You’ve clocked out for good, but your retirement accounts haven’t. What you do after retiring matters just as much as what you saved before. Even small mistakes can shrink your nest egg faster than expected. So, don’t let them ruin decades of planning. Here are 10 common retirement account mistakes and how to dodge them like a pro.
Ignoring Required Minimum Distributions
Once you are 73, the IRS requires you to take minimum withdrawals from traditional retirement accounts. Miss it, and you face a steep 25% penalty. A lot of retirees forget this rule or misunderstand it, which leads to costly tax consequences and larger distributions later.
Withdrawing Too Much Too Soon
Taking large withdrawals early in retirement drains savings faster than expected. It can also push you into a higher tax bracket. Without a withdrawal plan, you risk running out of funds later in life, especially if the market underperforms during the first few years.
Leaving Funds In High-Fee Accounts
Many seniors overlook the fees buried in their retirement accounts. Over time, high-cost mutual funds and outdated 401(k) plans can quietly erode hard-earned savings. Reviewing these accounts and switching to low-fee index funds or IRAs with better expense ratios can preserve more of your retirement income.
Overlooking Roth Conversion Opportunities
The early retirement window, before RMDs and Social Security, can be a tax sweet spot for Roth conversions. So, plan to move traditional IRA funds into a Roth account now. It can reduce future taxes. Many seniors miss this chance to build tax-free income later in retirement.
Failing To Adjust Investment Risk
Seniors must regularly rebalance their portfolios to align with their age, income needs, and life expectancy. Keeping investments too aggressive increases the risk of major losses during market downturns. On the other hand, being overly conservative can cause savings to fall behind inflation, leading to financial shortfalls.
Not Considering Tax Bracket Management
Retirees often pull funds without thinking about the tax impact. Large withdrawals can unexpectedly move you into a higher bracket. Thankfully, coordinating withdrawals from tax-deferred and taxable accounts can help you stay in a lower bracket and keep more money in your pocket over time.
Forgetting To Name Or Update Beneficiaries
Don’t forget to update beneficiaries on IRAs or 401(k)s. It can override your will and send money to the wrong person. This mistake can also create delays or trigger unwanted taxes. So, review designations after major life events to ensure your retirement assets go to the right people.
Neglecting Spousal Planning Strategies
Married couples often treat retirement accounts separately, missing out on coordination benefits. Spouses can stagger Social Security claims, share Roth conversions, or plan withdrawals to minimize taxes. Joint planning like this is helpful in stretching savings and getting a smoother income flow throughout a lifetime.
Consolidating Accounts Without Comparing Options
While merging old retirement accounts into a single IRA seems smart, rushing into it can backfire. Some 401(k)s have better creditor protection or lower fees. Always compare investment choices, fees, and withdrawal rules before consolidating to avoid losing valuable benefits or paying more in the long term.
Misunderstanding Health Care Costs In Retirement
Many people underestimate how much Medicare won’t cover. However, premiums, copays, dental, vision, and long-term care can add up fast. Without setting aside enough or planning for supplemental insurance, retirees may be forced to tap retirement funds faster than expected just to cover medical bills.
