The top 6 retirement mistakes I see as a financial planner and how to avoid them

Retirement mistakes like a large house can, and should, be avoided. Right-size your home for your retirement.
Retirement mistakes like a large house can, and should, be avoided. Right-size your home for your retirement.

Are your retirement plans bulletproof?

As a financial planner, I meet with hundreds of potential retirees and I’ve seen six frustrating retirement mistakes made time and again.

I hate seeing them!

But luckily, someone else is making these mistakes and I’m airing them out here so you don’t have to make them as well.

“You must learn from the mistakes of others. You can't possibly live long enough to make them all yourself.” Writer and humorist Sam Levenson

Sammy knew what he was talking about, and it’s especially true for retirees.

Out of time

The thing is, retirement doesn’t allow a lot of time for course corrections by nature.

Here’s an example:

When I was a teenager, I hated high school. It bored me to death! Instead of paying attention in English to learn how to produce great literature, I sat in the back of the class reading junky sci-fi books under the radar.

Not my strongest move, I admit.

My inattention could have cost me a fortune over my lifetime if I’d remained the kid in the back of the class who didn’t care. If I’d hauled that attitude into college and my subsequent career, I wouldn’t have a career I enjoyed so much or paid me nearly as well as this one.

But because I was young, I had time to course-correct. I went to community college, got engaged in learning, and aced my classes there. My improved grades got me into a better college and my life followed an awesome trajectory.

On the other hand, during the tech bubble collapse of the late 90s and early 2000s, I had some clients who wouldn’t change their investment strategies even as the bubble collapsed. Those clients watched their retirement plans go up in smoke because they made one financial mistake late in life.

It was incredibly sad to me, but I couldn’t do much to help them after the fact!

See the difference?

[bctt tweet="Make your financial mistakes early in life. Retirement mistakes are hard to correct." username=""]

Retirement mistake #1: ‘Retirement honeymooning’

So many of my clients, like you, are used to the steady income of a full-time career. It’s easy to get loosey-goosey with your spending plan when you have much more money than you need in the short-term.

In retirement, that stream stops for most people while their opportunities to spend skyrocket. Not having a career to absorb their time, retirees have the opportunity to golf, travel, and spend their time with all sorts of money-sucking activities.

This is especially true for new retirees who suddenly feel the wealthiest they ever have as they roll their 401(k) into an accessible IRA. All this cash that’s been off-limits is suddenly yours, and you feel like you hit the jackpot.

So, on your “retirement honeymoon,” you buy a boat, an RV, a huge backyard kitchen. You break a piggy bank that doesn’t refill!

Solution: Live by the budget, die by the budget

Have a budget in place. Meet with a financial advisor and know how much you should spend in retirement. For new retirees especially, it’s easy to burn through too much, too soon in the euphoria of new money and new time. Look at your budget as a lifestyle plan that will carry you through the end of your retirement and not just the end of your retirement honeymoon.

Retirement mistake #2: Focusing on wealth maximization

For a long time, I was guilty of this mistake from an investment standpoint. Most financial planners teach you to be as aggressive as you’re comfortable with because of the potential for long-term rewards. They teach you to ride out the bumps in the market and watch your wealth grow.

But at some point wealth creation can become more detrimental than it is beneficial as the bumps in the market wage psychological warfare on a retiree.

When you’re younger, wealth maximization and growing a big nest egg are important. But in retirement, lifestyle maximization is the new focus.

If you die a little bit richer but psychologically poorer, what have you gained?

Solution: Get the minimum effective dose of investment risk

Moving into retirement isn’t the time to deal with huge market swings. Especially if you clearly have enough money to make it through retirement with the lifestyle you want without market volatility. Most people will choose less psychological turmoil, but some people never graduate from wealth maximization because that’s how they lived for decades.

Retirement mistake #3: Supporting adult children

Ever heard the word “enabler?”

It usually refers to loved ones of drug addicts and alcoholics. But if you’re financing your adult children’s lives so they can live in a perfect house or buy fancy cars, you’re hurting both your retirement and them.

I foresee this being the hardest retirement mistake to overcome for me, personally. After all, it doesn’t feel like it’s about money. It feels like it’s about love.

But part of the role of parent is to allow children to go through a lot of these stresses. Why? It’s only through those stresses that your kids learn valuable life lessons.

I’ve witnessed a lot of parents subsidize their children’s sometimes incredibly dysfunctional lives, and it only hurts everyone involved.

Solution: Cut the purse strings

The primary role of a parent is to raise children to be morally sound and financially independent. Cutting off financial support for your adult children may feel like a betrayal, but you’re putting your own financial security in retirement at risk and endangering their long-term welfare.

[bctt tweet="Don’t rob your children of their problems. It’s the only way they’ll grow." username=""]

Retirement mistake #4: Keeping the ginormous family home

An empty nest won’t feel as empty if it’s smaller for just you and your wife.

I advised one couple as their financial planner for their retirement who owned a $2 million home in their 70s. They’d owned it for 30-plus years, and it was the home their family grew up in.

But as retirees, I saw that they could free up a lot of assets tied up in that home while also making maintenance and updating much simpler.

Solution: Right-size your home for retirement

Your quality of life may have been better in a bigger home in your child-raising years, but your quality of life will go up if you have less house to work on and more money in your pocket. You don’t have to sacrifice quality with size.

Retirement mistake #5: Hiding your head in the sand

Remember those clients I mentioned above who ignored the dotcom bubble bursting? They hid their head in the sand from current events and serious market turmoil. They listened to some bad financial advice from some normally genius investment gurus.

At the time, people taught them to take advantage of the awesome tech sector by earning 15-20 percent in the markets while only taking out 8-10 percent of their assets. In theory, your money still increases and you never run out.

In practice, it destroyed some retirement plans.

Solution: Be nimble with your retirement plans

You shouldn’t be overly reactive to current events. But I promise I could have had some easier conversations with my clients if they’d tackled current events sooner than they did instead of ignoring it and hoping it would go away.

Retirement mistake #6: Completely exiting the markets

These people are the opposites of the people hiding their heads in the sand. They want out of the markets the second things get a little…rumbly.

Maybe they read a newsletter saying the end is coming. Maybe an election is coming up. Maybe a few rough days in the market scare the heck out of them.

What tends to happen to retirees with this easily scared mindset is they sell low and then buy back into the market when confidence (and high prices) return. No financial advisor – me included – wants you to buy high and sell low.

Solution: Bump up your liquidity

Don’t completely back out of the markets.

However, while moving toward retirement, find a stable time in the markets to liquidate some of your portfolio. That money may not be working for you in the traditional sense, but it will give a lot more peace of mind if you have a mental margin to ride out market turbulence.

Avoid these retirement mistakes

Now you know! These retirement mistakes are the six most common problems I see among retirees. And you can learn from their mistakes without having to see the effects on your own retirement finances.

Question of the week: What retirement mistakes did I miss?

Have you seen any other retirement mistakes that I missed? What were they and how did they affect the retirees?

Post your answers in the comments below!