Carnegie Investment Counsel Blog

6 Retirement Mistakes Even Smart People Make And How to Avoid Them

Posted by Gary Wagner on Jul 14, 2020 1:46:00 PM

Retirement Mistakes of Smart People That You Can Avoid

You’ve worked hard your entire life. Now it’s time to look forward to your retirement. After all your dedication, your golden years should be everything you hoped for. But along with the excitement of impending retirement, there also comes the responsibility of sound financial management.

You consider yourself financially savvy and a good saver, but it never hurts to get a second opinion. And even the smartest savers can make wrong calls when it comes to investing in their future. Here are some of the most common errors people made when considering retirement and tips on how to avoid them. 


Retirement Mistake #1: Spending Too Much of Your Assets Each Year 

You may have heard of Bengen’s rule. It’s the idea that retirees should withdraw four percent from their savings fund each year. But this tried and true method is currently under fire. 

The New Rule

The fact is, the four percent rule of thumb doesn’t accurately represent your financial assets and goals. Many economic indicators now point to the idea that this rule has become obsolete and outdated. 

With Americans living longer than ever, a rising rate of inflation, and the unpredictability of the equity market, four percent is no longer the best option.

The Takeaway

Overspending in the early years of your retirement can lead to the possibility of outliving your retirement assets. Experts now suggest that a withdrawal rate of less than three percent might be more suitable for retirees.


Retirement Mistake #2: Spending Too Little of Your Assets Each Year

While saving your money isn’t a bad thing, it is possible to be too close-fisted with your assets. You should be able to enjoy the fruits of your labor during your golden years.

When you retire, there are a lot of unknowns. You may be unaware of just how much you could or should be spending, or perhaps you’re unsure of your life expectancy. And while you want to make your assets last, you also shouldn’t be afraid of spending. 

Spending for Retirement

Think about how you want to spend your retirement. If you want to go on luxurious vacations, consider that when forming your retirement plan. If you anticipate the cost, you will feel secure knowing that you’re not eating into assets you’ll need later on.

Your financial advisor can work with you to create a plan that balances your retirement goals with realistic spending habits. When you have a comprehensive understanding of your financial situation, you can feel confident that you are spending your assets wisely while enjoying your retirement.

If you need guidance, a Carnegie financial planner will help you create a budget and financial plan for retirement. 


>> Take our 6-Minutes Retirement Readiness Quiz to learn your score.  You'll get a clear list of next steps just for you. 


Retirement Mistake #3: Too Much of Your Portfolio in One Company or Asset Type

A diversified portfolio is the cornerstone of sound investment. Exploring a range of assets helps mitigate risk in an ever-changing and sometimes volatile market. 

Diversifying Assets

The truth about investment is that there is always a degree of risk. You simply can’t avoid it. That’s why it's best to learn how to roll with the punches by accepting risk and knowing how to mitigate it.

You can do this by investing across classes, sectors, and geographies, and splitting assets between equity and fixed income. Equity is more volatile but has a higher potential for return, while fixed income offers both lower risks and returns.

Smart Investing

The key here is asset allocation, a strategy centered on the division of your investments. This strategy yields optimal returns while balancing your tolerance for market fluctuation.

Ideally, you want a mix of both aggressive and lower-risk investments, including bonds, stocks, and money market securities. They will fluctuate, but the variety should help cushion both high-risk gains and losses.


Retirement Mistake #4: Taking Too Much Risk With Investments

There are two ways to look at risk: your financial ability to tolerate it, and your willingness to do so. This is known as your risk tolerance. Awareness of your risk tolerance will help when choosing investments.

Risky Business

Your assets might be able to withstand market fluctuations, but are you emotionally prepared to handle the uncertainty? Risk tolerance is dynamic; it changes over time and through lived experience.

While taking risks can pay off, it’s always a delicate balance between what’s too much, too little, or just enough. 


Retirement Mistake #5: Being Too Conservative With Investments

In the same vein, being overly conservative with your investments comes with challenges of its own. Investing your assets ‘safely’ while trying your hardest to minimize risk can leave you high and dry. You need assets that will grow with inflation, or you may watch them diminish in real-time.

Financial conservatism may leave you with less purchasing power than you started with. There’s a possibility of not getting the returns to sustain your assets throughout your lifetime.


Retirement Mistake #6: Taking Social Security Too Soon

It’s a retiree’s eternal dilemma: when is the right time to tap into that social security fund? 

The age that you claim social security affects your lifetime income. On average, Americans live approximately 20 years after retirement. While you might be tempted to claim your pension as soon as you’re eligible, at age 62, you can benefit from waiting.

Why Wait?

Delaying social security can improve your quality of living during retirement. The longer you can hold out, the more you’ll receive. Ultimately, you need to weigh your options before deciding what’s right for you.

If you take social security at 62 instead of 67, you’ll get 30 percent less. However, if your retirement resources and health allow for it, waiting until you turn 70 can get you 24 percent more – for the rest of your life.

In conclusion, the key to smart retirement investment is in understanding your financial expectations and goals. Having a realistic and comprehensive plan allows you to look forward to a secure, comfortable, and happy retirement. 

Got Questions? Ready to Meet With a Financial Advisor?

Schedule an appointment today to learn more about how Carnegie can help with financial planning and wealth management. 

Book an Appointment



Topics: Financial Planning

Gary Wagner

Written by Gary Wagner

Gary Wagner is Principal and Chief Operations Officer. He also works directly with clients to provide investment and strategic wealth advice. Gary sits on Carnegie’s Investment Committee and also manages the firm’s strategic initiatives and operations.

  • There are no suggestions because the search field is empty.

carnegie top 4 things 2021 version-1

Looking to hire a Financial Advisor?

Enclosed in our eBook are four questions we recommend you ask any prospective group you review. Plus, you'll learn: 

  • The difference between fiduciary and suitability standards
  • Learn how some advisors may not be required to work in your best interest
  • Be aware of various types of hidden costs
  • The importance of third party custodians
  • The difference between fee-based and fee-only

Download Now, It's Free

Recent Posts

Subscribe here for monthly blog updates!