The early days of retirement require a lot of adjustments. Your entire day is different. The company you keep will likely shift. And your finances will change a lot, too.
As you’d expect, then, people don’t just glide into retirement with a perfect understanding of how their pursestrings will work. You’ll budget, you’ll plan, you’ll have an educated guess—but you’re still going to have to figure out the exactitudes of rubber meeting road. And for many people, that involves making a few common money mistakes.
Of course … if you educate yourself about those common money mistakes now, you can gain all that knowledge without all the bumps and bruises. And that’s exactly what I’ll talk about today—a variety of potential financial errors, involving everything from Social Security to a pickleball habit, that you can either plan around or be on the watch for once you call it a career.
Don’t Make These Financial Errors in Retirement
Anyone who has ever planned a party knows that the work doesn’t end when all the guests have arrived. Sure, you can exhale a little sigh of relief when your food exits the oven unburnt and the compliments about your decorations flow. But you still need to tend to your guests and make sure the food and drinks don’t run out.
Similarly, the act of retiring is an accomplishment in and of itself, but it’s also not the end—you still need to make sound financial decisions. If you don’t, you risk outliving your savings, and going through retirement in a far less comfortable manner than what you mapped out.
With all that said, let’s go over some popular mistakes people make early on in retirement.
1. Retiring Too Early
Early retirement is a very real goal for some Americans … but social media financial “gurus” often make it seem easier to achieve than it really is.
Also, even if it’s possible for you to retire early, working just a few more years has the potential to put you in a much more advantageous financial situation.
Let’s say you’re a 62-year-old Baby Boomer. You’re now technically old enough to begin receiving Social Security benefits. You’re also keenly aware that, according to Northwestern Mutual’s 2024 Planning & Progress Study, Baby Boomers think they will need $990,000, on average, for a comfortable retirement, and you have $950,000 saved, so you’re considering retiring next year, at age 63.
Here’s one reason you might want to stay your hand:
Assuming a 7% investment return, letting your portfolio grow for one more year would put your retirement nest egg at $1,016,500, which would exceed your goal. However, if you waited until age 67 to begin withdrawals, assuming the same investment return annually, your savings would balloon to $1,332,424, putting you in a much more secure position.
There are other concerns, too. Retiring early can impact your Social Security payment (more on that in a minute). Medicare typically doesn’t kick in until 65, either, and health insurance options for early retirees aren’t exactly a picnic.
And let’s not forget about life expectancy. How long you expect to live in retirement is a core consideration in any serious plan. But you don’t want to fixate on your life expectancy and plan around just that one number—you’ll want to determine whether your early retirement is feasible across numerous age scenarios.
“We see too many times that people focus their retirement planning around life expectancy,” says R. Dale Hall, FSA, MAAA, CFA, CERA, the Managing Director of Research at Society of Actuaries. “That’s natural, but by its own nature, that’s like planning to be right only 50% of the time. It’s an average.
“The analogy I would use is: If we had to catch a flight at an airport, I don’t think any of us would leave at a time that only gave us a 50% chance of being on time. You have this great vacation planned, but you only have a 50/50 chance of getting there? You’d want to plan for a 95% chance of making the plane. You’re shooting to avoid all major risks by leaving at a time that gives you a 95% chance of being successful.”
Related: 10 Retirement Questions: Are You Ready to Leave the Workforce?
2. Collecting Social Security Too Soon or Late
So, how can retiring early mess with your Social Security?
Let’s say you retired at age 63. Technically, you would be eligible to begin receiving “Old-Age” (aka retirement) Social Security payments.
However, you would be four years short of full retirement age (FRA), which for you would be 67. And if you take Social Security before you reach your full retirement age, you will receive a permanently reduced benefit compared to what you would receive if you retire once you reach your FRA. (What will your benefit look like? We have a guide on how to determine how much your Social Security payments will be.)
Conversely, you can actually increase the amount of your monthly benefit if you continue working past FRA, though the amount your payments can improve tops out once you reach age 70.
Early retirement still might be for you, even with a reduced Social Security benefit. You might have a far-more-than-sufficient nest egg. You might have a low life expectancy (though again, understand the risk of homing in on a specific age). Just make sure, before you take the plunge, that you’re OK with whatever ramifications come with retiring at your age.
Related: 10 Common Social Security Mistakes You Should Know
3. Underestimating Taxes
Taxes don’t go away when you stop working. While you no longer have payroll taxes or self-employed taxes, your retirement income will absolutely be taxed.
To start, you may have to pay taxes on your Social Security benefit. Indeed, about 40% of Social Security recipients pay federal income taxes on their benefits.
