3 common retirement income mistakes to avoid

When planning for retirement, one of the most critical concerns is ensuring a stable retirement income that lasts throughout your lifetime.

After years of hard work and diligent saving, many retirees are faced with the challenge of tapping into their savings without depleting them too quickly.

In this article, we’ll explore three common mistakes retirees make that can negatively affect their retirement income and provide practical tips to help you avoid these pitfalls and ensure a more secure financial future.

Selling assets during a market downturn

One of the biggest mistakes retirees can make is selling investments during a market decline. If a downturn occurs early in retirement, it might seem like you need to sell more of your assets to meet your retirement income needs.

However, selling investments at a loss can reduce the number of shares you own, limiting your portfolio’s ability to recover once the market rebounds.

During the first few years of retirement, market declines can have an especially harmful effect, as there may not be enough time for your assets to recover. However, if the market drops later in retirement, you may not need your portfolio to grow as Much.

What to do:

Consider adjusting your investment strategy to protect your income. Allocate some of your assets to safer investments, such as cash alternatives or short-term bonds.

This can act as a buffer during market downturns and ensure you have reliable funds to draw on for your retirement income needs.

Collecting social security too early

A question many retirees ask is when to start collecting Social Security benefits. Some individuals opt to start collecting as soon as they are eligible at age 62, but doing so often means receiving a smaller benefit for the rest of their life.

If you are in good health, have a spouse, and can afford to wait, delaying Social Security benefits could significantly increase your retirement income.

By waiting until full retirement age (usually 66 or 67, depending on your birth year) or even until age 70, you can receive a much higher monthly benefit.

For example, if you claim Social Security at 62, you could receive 30% less than if you wait until full retirement age. Delaying until age 70 could increase your benefit by as much as 56%.

What to do:

If possible, consider waiting to claim Social Security benefits to boost your retirement income in the long run.

Social Security benefits are also adjusted for inflation, so waiting for a higher monthly benefit means your income will keep pace with rising costs.

Creating an distribution strategy

Turning your retirement savings into a consistent income stream isn’t as simple as withdrawing funds from your accounts.

Many retirees fail to consider the tax implications and timing of their withdrawals.

Once you reach age 73, the IRS requires you to take required minimum distributions (RMDs) from your tax-deferred accounts, such as 401(k)s and traditional IRAs.

If your RMDs push your taxable income higher, you might pay more in taxes, which could reduce your retirement income.

Additionally, your Social Security benefits might be taxed at a higher rate, and long-term capital gains could increase your overall tax burden.

What to do:

Consider working with a financial planner to create a tax-efficient withdrawal strategy.

For instance, withdrawing from tax-deferred accounts like traditional IRAs before age 73 can give you more control over your taxes and withdrawals.

Converting some assets into Roth IRAs, which are not subject to RMDs, can help reduce future tax liabilities.

In addition, be mindful of the timing of your withdrawals. Many retirees may choose to withdraw funds from taxable accounts first, while leaving tax-deferred accounts untouched to grow.

You can’t control the markets, but by avoiding these common mistakes, you can better protect your retirement income.

By adjusting your investment strategy during downturns, delaying Social Security benefits, and creating a tax-efficient distribution plan, you can help ensure that your savings last.