Broker Check

November Financial Insight: Avoiding 8 Big Mistakes in Retirement

| November 09, 2017

Good Morning!  Hard to believe we are through the first week of November and that daylight savings time and the election f 2017 are in the rear-view mirror.   Catherine and I are knee deep into winter holiday preparation and are looking forward to the Thanksgiving break which for us begins on Friday the 18th!  We are taking a mini-vacation down to Hilton Head and hope to have good weather on our return, so we can do some much needed outside work.

As we head into the end of year it is good idea to evaluate what we would like to see happen in the coming months and year. This month I want to take some time and point out ways to avoid 8 Big Mistakes that folks make in retirement.  Tens of millions of Americans are looking forward to the day they retire. Others enjoy their profession and can’t imagine a life without work. Yet, even those folks recognize that one day they won’t wake up on a Monday and head into the office. In either case, they share a common goal—a comfortable retirement that doesn’t force them into a drastic lifestyle change. And while I admit it’s a well-worn cliché, a failure to plan is another way of saying that you are really planning to fail.

Fortunately, I can confidently and humbly say that those who utilize our guidance aren’t in that category. Many of you whom I work with on a regular basis have set financial goals, or are comfortable with your monthly retirement income.  As I’ve done in many of my monthly newsletters, I want to take a step back and talk about the basics or the fundamentals, and review important mistakes that retirees sometimes make. Experience isn’t always the best teacher. Many times, someone else’s experience is. If we can avoid common pitfalls, we can sidestep costly mistakes and reduce the stress that can sometimes accompany retirement.

8 Retirement mistakes to avoid

1.  Falling prey to scams. Sadly, scams are proliferating in today’s tech-driven world. They are just a mouse-click away. One must always be on guard. That is why I am leading off with a warning about fraud. I recently came across an article that illustrated how home buyers were being scammed out of their down payment. Long story short, a buyer unsuspectingly receives and acts on fraudulent wire instructions from hackers who have hacked into the computer of their real estate agent. The hackers are posing as their agent.  Unfortunately, the seller rarely has any recourse, losing both home and cash. I provide this illustration because the criminal mind is only limited by creativity. Scams, including investment scams, come in multiple forms.   

If you believe an alternative investment might be worth considering, but lack of expertise prevents you from formulating the right questions, I promise I’ll provide you with a fair and objective assessment.   I don’t want you to be taken by con artists. I don’t want you to go through the pain of being victimized. I’ve seen it before and it breaks my heart.

2. Be careful not to drain your savings too quickly. Once you retire, there may be the temptation to shift spending toward new hobbies or travel. Unless you have substantial reserves set aside, spending too much too soon could create unwanted stress and exacerbate worries that you might outlive your retirement.   Set up a budget and look for ways to trim expenses without a significant change in lifestyle. I know a retiree who financially is in great shape. For much of her life, she’s shopped at Goodwill for her clothes and still enjoys “finding deals,” as she puts it.   Simple changes can sometimes yield substantial savings.

3.  House rich and cash poor. If you own your home, might it be time to downsize? You can lower your utilities, maintenance, property taxes, insurance, and more by moving into a smaller home that doesn’t appreciably impact your lifestyle. Equity that remains can supplement savings. 

I recently worked with a client who was just in this position. Over a two-year period, we looked at options to help increase their cash flow and eventually they decided that downsizing did three things for them:  cut down on their overall housing maintenance and repair costs, lowered their monthly mortgage payment and freed up the equity in their home.  They just moved into their forever home and have a lot less stress on them now.

4.  Failing to take health care into account. Medicare doesn’t cover everything, and long-term care expenses may eventually crop up. With some appropriate adjustments, we can make sure you are aware of your options and plan accordingly. Building a budget that includes an amount for a healthcare sinking fund is a wise option.  Putting money into a separate saving account every month can help ensure against a big "GOTCHA" medical event. 

5.  An investment mix that is too aggressive or too conservative can come back to haunt you.  As you near or enter retirement, the more aggressive posture that served you well may no longer be appropriate. It goes without saying there may not be the time to make up unanticipated market losses, especially if you are forced to liquidate to cover normal or unexpected expenses.

Conversely, getting too conservative in retirement can put unwanted constraints on your portfolio. The danger—your investments lack a component geared toward appreciation, creating the risk you may outlive your money.  This is why I ask each of my clients to review their risk profile annually. Things change in our lives and reviewing the way you are invested is just wise and prudent. 

6.  Claiming Social Security too sooncould be an expensive proposition. It may be tempting to file for Social Security when you reach 62. But, did you know that you will reduce your monthly benefit by 25% by not waiting until full retirement—now 66 years of age. Every year you delay past full retirement age increases your monthly check by 8%, until you reach 70, where you’d receive another 32%. Plus, annual cost of living adjustments are based on your current benefits. So, if you delay, you will not only receive a larger monthly check, but the annual cost of living increases will be based on the larger base amount.