Expect to pay federal Social Security taxes if any of the following apply:
- You file your federal tax return as an individual:
- If your combined income is between $25,000 and $34,000, up to 50% of your benefits might be taxable.
- If your combined income is over $34,000, up to 85% of your benefits might be taxable.
- You file a joint return with your spouse:
- If your combined income is between $32,000 and $44,000, up to 50% of your benefits might be taxable.
- If your combined income is over $44,000, up to 85% of your benefits might be taxable.
- You’re married but file separately:
- The SSA says “you probably will pay taxes on your benefits” no matter your income.
While most don’t, some states tax Social Security, too.
Additionally, when you make withdrawals from tax-deferred retirement accounts, such as a traditional IRA or 401(k), those distributions are taxed as ordinary income (though they aren’t subject to payroll taxes). Pension distributions are taxed as ordinary income as well, unless you made after-tax contributions, and these taxes apply whether you took a lump-sum distribution or currently receive regular income.
Other taxes to be prepared for in retirement include taxes on capital gains, dividends, and interest income in taxable brokerage accounts, interest from savings products like certificates of deposit (CDs) and money market accounts (MMAs); and property taxes if you still own a home.
That’s not all, either. Check out our primer on ways your retirement income can be taxed.
Do you want to get serious about saving and planning for retirement? Sign up for Retire With Riley, Young and the Invested’s free retirement planning newsletter.
4. Not Adjusting Your Investment Portfolio
As workers approach retirement, their investment portfolios should gradually become more conservative, with less focus on wealth accumulation (growth) and more focus on wealth preservation (income, stability).
Understandably, this general wisdom has led to a misunderstanding in which some people believe their retirement investments should reach their most conservative point on Day One of retirement, and remain there in perpetuity.
This approach might be right for a few investors, but not for many.
As Americans live longer and longer, wealth managers have put increased emphasis on the need for portfolios to continue to grow in retirement. So it’s very possible that your portfolio will be more aggressive at your time of retirement than, say, your parents’ investments were, and not reach its maximum tilt toward preservation until 10 or 15 years after you retire.
Every investor’s needs are different. If you enter retirement with more money than you could ever spend, you might cut out all growth investments the second you retire. Also, life sometimes necessitates a change in plan—a deep bear market in the middle of your retirement might require you to respond with a heavier tilt toward growth.
Consider talking to a financial advisor about an appropriate investment mix for you.
Related: 3 Popular Retirement Rules You Should Reconsider
5. Withdrawing From Accounts in the Wrong Order
If you have several retirement accounts, depending on the nature of those accounts, it might behoove you to withdraw from those accounts in a particular order. Indeed, strategic withdrawals can limit how much you pay in taxes and extend the life of your savings.
Broadly speaking, it will generally benefit you to withdraw from taxable accounts (brokerage) before tax-advantaged accounts (401(k), IRA). The logic here is simple: Money in a tax-advantaged account has more potential for growth than money in a taxable account. So you want to keep money in the tax-advantaged account for as long as you can.
However, if you have multiple tax-advantaged accounts, it could benefit you to want to withdraw from tax-deferred accounts (401(k)s, IRAs, etc.) before tax-exempt accounts (Roth 401(k)s, Roth IRAs, etc.) The same logic applies: While both accounts enjoy the same tax benefits for money growing within the account, Roth money also won’t be taxed upon withdrawal.
Additionally, waiting to withdraw from a Roth IRA can be advantageous for your beneficiary. When you pass, your beneficiary will be able to withdraw contributions without tax consequences, and if your account was open for at least five years, they also would be able to withdraw earnings tax-free as well.
Keep this order of operations in mind as you plan out withdrawals. Individual circumstances might affect your retirement withdrawal strategy, however, so you might want to discuss your plan with a professional financial advisor.
Related: 11 Retirement Planning Mistakes to Avoid
6. Spending Too Much Money on Others
There is nothing wrong with spoiling your loved ones a bit in retirement—if you can afford to do so.
What do I mean? Well, consider this: In a 2024 Savings.com survey, 18% of parents said they would be willing to come out of retirement to support their adult children.
Unless you have excess millions in the bank, coming out of retirement to support your adult children is the definition of not being able to afford helping out. (And if you did have millions just sitting around, you wouldn’t need to return to work to assist your children!)
By the time you retire, your nest egg likely will be the largest single pot of money you’ve ever had to work with. So it might seem substantial at the time, but remember: That money is meant to last you decades. Events like medical emergencies or natural disasters can shrink those funds a lot faster than you might expect. Even a longer-than-expected life can drastically change your calculus.
