Biggest Retirement Income Mistakes

A six-question audit

Before reading further, answer these out loud. Each one you cannot answer points at the section that follows.

• Can you state your expected monthly retirement spending to within a few hundred dollars?
• Do you know your full retirement age and roughly what your benefit would be at 62, at that age, and at 70?
• Do you know which account you would withdraw from first next year, and why that one?
• Have you estimated what your required distributions will look like when they begin?
• Could the plan fund two years of spending without selling into a down market?
• Does your spouse know the plan, and have you calculated what they would live on alone?

Most households can answer two or three. That is normal, and it is also the gap.

Estimating spending instead of measuring it

The first mistake is building a plan on a guess. The usual version assumes expenses drop automatically at retirement, which is frequently untrue in the early active years when travel, projects, and time together go up rather than down.

Spending also tends not to be flat. It commonly runs higher in the early active years, settles in the middle, and rises again later as health costs take over. A budget drawn as a straight line misses both ends of that shape.

The fix is unglamorous: pull twelve months of statements, separate essential from discretionary, and note anything unusual coming in the next five years. That figure, not a replacement ratio, is what the rest of the plan should be built from.

Choosing a claiming age in isolation

Claiming Social Security at the earliest opportunity, by default rather than by decision, is the costliest version of this mistake, because the reduction is permanent and because for a married couple it also reduces what the survivor keeps.

The decision interacts with everything else. Claiming later keeps taxable income low in the early retirement years, which widens the room for conversions. Claiming earlier reduces portfolio withdrawals in those same years. Neither is universally right, and the comparison has to include the survivor's horizon rather than one life expectancy. The full treatment is in Social Security claiming decisions for married couples.

Pull your statement from SSA.gov and find the three figures before anything else: the benefit at 62, at your full retirement age, and at 70. For both spouses.

Ignoring the tax arc

The third mistake is treating every account as interchangeable and discovering too late that required distributions have arrived on top of Social Security, pushing income higher than it has ever been.

The years between a last paycheck and the start of required distributions are frequently the lowest-income years of a lifetime, which is what makes them the window conversions are usually modeled in. That window is finite and it closes on a known date, which we cover in required minimum distributions.

Two effects make the arithmetic less obvious than it looks. An extra dollar of ordinary income can pull additional Social Security into taxation at the same time, covered in the Social Security tax torpedo. And income this year sets Medicare premium tiers two years out, covered in coordinating income, Medicare, and investments. A conversion that looks sensible in isolation can be expensive once both are counted, which is why it gets sized year by year with your CPA.

Carrying the wrong risk into the first withdrawals

This one cuts both ways, and most commentary only mentions one side.

Too much equity exposure at the start means selling into a decline to fund income, which converts a paper loss into a permanent one. Too little means a fixed income stream losing purchasing power across a retirement that could run thirty years. The allocation that built the balance was built for a different job.

The practical test is the reserve: could the plan fund roughly two years of spending without touching the growth portfolio? A stated reserve, with a stated rule for what refills it, is what keeps an early decline from forcing sales. The mechanics are in how investment management changes when you retire, and the research behind the spending side in the 4% rule and what it actually tells you.

No stated withdrawal order

Retiring with a balance but no written answer to "which account, in which year, and why" is the fifth mistake. A number is not a plan.

Order matters because the three account types are taxed differently and because the choice compounds. Drawing taxable first preserves tax deferral but can waste low brackets. Drawing tax-deferred first uses those brackets but accelerates income. Roth and HSA withdrawals do not raise income at all, which makes them useful precisely in the years when something is being tested against income. Capital gains in retirement covers the taxable side.

The fix is a document, reviewed annually, that states the order and the reasoning. Written down, it can be checked against results. Held in someone's head, it cannot.

Forgetting the survivor

The sixth is the one almost nobody has run, and it has the largest consequence.

At the first death the household goes from two Social Security benefits to one, keeping the larger. A pension may stop or continue at a reduced percentage depending on an election made years earlier, covered in pension decisions. The survivor files as a single taxpayer, which generally means a narrower bracket structure on income that has not fallen by nearly as much. Expenses, meanwhile, rarely halve.

Run the calculation both ways while both people are alive. Which benefit continues, what happens to the pension, what the tax picture looks like filing alone, and whether a care event for one would leave the other short. Long-term care costs covers the last of those.

Serving Palos Hills

Palos Hills sits minutes from the office and is home to Moraine Valley Community College, and the conversations that start here tend to begin with exactly the items above: Social Security timing, what to do with a 401(k) left at a former employer, and the order accounts should be drawn in.

For Palos Hills pre-retirees the work is retirement income planning that puts claiming age, withdrawal order, and allocation into one written plan, with tax-aware withdrawal sequencing coordinated with your CPA, investment management built for the distribution phase, and Medicare enrollment timing mapped against the retirement date. In-person meetings are a short drive away.

Richard Casolari, Financial Advisor, Investment Advisor Representative, CFP®, has spent roughly fifty years in financial services. The practice is founder-led, so the person who builds the plan is the person you meet with when it needs revisiting.