5 Retirement Mistakes to Avoid

Today, I will address what I think the top five retirement mistakes are and how you can avoid falling into the same trap.

#1: PAYING TOO MUCH IN TAXES

I see, people who are doing this on a pre-retirement and post-retirement basis. When it comes to pre-retirement, I see people missing opportunities for tax deductions.

HOW TO BETTER MANAGE YOUR TAX BILL

If your employer has a 401K or 403B plan and an employer match, you definitely want to be taking advantage of that opportunity. Depending on the company, the maximum match might be between five or six percent.

WHAT IS A HEALTH SAVINGS ACCOUNT (HSA)

In terms of your HSA deduction, as an individual, you can put in $4,300 for the year 2025. And if you're over 55, there's an additional catch up contribution of $1,000. The great thing about that account is that the money all goes in pretax. Then you can invest that money, which I would recommend doing. As long as you're not planning to use the money in the near future, which you probably shouldn't.

When taking the money out, if it is used for health related costs, then it is all tax free to you.

Peace of mind through trusted advice - Check out this week’s episode on: 10 Penalty-Fee Withdrawal Options For Retirement Plans

WHAT ARE SOME OTHER OPTIONS FOR PRE TAX DOLLARS?

At this point, if you still had more pre tax money that you wanted to put away. Then you could go back in and continue contributing into your 403B plan, 457 plan or 401K plan.

It’s important to keep in mind which tax bracket you are in. Being in a high tax bracket, usually means it makes sense to keep putting money in on a pre tax basis because the belief is that once you retire, you will be in a lower tax bracket than you are in right now.

However, if you think you will be in a similar tax bracket when you retire, then you might want to be contributing to the Roth 401K or Roth IRA instead.

ISSUES WITH SOME OF THE CLIENTS THAT I WORK WITH

For the most part, people that I sit down with are in their late 50’s or early 60's. The majority of their money tends to be in 401K plans, 403B plans or 457 plans. In most cases these plans tend to be funded on a pre tax basis. However you will have to pay taxes at the point of withdrawal.

This could prove to be problematic at retirement age. Because, there is a very real possibility that your income could be at a higher level then, when you were working which would result in a more expensive tax bill.

Another point to remember is, once you reach age 73, any money that you have in retirement plans or IRAs will face a forced distribution on the April 1st following the year you turn 73. This means a certain percentage will have to be withdrawn from the account each year.

WHAT WOULD A REAL LIFE EXAMPLE LOOK LIKE?

Let's say we have a married couple who are filing jointly in 2025. They would pay a federal income tax of 10% on the first $23,850 of taxable income. Then 12% federal income tax on the next $73,100 of taxable income. Once they go above that they're in the 22% tax bracket.

However before, you calculate your taxable income, you are able to take deductions that apply to you. For example, most married couples in Connecticut are getting the standard deduction, which is $30,000 in 2025. Then if they're over 65 years old they're eligible for an additional $1,600 deduction per person.

In this case, it would allow a married couple filing jointly to have taxable income of $130,150 before they enter the 22% federal income tax bracket.

However, it could also be a good idea to take some of the money out sooner. This would allow you to pay taxes at the 12% rate, and if you waited there’s a chance that the account growth could push you into the 22% tax bracket.

We're also assuming, that there will be no changes to the tax brackets and current tax laws. However, the current tax laws will sunset at the end of this year.

WHAT WOULD ANOTHER OPTION BE?

If you plan on taking out the money from your retirement accounts, you could pay tax on it now and then move the post tax money into a Roth IRA account.

This, would allow you to take the money out, pay tax on it at the 12% rate. Then shift it over into a Roth IRA account, where there are no required minimum distributions and when the money comes out, it's tax free.

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#2: COLLECTING SOCIAL SECURITY TOO SOON

Over the last twenty years or so there's been tremendous amounts of information on the benefits of delaying Social Security. So much information has come out that Congress even made changes to some of the rules on how people can collect Social Security benefits.

