With just a few twists and turns, retirement plans can get spooky — fast. While many Americans look forward to having more free time after their working years, some find themselves in a gloomy situation they weren’t expecting. Overspending, a lack of planning and financial missteps can quickly make the retirement dream a nightmare.
Learn about these pitfalls to avoid becoming a retirement horror story:
1. Not saving enough for retirement.
2. Making too many withdrawals during your early retirement years.
3. Starting retirement too early.
4. Generating a high tax bill that erodes spending.
5. Relying too much on Social Security.
6. Helping too many family members.
7. Focusing on financials but overlooking emotions.
8. Making random and risky investments.
[Retirement Planning Mistakes to Avoid]
1. Not Saving Enough for Retirement
About 1 in every 3 Americans is on track for a scary retirement situation, as 34% have no savings, according to a recent report by Ramsey Solutions. If you’re unable to set aside funds for retirement, cash could become scarce when your regular paycheck ends. Of course, unexpected life circumstances can make it difficult or impossible to save money for retirement. But without adequate savings, you could end up working more years to keep your income up.
2. Making Too Many Withdrawals During Your Early Retirement Years
Once you step away from the workforce, you can find plenty of activities to fill your time. If you’re not careful, the savings you’ve accumulated over decades could dissipate. While a spirit of adventure is healthy, you may need to slow the pace of travel plans. You could plan for one major trip each year, or prioritize your bucket list and check off items as your budget allows. This strategy can preserve your dollars and help you find enjoyment too.
3. Starting Retirement Too Early
The best age to retire depends on your goals, health and financial situation. However, if you decide to retire in your late 50s or early 60s, you could find a long list of unexpected costs. Your health care insurance may have been covered by your employer during your working years. If you retire before age 65, you’ll have to wait until you are eligible for Medicare coverage and purchase insurance on your own, which can get pricey fast.
“Clients seeking early retirement face a greater risk of outliving their savings,” says Katie Lindquist, a financial planner and owner of Lindenwood Financial LLC in Madison, Wisconsin. “To help reduce this risk and have a stronger overall financial plan, you can use a longer retirement timeline than you think you need when estimating how long your assets will need to last.”
4. Generating a High Tax Bill That Erodes Spending
According to J. Barry Watts, a financial planner and founder of WealthCare Corporation in Springfield, Missouri, “the biggest risk retirees face is tax rate risk.”
“Tax rates are set to increase in 2026 (due to expiring tax provisions in the Tax Cuts and Jobs Act of 2017), so if you are married and making $150,000 per year, your tax rate will increase by 13.6% in 2026,” he says. This could have an impact on your budget and spending power.
“If you haven’t retired yet, shift your savings into tax-free accounts to lower your tax risk,” Watts says. This could include Roth IRAs, Roth 401(k)s, or a Roth conversion. The strategy could help you avoid higher taxes in the future when you’ll be on a fixed income. “While you pay taxes upfront on these dollars, your funds will grow tax-free and can be withdrawn tax-free in retirement,” Watts says.
[See: How to Reduce Your Tax Bill by Saving for Retirement.]
5. Relying Too Much on Social Security
You can start claiming Social Security benefits as early as age 62 but carefully consider the pros and cons. Waiting until your full retirement age will lead to a full benefit amount. That figure increases every year until you turn 70.
Still, planning to have Social Security paychecks support you in retirement might lead to unfortunate surprises. The average monthly benefit was $1,706.98 in September 2023. You might have to pick up extra work if you don’t have additional savings to cover your living expenses.
6. Helping Too Many Family Members
Looking at the nest egg you’ve built up over the years, it may seem that you have enough funds to support more than just your household. Be aware that others could view your savings as a source of funds. If you’ve done well at setting aside money to last for many years, don’t be surprised if others request a loan or financial help. You might be asked to help grandchildren pay for their college education, or to provide the money for adult children to make a down payment on a house.
Before sharing funds with others, it can be helpful to review your budget. “Make sure to live in a way that doesn’t use up your savings too fast,” says Celeste Robertson, estate planning attorney and the owner of The Law Offices of Celeste Robertson LLC, in Corpus Christi, Texas. “Be careful about giving away too much money, even to your family.”
[READ: Avoid Becoming One of These Retirement Statistics]
7. Focusing on Financials But Overlooking Emotions
If you devote all your energy to numbers but neglect your activity levels, you could start to feel downcast in retirement. “While the financial aspect is obviously key, I also discuss with my clients the emotional, social and psychological aspects, which can be just as important,” Lindquist says. Lindquist shares a four-phase framework with her clients created by Riley Moynes, author of “The Four Phases of Retirement: What to Expect When You’re Retiring.” The four phases consist of vacation time, unavoidable losses, experimenting and embracing life.
8. Making Random and Risky Investments
If you get calls from individuals you don’t know who are offering you a great investment opportunity, proceed with caution. Putting a great deal of your savings into a partnership or stock that promises to yield great returns could end in disaster. Scam artists regularly swarm retirees, as thieves know there are often savings to tap. “Keep your saved money in safe places, like certain kinds of bank accounts or investments that aren’t too risky so you don’t lose it,” Robertson says.
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Avoid Becoming One of These 8 Retirement Horror Stories originally appeared on usnews.com
