Upticks: 4 Common Mistakes That Could Derail Your Retirement
By Jake Falcon on January 30, 2025
In this episode of Upticks, Jake and Cory discuss four common mistakes that could derail your retirement plans. They discuss the importance of adapting your behavior, accurately estimating your financial needs, aligning your investment portfolio with your financial plan, and planning for taxes. These insights are important for retirees and those nearing retirement to consider when planning.
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Read a summary of the conversation below:
1. Refusal to Change Behavior
One of the most common mistakes retirees make is the refusal to change behavior. Retirement is a significant milestone, and it’s important to adapt to new circumstances. As Cory mentioned, “Retirement is a big milestone for people… But I do think that the idea that everything is going to stay the same as it has been is part of the issue.” Being rigid and anchoring to past behaviors can lead to frustration and financial instability.
To avoid this mistake, it’s important to be willing to adjust your spending habits and lifestyle. If you know you’re going to run out of money unless you change your behavior, it’s crucial to take action. As Jake put it, “It’s accountability and it’s harsh… but you’ve got to be willing to change your behavior.”
Changing behavior can be challenging, especially if you’ve been accustomed to a certain lifestyle for decades. However, flexibility is key to a successful retirement. Consider creating a budget that reflects your new financial reality and stick to it. Regularly review your expenses and identify areas where you can cut back without sacrificing your quality of life. For instance, dining out less frequently or opting for more cost-effective entertainment options can make a difference.
Additionally, it’s important to stay informed about your financial situation. Regular meetings with your financial advisor can help you stay on track and make adjustments. As Cory shared, “Adaptability, frankly, whether somebody’s retired or not, can be useful.”
2. Underestimating Your Goals
Another common mistake is underestimating your financial goals. Many people assume they will need less money in retirement than they actually do. Jake highlighted this issue, saying, “People often say, ‘Okay, I’m making $150,000 a year, but there’s no way I’m going to need to spend that much in retirement.'”
This underestimation can lead to financial shortfalls. A potential fix is to overestimate your needs to help ensure your financial plan is robust. Consider the impact of lifestyle creep and unexpected expenses. As Jake mentioned, “We overestimate how much you need in retirement… because then if we know that they can afford that, then we know their financial plan is probably going to have a higher likelihood of being successful.”
Lifestyle creep refers to the gradual increase in spending as your income rises. This phenomenon doesn’t necessarily stop when you retire. You might find yourself spending more on travel, hobbies, or healthcare than you initially anticipated. To combat this, you can create a detailed retirement budget that accounts for these potential increases in spending.
Moreover, unexpected expenses can arise at any time. Whether it’s a medical emergency, home repairs, or helping out family members, having a financial cushion can’t hurt. Jake mentioned, “There are all these little expenses that we always don’t account for… life and stuff happens.” By overestimating your retirement needs, you can better prepare for these unforeseen costs.
3. Divorcing Your Financial Plan from Your Investment Portfolio
A potential mistake that can derail your retirement is separating your financial plan from your investment portfolio. Cory explained, “Your portfolio should be intended to actually fund your financial plan, not the other way around.” When these two elements are not aligned, it can lead to overreactions to market volatility and poor financial decisions.
It’s important to help ensure your investments are aligned with your financial goals. Avoid treating investing like a horse race and focus on a professional approach that considers your long-term objectives. As Jake emphasized, “We are lining up their investments according to what they told us their financial goals are.”
When your financial plan and investment portfolio are aligned, you can weather market fluctuations with greater confidence. For example, if you know that the money you have in the stock market is intended for long-term growth and won’t be needed for several years, short-term market volatility can become less concerning. As Jake pointed out, “If you know that money you have in the stock market is money that you’re not going to need for seven years, eight years, five years, ten years, whatever that number is… what the heck does it matter what it’s worth today?”
4. No Plan for the Most Significant Retirement Expense
Are you failing to plan for the most significant retirement expense? Taxes. Jake pointed out, “If you have a million dollars in an IRA, all pre-tax, I’m sorry to tell you, it’s not a million dollars.” Taxes can significantly impact your retirement savings, and it’s important to plan for them.
Annual tax planning with your financial planner can help mitigate this issue. At Falcon Wealth Advisors, we analyze your tax return and provide strategies to potentially lower your tax bill. As Cory added, “Taxes impact not only the income but also the tax bracket, Medicare premiums, and how much your Social Security is taxed.”
Understanding the tax implications of your retirement accounts is important. Different types of accounts, such as traditional IRAs, Roth IRAs, and brokerage accounts, have different tax treatments. For example, withdrawals from a traditional IRA are taxed as ordinary income, while qualified withdrawals from a Roth IRA are tax-free. Knowing how and when to withdraw from these accounts may help minimize your tax burden.
Additionally, consider the impact of required minimum distributions (RMDs). Once you reach a certain age, you are required to start taking distributions from your traditional IRA, which can increase your taxable income. For all tax considerations, it’s important review with your CPA.
Final thoughts
Avoiding these common mistakes can help you plan for a more efficient retirement. Be willing to change your behavior, accurately estimate your financial needs, align your investment portfolio with your financial plan, and plan for taxes. We hope this conversation has inspired you to take proactive steps towards your path to wealth.
Thank you for joining us this week! If you have a topic that you would like Jake and Cory to discuss or debate live on Upticks, please email it directly to Luke at luke@falconwealthadvisors.com and he’ll be sure to ask them to bring it up on the show!