Also, time isn’t on your side. If your child can’t buy a house outright or your grandchild can’t afford tuition in full, they can always get a mortgage or a student loan. But you would likely struggle to replace a huge outlay if you suddenly needed it while you’re retired.
Related: Health Care Costs in Retirement [Amounts & Types to Expect]
7. Not Accounting For Inflation
While our recent bout with high inflation was worse than usual, inflation itself is quite common. Over the past half-century, the cost of goods has gone up every single year but one (2009).
And yet, people frequently make the mistake of dealing with tomorrow’s expenses in terms of today’s numbers—both when planning for retirement and once they actually retire.
If you’re trying to figure out how much you need to save for retirement, you can’t just take your current annual budget and multiply it by the number of years you expect to be retired. For one, a lot of your needs will look different. But also, you could set your goal too low if you fail to account for inflation.
For example: A glance at the Bureau of Labor Statistics’ CPI Inflation Calculator shows how a lifestyle costing $150,000 in January 2005 would have cost $249,872.31 in January 2025. That’s a nearly $100,000 difference in 20 years!
Also, once you’re actually in retirement, you’ll strongly want to consider a withdrawal strategy that accounts for inflation. yFor instance, under the 4% Rule, during your first year of retirement, you would withdraw 4% of your savings—but in subsequent years, you would actually adjust the amount based on inflation. Why? Because this will ensure you have a similar amount of spending power year in and year out.
Related: Our Step-by-Step Guide to Budgeting in Retirement
8. Missing Your Medicare Initial Enrollment Period
If you’re like most Americans, your health care coverage in retirement will be through Medicare.
But Medicare has rules. You can’t just apply for it at your convenience.
A person can apply for “Original Medicare” (Parts A and B) during three types of enrollment periods: the Initial Enrollment Period (IEP), a General Enrollment Period (GEP), and (for eligible people) a Special Enrollment Period (SEP).
Your initial enrollment period for age-based Medicare starts three months before the month you turn 65 and ends three months after you turn 65. However, if your birthday is on the first of the month, it works a little differently. In that situation, your IEP begins four months before you turn 65 and ends two months after you turn 65.
The GEP runs from Jan. 1 through March 31 every year. Some individuals qualify for a SEP, albeit for a limited amount of time.
So why does it matter if you miss your IEP if you can sign up during the next GEP? Missing your IEP can mean you have to pay more. If you don’t enroll in Part A during your Initial Enrollment Period, you might have to pay a higher monthly premium (up to 10%) for double the number of years you could have had Part A but weren’t signed up. Those who don’t sign up for Part B during their IEP might have a permanent late enrollment penalty; the premium might increase 10% for every 12-month period they could have been enrolled but weren’t.
In short: Sign up for Medicare as soon as you become eligible so you don’t pay more than necessary.
Related: How to Plan for Health Care Expenses in Retirement
9. Overspending on Entertainment
We all know that during retirement, you generally have more free time than you’ve had since you were a kid.
We all know that. But we also don’t really realize what that feels like until it happens.
When you’re suddenly flush with time, you might feel the impulse to fill that time with all of your hobbies. You absolutely should enjoy the time you have—but new retirees often make the mistake of going well over budget on those recreational activities. That might mean joining too many clubs, or buying too much equipment for sports.
It also could involve traveling for much longer stretches than you originally planned, which only compounds the problem that travel can be more expensive for seniors.
No wonder that in the Employee Benefit Research Institute’s 2024 Retirement Confidence survey, more than one-third of retirees (35%) said travel, entertainment, or leisure expenses are higher than expected.
So remember: Make a concerted effort to stick to your entertainment budget. Among the ways you can stretch your buck? Taking advantage of senior discounts to save money on some hobbies, such as going to the movies, or seeking out all free things for seniors to do if you want to avoid paid activities altogether.
Related: What Are the Average Retirement Savings By Age?
10. Going Over-Budget on Home Maintenance
When you plan out your retirement housing costs, you know to map out not just your mortgage or rent, but also any insurance, utilities, even home maintenance.
But as you age, you might find that your body isn’t up to some of the tasks it could handle in your 40s and 50s. Cleaning out your gutter becomes a lot more hazardous. Deep-cleaning your house might become too strenuous for some of your joints.
Suddenly, you’re starting to pay people for home maintenance costs that you didn’t originally account for because you thought you’d cover those tasks yourself.
My advice? Nip this in the bud during the planning stages. Anticipate higher home-maintenance costs over time—if you end up needing that extra budget, you’ve already accounted for it, and if you don’t, you can put those savings toward your growing leisure activities!
