5 Common Retirement Income Planning Mistakes (And How to Avoid Them)

Will Your Income Cover You in Retirement?

Saving for retirement is just the first step. The reality of retirement is also needing smart strategy to make your income last. Moving, living expenses, and healthcare costs all add up and without a clear plan, you may be tapping into more of your nest egg than you expected. In this article, we’ll highlight five of the most common retirement mistakes and how you can avoid them.

1. Claiming Social Security Benefits Too Early

The problem: Eligibility for Social Security retirement benefits start at age 62. However, claiming Social Security as soon you’re eligible instead of waiting to reach your Full Retirement Age (FRA) can leave money on the table. By claiming early, you can actually permanently lower you monthly benefit by hundreds of dollars which is worth avoiding.

How to avoid it: Know the difference between eligibility and your Full Retirement Age (FRA). You FRA is calculated based on your birth year, for example people born from 1943-1954 have an FRA of 66.

It’s recommended to take time to research how claiming Social Security at different ages could impact your benefits, so you avoid being surprised. To get the most out of your Social Security benefits, try to only claim after you reach your FRA or delay later, if possible, to maximize your income.

2. Not Keeping Track of Your Retirement Budget

The problem: Most people can look forward to 20-30 years in retirement, but that also comes with 20-30 years of fixed expenses like housing, food, and healthcare that can eat away at savings faster than expected.

How to avoid it: Create a detailed retirement budget and make sure to revisit it annually. Your budget should include:

• Healthcare: Account for premiums, out-of-pocket costs, prescriptions, and possible long-term care or supplemental insurance.
• Housing: Include rent or mortgage payments, property taxes, maintenance, and any remodeling or upgrades you plan to make.
• Big expenses: Plan ahead for larger, one-time costs like travel, home repairs, or family support.
• Taxes: Factor in any income taxes you may owe, especially from retirement account withdrawals.
• Inflation: Track the rising cost of living and consider how it much you can spend over time.

Tracking your spending helps you stay in control of your retirement income and know how much you should reserve to make it last.

3. Not Switching to a More Conservative Investment Strategy

Why it’s a problem: A major market downturn can severely impact your retirement savings, especially if it happens early in retirement. If your retirement investment strategy is not focused on protecting your savings, you can risk financial losses when it counts.

How to avoid it: Gradually shift your portfolio toward more conservative, income-generating investments. Diversification is key. Financial products like stocks, bonds, and low-risk products like fixed annuities that provide guaranteed income can help you preserve your nest egg.

If you’re unsure where to start, consult with a financial advisor who can help you come up with and maintain an investment strategy that’s catered towards this new stage in your life.

4. Not Knowing To Take Required Minimum Distributions (RMDs)

Why it’s a problem: If you don’t know about Required Minimum Distributions, consider this a friendly and very important reminder! Once you turn 73 the IRS requires you to start taking Required Minimum Distributions from most retirement accounts like traditional IRAs and 401(k)s.

Here’s where the trouble comes in. If you forget to take your RMD, you could face a hefty penalty which can reach up to 25% of the amount you were supposed to withdraw.

How to avoid it: Mark your calendar and work with a financial advisor or your account provider to automate your RMDs each year. Scheduling time to review and make sure these important financial moves are made can help protect you from costly penalties in the long run.

5. Not Accounting for Inflation

Why it’s a problem: We mentioned it before with budgeting, but it’s worth mentioning again. Inflation can use up a surprising amount of your retirement savings if you don’t plan for it.

Even if prices rise just 2–3% annually, that adds up to a lot over a 20 to 30-year retirement. If your income doesn’t keep pace with inflation, your standard of living may decline as everyday items become more expensive.

How to avoid it: Luckily benefits from Social Security adjust for inflation year over year, but that’s not the case for everything. Include inflation in your long-term planning for retirement. Look for investments and income sources, like annuities with payment increase options, that help your income keep pace with rising costs.

Plan Smarter for a More Secure Retirement

Avoiding these common retirement mistakes can make a big difference in how comfortable and confident you feel throughout retirement. A well-diversified strategy—including a mix of investments and reliable income sources—can help ensure your savings go the distance.

At Canvas, we offer annuities designed to give you guaranteed income, whether you need it now or later. Adding a fixed annuity to your retirement plan can provide peace of mind, no matter what the market does.

Want to learn more about how Canvas can help you retire confidently? Explore our blog for more advice for retirement planning and discover how annuities can fit into your strategy.