you want to leave, and that is forgetting inflation is still the enemy. Even when you retire, inflation persists. Why do retirees reach that? I'll call it the finish line, though it's really probably more of a starting line. Why do they reach the finish line and all of a sudden think that inflation goes away?

The proverbial finish line is the finish line for one thing, right? That is your working years. It's the finish line for the career. Yeah. It never should be confused with the finish line for cost rising, for things to do, for lifestyle. Those things don't change. No, they don't. Those things keep going. Cost of living doesn't stop, and as long as we live, inflation's going to be there.

Spell, in 2015 2016, about every five or six or seven years, my wife and I look at our insurances and we'll get bids and we'll talk to our broker and we'll figure out, do we need to make a change? Yep. We also have to adjust coverages for things we've changed. Could be assets have changed or whatever. So, we have to make adjustments. Back then, thinking about what we were paying versus what we're paying now. We didn't file a claim. We didn't have any loss due to us harming someone, hitting someone, or having an accident. None of that happened. Yep. Our insurance is 50% more since 2016. In less than 10 years. 50% more.

Now, we didn't do anything to cause that. Yeah. But I can tell you what else we didn't do. We didn't plan for that much of an increase. Most people probably don't. And I don't think most people do. Yeah. But that is inflation. Yep. And that's one item. Yep.

Think about the cost of people's homes. On the balance sheet, they look a lot wealthier because everyone's home has appreciated in the last 10 years. Oh, big time. In the last five years, big time. And you did a study from 2017 in certain pockets of the country. From 2017 to 2024, we saw a near 100% increase. A tripling, excuse me, 300%. [laughter] 300%. 300% on the average.

Now, think about what happened as a byproduct of that. Everybody's insurance. Yep. Electricity went up. Everything went, or I should just say utilities in general. Yeah. Because as those home prices rose and net worth went up, everything else follows it. Right. And the problem with that, Phil, is as much as you like seeing how valuable your home is on paper, it doesn't help you pay the bills. It doesn't generate income. It doesn't generate any income. There's no cash flow. So it's quietly eroding your spending power, and nobody plans well enough for that. In fact, we chastise people all the time, other planners, saying you're not adding enough inflation.

Here's the other problem I have with it, Spell, and I think all of our listeners will do well to hear this. If you're working with a planner and they put a static inflation in place, yeah, and they say, "Oh, it's 2 and a half%." Well, I'm here to tell you every part of your financial life inflates at a different rate. 100%. It's not just 2% or two and a half. Things inflate at a different rate. And so if you're not planning for that, you're going to have a rude awakening. It's true. It's going to affect you. I still work and earn that paycheck. And if I feel it, [laughter] what does a retiree feel unless they've got a big, big basket of money? Yeah.

So inflation over time, over 30 years, if it's only running at 3%, you might as well do the simple math and realize you're going to be spending double or more compared to what you spend right now. Yep. It's true. That's it. That's at a small rate of inflation. Yeah. So it absolutely changes the game. It does. People just, they don't think about it. No, they don't.

If you're listening to this and you work with a financial advisor, I want you to ask them two questions the next time you meet with them. The first is, what rate of inflation are you using to grow my living expenses? And the second question I want you to ask is why? Ask those two questions and let us know what they told you.

When you run that inflator at a lower rate, it does something very interesting. And you don't think about this when someone's building the plan for you. Mhm. But the lower they make that interest rate, I'm talking maybe a half percent, 1%, doesn't take much, it can make your plan look really, really good. Yes, it can. It can make things so encouraging, and you start to think, "Oh, wow. I got this thing licked, man. Retirement is going to be great. I'm good financially." Shoot. It is an health care costs are going to be 300k and that's going up. And that's going up. Healthcare cost in our country is not going down. No.

All right, Phil. Mistake number six, couples don't communicate. Why do we see this as a major problem with our retirees? Couples in general share real intimacy. Mhm. And everything is talked about with couples who have that kind of relationship, right? But then there's couples that don't have that kind of relationship. Yeah. Couples such that if the husband, for example, [snorts] prematurely passes, mhm, the surviving spouse has no idea what to do. Yep.

And this isn't just the wife left in this situation. I've seen it where the man has no idea. Yep. I've seen it where the wife, she took care of all the finances. Mhm. Now, if I passed, my wife's a CPA. I don't worry about her knowing the number. She's got it. She's good. And if something happened to her, I've got a finance background, so I think I can probably handle it. You'd be all right. But there's a lot of people that don't have that in their household, and they don't talk. It's true.

