Seven Mistakes

Rick Pendykoski

ONE OF THE BIGGEST financial mistakes people make is not contributing to their employer’s 401(k). Nearly 20% of Americans are guilty of this. But that’s hardly the only mistake that folks make. As you strive for a comfortable retirement, here are seven other missteps you’ll want to avoid:

1. Poor tax planning. Try to estimate whether your tax bracket will be higher or lower in retirement. If you think it will be higher, fund Roth accounts, so your retirement withdrawals will be tax-free. If you think your tax bracket will be lower, go for traditional IRAs and 401(k) plans. With these accounts, you can get a tax deduction now, but you have to pay taxes on your withdrawals.

2. Not making a financial plan. A well-thought-out plan should take into account your expected lifespan, at what age you hope to quit the workforce, where you want to retire and the lifestyle you want post-retirement. Update the plan regularly as your needs and wants change, so you know how much you need to save each year for the retirement you want.

3. Forgetting to rebalance. It’s wise to rebalance your portfolio every year or even every quarter. This helps you maintain the asset mix you want. As you approach retirement, increase the percentage of bonds and cut back on stocks.

4. Ignoring inflation. You don’t know what the inflation rate will be when you retire, but you can prepare. If you have a pension, but it doesn’t adjust for inflation, you could be hit hard during retirement. What to do? Invest a portion of your 401(k) savings in assets that increase with inflation. These include options like real estate investment trusts and stocks generally.

5. Taking Social Security too soon. If you wait until your full Social Security retirement age or later, you’ll likely receive more money over your lifetime. For instance, if you take Social Security at age 62, your monthly benefit would be reduced by 25% to 30% compared to your benefit at 66 or 67.

6. Spending too much early in retirement. When you retire, you may be antsy to do all the things you couldn’t do when you were working. Still, make sure you don’t spend too much in the early years of retirement—or you could imperil your financial independence as you grow older.

7. Not preparing for medical expenses. Medicare, along with a supplemental Medigap policy, will cover most medical bills. Still, you’ll have to pay deductibles and co-pays, as well as expenses that Medicare doesn’t cover. If you aren’t prepared for these costs, you could find you have far less retirement income for other expenses, including the fun stuff you hope to do.

Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm in Goodyear, Arizona. Rick has more than three decades of experience working with investments and retirement planning. Over the past 10 years, he has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement, as well as other sites. Email him at

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Thomas Taylor
Thomas Taylor
3 years ago

I agree with your list as well. As to #1, I fund Roth and traditional IRA/401k’s for tax diversification, and hopefully, to maintain a little control over my taxes in retirement. I think my retirement income will be pretty close to what I earn still working now, but I don’t know what tax bracket I’ll be in at that time. I tend to think taxes will rise, but I could be wrong. I would like to think Congress is rational in their tax policies but my career in public accounting has shown that to be wishful thinking. I save a little over 20% of my income each year and do the best tax planning I can under the current law. When it changes again, I’ll adjust the plan. I don’t know what effect, if any, the SECURE Act will have on me, but that’s a good example.

R Quinn
R Quinn
3 years ago

Good list. I would suggest the goal in taking SS is not to maximize what you receive over your life, but to maximize your monthly income at the time you need it most. Delaying is valid for many people, but sometimes not practical (often as a result of lack of planning). Medical expenses are certainly an issue, but it’s an issue even if you don’t spend a dime for health care. A couple on Medicare will face a monthly premium around $650 a month for Part B and Medigap coverage BEFORE any income based premium.

Peter Blanchette
Peter Blanchette
3 years ago

Is the author aware that it is difficult for a worker to sign up for his firm’s 401K if there is no 401K offered by his employer? Depending on the age group 30% to 40% and up of workers actually work for firms that do not have a plan. Also, how about long term care? Medicare does not pay for a lot things. even with supp plans. Does your firm offer a reasonably priced 401K to your employees?

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