 Of course, many factors determine when it’s best to claim your benefits, including life expectancy.  Married couples have several options that are not available to those who are single. And let’s not overlook spousal benefits, which may be eligible for those who are divorced. Social Security offers many options and strategies. If you are so inclined, let’s talk and see what may work best for you. 

7.  You can’t ignore taxes. Most of you will see your marginal tax bracket drop in retirement. But some seniors may be in for a rude awakening when they file. Many are aware that IRA or 401k distributions are taxable, but sometimes fail to adequately prepare when they take distributions. The same holds true for interest, dividends, and capital gain distributions from mutual funds. In addition, some folks are surprised to find that Social Security may be subject to taxes.

If you file as an individual and your combined income (adjusted gross income + nontaxable interest + ½ of your Social Security benefits) is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If the total is more than $34,000, up to 85% of your benefits may be taxable. For married couples, raise the numbers to $32,000-$44,000 and $44,000, respectively ( Benefits Planner: Income Taxes and Your Social Security Benefits).

 Planning for tax outlays doesn’t reduce the discomfort that goes with paying Uncle Sam, but preparation can reduce the tax bite. And proper planning can eliminate surprises at tax time.  As always, I’m happy to assist but feel free to consult your tax advisor. If you don't currently have a tax advisor, I can help you find someone to work with. 

 8.  Leading a sedentary lifestyle. For some individuals, working and socializing go hand in hand. When they retire, they inadvertently disconnect from the world. Don’t let this happen to you! Stay active and exercise as you are able. Have you considered a senior aerobics class or other low impact exercises? Talk to your doctor. He or she will be thrilled to recommend a plan. Don't forget to stay active mentally as well!  Stimulate your mind. Some like to read, others enjoy puzzles or brain teasers.  Or you might consider an online class. I know of one retiree in her late 70s who is now taking piano lessons.

 What is your passion? Now is the time to volunteer. Local organizations or your church can point you in the right direction. As a bonus, it will open avenues for new friendships. One of the greatest joys Catherine and I have comes from our volunteer work with our Rotary Club and the other non-profits we work with.   There is so much need in the non-profit world for good quality experienced volunteers that your problem will be learning how to "just say no"!

 This isn’t an all-inclusive list. It’s not meant to be, but avoiding common mistakes will reduce your stress and help you get the most out of your retirement.

Changing gears—upward march in stocks

No question about it—for those who have invested in a well-diversified equity portfolio this year, you have been handsomely rewarded.  Of course, I rarely recommend diving into a portfolio that’s 100% invested in stocks, unless you are young and your tolerance for risk is high.

When markets get volatile, those who are 100% invested will see the biggest declines. Simply put, other asset classes help reduce volatility and put you on a straighter path toward your goals. The tailwinds that have driven stocks over the last year, and for that matter, over recent years, remain in place.  Economic growth in the U.S. has been quite resilient, even in the face of devastating hurricanes.

The U.S. Bureau of Economic Analysis reported at the end of October that Gross Domestic Product (GDP) expanded at an annual pace of 3% in Q3. It’s the second-consecutive quarter of GDP growth that has met or exceeded 3%. The economy hasn’t experienced that since 2014.  But it’s not simply just what’s happening at home; we’re witnessing an acceleration in economic activity around the world.  One byproduct for investors—solid corporate profit growth. It’s a key factor in the stock market equation.

Throw low inflation and low interest rates into the mix and the S&P 500 Index set 11 new all-time closing highs in the month of October (St. Louis Federal Reserve data).

Table 1: Key Index Returns




3-year* %

Dow Jones Industrial Average




NASDAQ Composite




S&P 500 Index




Russell 2000 Index




MSCI World ex-USA**




MSCI Emerging Markets**




Bloomberg Barclays US Aggregate Bond TR




Source: Wall Street Journal,, MarketWatch, Morningstar

MTD returns: September 29, 2017-October 31, 2017

YTD returns: December 30, 2016-October 31, 2017


**in US dollars


But remember, what goes up will come down!  That is why our investment approach works to minimize downside risk in case of a downturn.  Our strategies have the ability to move out of the market and into less volatile options if the environment indicates it is time to do so.  I won’t venture a guess as to how markets may perform next year or through the remainder of the decade, but we’ll participate in the upside and use various evidenced-based strategies that will mitigate, though not eliminate, the downside.  History tells us this has been the best path to wealth accumulation and obtaining your goals.

If you have any questions, comments, or concerns, I’d be happy to discuss them with you. I’m simply an email or phone call away, and can be reached at or at 804-323-3032 ext 101.  Enjoy your Thanksgiving Holiday and don't hesitate to contact me with questions or concerns!  Kind Regards, Rudy