So, we get a plan built. They have a great financial plan, but only, how many times, and we deal with this as well. Yes, we do. Just the husband shows up for the review and we ask why, and well, she had something else to do or she wanted to go shopping with her sister. There's all these excuses. They need to know. Mhm. Both husband and wife, they need to be talking. They've got to communicate. Yep.

If something happens and both are not familiar with the plan, that's one of the first points where things begin to break. Understand what's going to h, if something goes wrong, what is plan B? That's right. If something goes wrong again, what's plan C? How are we going to deal with this? And what happens if a spouse prematurely passes? Who takes over? How will you take over? Do you know how? Who do you call? Yeah. What does all that look like? And no communication leads to some major, major mistakes. It's true.

Mistake number seven, particularly for those who are nearing retirement or who just entered retirement, is being unfamiliar with your cash flow. To me, the cash flow statement is the lifeblood. It is. That is the heartbeat. Yep.

I tell people all the time, and we work with so many businesses, so it's normal for us to talk about this, but I always apply it to the personal wealth management client as well, or say to the individual or the family. Just like a business, you need to understand your cash flow [laughter] in and out, inflows, outflows. I don't know a good business, a stable business, a sustainable business, a longstanding business, I don't know one that doesn't use financial statements, that doesn't have a tight, tight, tight profit and loss statement. Mhm.

They know exactly what's coming in. Even if it's receivables, things they haven't received, they know when it's coming. Mhm. And they know when to get on that phone and start calling and say, "Hey, ow some money." Yep. Bring the money. They know. Yeah. And they do it well. And that's what keeps the flow in. That's right.

What they also know is where every dollar is going, and it's allocated to certain places. Whether that's accounts payable. Yep. So they know about the accounts receivable and they're getting the dollars in, but they also know about accounts payable. Yep. Where does that money have to go? That's right. How much is going? What does it cost to run that operation? And maybe as important as any number on that P&L, how much is left? Are we profitable or are we in the red?

And if they're in the red, they're going to make a decision. Yep. To either change something, or they're going to make a decision to leave it the same, at which point they're going to be a defunct operation. Probably right. But most of the time, the good leaders, they're going to say, you know what, we got to change something. That's true. Why don't individuals do the same thing? I don't know.

But if you don't take anything else away from the show today, the best piece of advice I can give you, if you're nearing retirement or you've just entered retirement, maybe you've been in retirement for a couple years and you don't have a good feel or grasp of your cash flow, either audit it yourself or find someone that you trust to audit it for you.

I think part of it is, Spell, they think of that as a budget, and they don't want to hear that because they don't want to be told they can't spend. Well, that's the B word. It's the B word. Just use the B word. But I can tell you this. If they learn to love it, learn the cash flow, and you're going to be so much better. Yeah. At taking care of your money, your money's going to last longer. You're going to feel more in control when you know. And I promise you this, if you'll learn how to use this and you'll start using it, you will become so empowered, you'll want to do it, it becomes like a game. Yeah. And you'll want to win that game every time.

Your level of stress will significantly decline. Goes down. It will significantly decline, because again, when you're living off of a portfolio and you're paying for all of your expenses and your bills, and if you have a mortgage when you're retired, whatever your outflows are, your accounts payable in business speak, it's not the same as paying those expenses or accounts payable when you're earning a wage. It feels different.

But as we mentioned, people are creatures of comfort. And so if you can become familiar and use a cash flow, make sure that at the end of the month you're in the green and not in the red, that feeling of comfort will start to build. And it will start to build. And to your point, Phil, it does become like somewhat of a game. This is a very, very, can be difficult game to play, particularly when in your retirement you might have to play it for 40 years. That's a long game.

Some are playing it well. Yep. Some are not playing it so well. True. And they don't realize that they're going to fail. They have these unspoken goals, like I want to leave something to my kids, I want to live this great retirement, and I don't want to run out of money. Number one fear, by the way, of all retirees is running out of money before life. Well, guess what? The cash flow and getting familiar with that, that's what helps you eliminate that huge risk. There are some risk you're just going to have to deal with. There are others you can control. Yep. Cash flow is one tool that will help you control it. Definitely.

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