5 Mistakes to Avoid in Retirement

You can apply for benefits at age 62, but the benefit you receive will be up to 30% less than it would be if you waited until what the Social Security Administration deems “full retirement age” (FRA).

Electing to receive benefits before your FRA can potentially reduce your benefits if you decide to keep working. For every $2 you earn above a specific threshold, which is $22,320 in 2024,¹ you lose $1 in benefits. Unless you really need the money, consider waiting to apply. And if you can afford it, consider delaying your application for these benefits until age 70 when your benefit will be about 32% higher than it would be at FRA.²

When you were younger, you could invest more aggressively because you had time to recoup any losses you might have incurred. As you approach retirement, however, the game changes and you may want to consider adjusting the level of risks that you take. You’re going to need the assets you’ve accumulated for day-to-day expenses, which may cost more due to inflation, and you no longer have the luxury of time that you once enjoyed.

Especially during the early years of retirement, when you’re beginning to withdraw assets from your retirement nest egg, it’s important to employ a strategy that considers capital preservation. Without this consideration, the combination of spending and volatile markets might deal your portfolio a blow from which it may not be able to recover.

Hand in hand with a more conservative investment approach is a more conservative budget. You don’t necessarily have to compromise the retirement lifestyle you envisioned for yourself, but you do have to maintain a realistic view of your finances.

Since you’re no longer earning a steady paycheck—or you’re working less—your income may not be as high as it once was. A lifetime’s worth of retirement savings can look like an enormous source of assets that you can tap into whenever you like, but your retirement may last 30 years or more. consider working with your Financial Advisor to take inventory of your expenses, to identify all sources of income and to develop a strategy to maintain your retirement lifestyle for as long as you live.

Generally, once you reach a certain age, you must take annual distributions—known as required minimum distributions (RMDs)—from your 401(k) plan, Traditional IRA, Simplified Employee Pension (SEP) and SIMPLE IRAs or other qualified retirement plans, whether you need them or not (Roth IRAs and Roth 401(k)s are exempt from this requirement).³ In most cases, Generally, RMDs must start at age 73 (the SECURE 2.0 Act of 2022 increases the age at which required minimum distributions (“RMDs”) must commence from age 73 to age 75 in 2033 (“RMD Age”), but you may have some flexibility as to when you actually have to take the first-year distribution. You can take it during the year you reach your RMD Age or you can delay it until April 1^st of the following year, known as the required beginning date. This means that if you opt to delay your first distribution until April 1^st of the following year, you will have to take two distributions during that year—the first year's and your second year’s required distribution.

Generally, you’ll owe regular income taxes on your RMDs and, if you fail to take them, you are generally subject to a penalty tax. RMDs reflect IRS life expectancy tables; while you can access these tables online and do the math on your own, we suggest you seek guidance from your accountant or tax advisor.

On a side note, if you participate in an employer-sponsored qualified retirement plan (other than an IRA-based plan) and are still working for the plan sponsor, you don’t have to start taking distributions from that account at your RMD Age, unless you own more than 5% of the plan sponsor, or the terms of the plan require all employees to start taking RMDs once they reach RMD Age.

A 2023 survey by Nationwide Retirement Institute found that one of the top retirement-related fears for 72% of adults age 50 or older is that their retirement costs will go out of control, and two-thirds believe that a single health-related issue could ruin their finances for years go come.⁴

These results aren’t unexpected, given health-care cost trends. Consider this: The average couple will need $315,000 in today’s dollars for medical expenses in retirement, excluding long-term care.⁵

What’s more, it’s estimated that today’s 65-year-old has a 70% chance of needing extended care at some point in their lives. And 1-in-5 65-year-olds will need long-term care for more than five years.⁶ Because of statistics like these, recognizing the potential need for long-term care is another important issue to consider in terms of asset erosion.

One option for retirees is a long-term-care insurance policy to help pay for the costs associated with long term care services. It may also provide more options for your care and relieve loved ones from full-time caregiver responsibilities.