3 Biggest Retirement Mistakes

Retirement is one of the most significant financial milestones in life, but many retirees face unexpected challenges that can jeopardize their financial security. This page explores the three most common mistakes retirees make—mistakes that can drastically impact their quality of life. Understanding these pitfalls and planning ahead can help you avoid costly errors, ensuring a secure and comfortable retirement. Whether it's underestimating life expectancy, neglecting healthcare costs, or ignoring inflation, the right strategies can make all the difference. Read on to learn how to safeguard your financial future.

1. Underestimating Life Expectancy

Many retirees don't plan for how long they may live, leading to insufficient savings. Life expectancy is increasing, and retirees are living longer than ever before. According to the Social Security Administration, the average life expectancy for someone reaching 65 today is 20 more years.

Did you know? 1 in 4 people who are 65 today will live past 90!

To avoid this mistake, make sure your retirement plan accounts for a long life. By planning for at least 30 years of retirement, you'll reduce the risk of running out of money.

2. Underestimating Healthcare Costs

Healthcare costs rise significantly as you age. Medicare doesn't cover everything, and out-of-pocket expenses can be a financial burden if not properly planned for.

According to Fidelity, a 65-year-old couple retiring in 2023 will need an estimated $315,000 to cover healthcare expenses throughout retirement.
This estimate doesn’t include long-term care, which could cost an additional $100,000 to $200,000 or more.

Healthcare costs are the second-largest expense in retirement, only behind housing.

Consider long-term care insurance or alternative strategies to plan for medical expenses as part of your overall retirement plan.

3. Ignoring the Impact of Inflation

Many retirees underestimate how much inflation erodes purchasing power over time. The cost of goods and services tends to rise, and if your investments or income sources aren’t adjusted for inflation, you could find yourself struggling to keep up with living expenses.

At an inflation rate of 3%, the cost of living doubles roughly every 24 years.
If inflation averages 4%, the cost of living will double in about 18 years. For example, something that costs $50,000 today will cost about $100,000 in 18 years.

Over the past decade, inflation has averaged around 2.5% annually, but it's spiked to over 7% in recent years.

To counter inflation, consider investments that grow with or outpace inflation, such as stocks or inflation-protected bonds (TIPS), and keep reviewing your retirement plan regularly.

Understanding these common mistakes can help you better prepare for a secure and comfortable retirement. Want to dive deeper into your retirement planning strategy?

This content is for informational purposes only and does not constitute financial advice. Please consult with your financial advisor before making any changes to your portfolio or financial plan.