For most people, it still makes sense to wait until their full retirement, if not until age 70, to collect Social Security. This is especially true for a couple, where one spouse has a much higher Social Security benefit than the other.

If you do have other retirement funds you'd be much better off taking money from those accounts and delaying your Social Security benefit at least until full retirement age or better yet 70.

#3: NOT HAVING AN INVESTMENT POLICY STATEMENT

Every investor should have an investment policy statement. If you're not exactly sure what that is, it's a guide that establishes the framework for your portfolio.

WHAT IS AN INVESTMENT POLICY STATEMENT?

It details what your target asset allocation is. Without an investment policy statement, you're essentially winging it, and can even become a collector of investments. Buying stocks almost at random here and there.

This leads you believe that you have a diversified portfolio. But in reality you don't have any clear direction and even worse, you’re buying and selling based on your emotions.

An investment policy statement is something we use for all our clients and it helps to bring clarity to their strategy. It, can also help to let them know that there's a plan in place for their investments so that they can stick with them for the long run.

#4: NOT KNOWING WHERE YOU STAND

Would you plan a trip somewhere without knowing your starting point?

Unfortunately, this is how many of us approach our own financial plan. According to the 18th Annual Retirement Survey, done by Transamerica Center for Retirement Studies who surveyed more than 6,300 US workers. Nearly half of the participants supplied a dollar amount needed for their retirement by guessing alone. While only 7% opted to use a retirement calculator.

HOW CAN I START PLANNING?

A lot of times through your employer, there's free tools within your 401K or retirement plan where you can do some rough calculations of where you currently stand. Another option is working with a financial planner such as myself who specializes in retirement planning, this can help bring clarity to your situation.

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#5: PICKING THE WRONG FINANCIAL ADVISOR

There's a lot of people out there marketing themselves as financial advisors. As of right now, unfortunately, our regulatory bodies are not really doing what they should be to ensure advisors are acting with the best interests of their clients at mind.

From my point of view, an advisor would be someone that is a fiduciary. This person will put your interests first. As opposed to a broker who will be earning money from commission based on selling you certain products.

HOW TO PICK THE RIGHT ADVISOR?

The one question I would ask a potential advisor is: Are you a fiduciary? Then I’d request for them to put it in writing. There is an inherent conflict of interest for advisors who also maintain broker and/or insurance license.

One way to avoid this is by working with somebody who's a fee only financial planner. Meaning they would only get paid, either on a flat fee or a hourly rate. So, regardless of what they suggest to you their is no additional gain on there end. So you can have confidence in knowing that the advice is in your best interest.

HOW TO DO YOUR OWN RESEARCH

First go to a website like broker check, then type in the advisor’s name. This is a great way to research brokers who you might be working with.

Click here to access Broker Check to verify current licensure

If they are a fee-only advisor, then you'd go to (Advisor info.gov). You can look up advisors here to see if they are working on a fee-only basis.

Click here to access Advisor Info to verify current licensure

OTHER THINGS TO LOOK OUT FOR

Another thing I often tell clients is that if you want to make sure you don't get ripped off by your financial advisor. You need to make sure that you're never writing a check to your financial advisor unless it's for the fee you're paying them.

This means that any investment check that you're making should be written to a third party. For my clients, we use Charles Schwab to hold onto our clients money.

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You should also look for your financial advisor to have credentials. Probably the most important credential you could look for is the CFP (Certified Financial Planner) designation. If someone has gone through that process. You can be sure that they put in years of studying.

They also have an ethical commitment at all times with the CFP designation to put your interest ahead of their own. Which can help put your mind at ease.

If you have a question or topic that you’d like to have considered for a future episode/blog post, you can request it by going to www.retirewithryan.com and clicking on ask a question. 

As always, have a great day, a better week, and I look forward to talking with you on the next blog post, podcast, YouTube video, or wherever we have the pleasure of connecting!

Written by Ryan Morrissey

Founder & CEO of Morrissey Wealth Management

Host of the Retire with Ryan Podcast