5 Mistakes to Avoid in Retirement

How you plan your finances in retirement may be just as important as the process of saving for retirement. Here are some key considerations.

You’ve spent a lifetime planning your retirement goals, contributing to your 401(k) and perhaps investing additional assets in IRAs and other accounts. Now, you’re finally on the verge of retiring. However, you may be surprised to find that retirement planning doesn’t stop once you retire.

To keep your life and retirement goals on track, here are several pitfalls to avoid as you embark on this new exciting chapter in your life.

1. Applying for Social Security Benefits Too Early

You can apply for benefits at age 62, but the benefit you receive may be up to 35% less than it would be if you waited until what the Social Security Administration (SSA) deems Full Retirement Age as of 2022.1

Electing to receive benefits before your Full Retirement Age can reduce the benefits if you decide to keep working. For every $2 you earn above a specific threshold, which in 2022 is $19,5640, the SSA deducts $1 in benefits2. Unless you really need the money, consider waiting to apply. And if you can afford it, put off applying until age 70 when your benefit may be up to about 32% higher than it would be at Full Retirement Age3.

2. Failure to Take a More Conservative Investment Approach

When you were younger, you could invest more aggressively because you had time to recoup any incurred losses. As you approach retirement, however, the game changes. You’re going to need the assets you’ve accumulated for day-to-day expenses and no longer have the cushion that comes with decades of saving years ahead of you. It’s important to employ a strategy that considers capital preservation, especially during the early years of retirement when you’re beginning to withdraw assets from your nest egg. Without this consideration, the combination of spending and volatile markets might deal your portfolio a blow from which it may not be able to recover.

It’s important to understand the options available to help protect the assets you’ve spent a lifetime accumulating.

3. Spending the Way You Used To Spend

Hand-in-hand with a more conservative investment approach is a more conservative budget. You don’t necessarily have to compromise the retirement lifestyle you envisioned for yourself, but you do have to maintain a realistic view of your finances.

Since you’re no longer earning a steady paycheck—or you’re working less—your income may not be as high as it once was. A lifetime’s worth of retirement savings can look like an enormous source of assets that you can tap into whenever you like, but your retirement may last 30 years or more. It’s a good idea to work with your Financial Advisor to take inventory of expenses, identify all sources of income and develop a strategy to maintain your retirement lifestyle for as long as you live.

4. Miscalculating Your Required Minimum Distributions (RMDs)

Generally, once you reach age 72 (for individuals born after June 30, 1949) or 70½ (for individuals born before July 1, 1949), you must take annual distributions from your 401(k), IRA or other qualified plan, whether you need them or not (Roth IRAs are exempt from this requirement).

Distributions are generally taxable at your individual tax rate and if you fail to take them, you are subject to a substantial penalty—50% of the distribution or whatever portion of the distribution you neglected to take.

Distributions are based on IRS life expectancy tables and while you can access these tables online and do the math on your own, we suggest you seek the guidance of your accountant or tax advisor.

On a side note, if you are a participant in an employer-sponsored qualified retirement plan (other than an IRA-based plan) and are still working for the plan sponsor, you do not have to start taking RMDs at age 72 (for individuals born after June 30, 1949) or 70½ (for individuals born before July 1, 1949), unless you own more than 5% of the plan sponsor or the terms of the plan require all employees to start taking RMDs once they reach age 72 (for individuals born after June 30, 1949) or 70½ (for individuals born before July 1, 1949).

5. Not Taking Health Care Expenses into Account

A 2021 survey by Nationwide Retirement Institute found that 50% of respondents have no clue what their healthcare costs will be.4 Another study found that a 65 year old couple retiring in 2022 can expect to spend an average of $315,000 in health care expenses in retirement.5

According to the U.S. Department of Health and Human Services, someone turning age 65 today has an almost 70% chance of needing some type of long-term care services.6 Due to a range of factors, considering the potential need for long-term care may be important based on your circumstances.

One option for retirees is long-term care insurance policy to help protect the assets you've accumulated and allow you to provide loved ones with a meaningful legacy. It may also provide more options for your care and relieve loved ones from full-time caregiver responsibilities.

Start the Conversation

How you plan your finances in retirement is just as important as your journey of saving for retirement. It’s important to understand the options available to help protect the assets you’ve spent a lifetime accumulating. Talk with your Morgan Stanley Financial Advisor today and start the conversation on how you can plan for an optimal retirement.


1, "Benefit Reduction for Early Retirement"

2, "Receiving Benefits While Working"

3, "How Much Care Will You Need"

4 Nationwide Retirement Institute, 2021 Nationwide Health Care Consumer Survey

5 Fidelity Viewpoints, "How to Plan for Rising Health Care Costs", August 2022

6 U.S. Department of Health and Human Services, Long Term Care, "The Basics", 2020

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