The Biggest Mistakes Pre-Retirees Make (And How to Avoid Them)

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The five years before retirement represent one of the most pivotal windows in your financial life. Small missteps during this crucial period can create lasting consequences that impact decades of retirement. 

A client recently shared how one poor decision made five years before retirement cost her over $100,000 in lifetime benefits — a painful reminder that these final working years require careful navigation.

If you’re within five years of retirement, understanding these common pitfalls can help you avoid costly mistakes and build the foundation for a confident, well-funded retirement.

Not Having a Clear Income Plan

After decades of focusing on accumulation—maxing out 401(k)s, building investment accounts, and growing your nest egg — retirement requires a fundamental shift. You must transition from saving money to strategically distributing it as reliable income throughout retirement.

Without a comprehensive income strategy, you risk withdrawing too much too soon or playing it too conservatively and missing out on the lifestyle you’ve worked so hard to achieve. A solid retirement income plan should outline:

  • Where your money will come from each year
  • How Social Security timing fits into your overall strategy
  • Tax minimization approaches throughout retirement
  • Strategies to ensure your money lasts as long as you do

Building this plan while you still have employment income provides a safety net to test and refine your approach before fully implementing it.

Underestimating Healthcare Costs

Many pre-retirees assume Medicare will cover all their healthcare needs once they reach 65. Unfortunately, Medicare includes premiums, deductibles, and significant gaps in coverage for dental, vision, and long-term care. If you retire before 65, you’ll need private insurance for those transitional years, which can be surprisingly expensive.

Fidelity’s research reveals a stark reality: while the average couple estimates their retirement healthcare costs at around $41,000, a 65-year-old couple today may actually need approximately $315,000 just for healthcare expenses throughout retirement.

To address this challenge:

  • Include realistic healthcare projections in your retirement budget
  • Explore Health Savings Accounts (HSAs) if available — they offer triple tax benefits
  • Consider long-term care insurance to protect your assets
  • Research Medicare supplement options well before you need them

Taking Social Security Too Early

While you can begin collecting Social Security at 62, doing so results in a permanent reduction of approximately 30% compared to your full retirement age benefit. Conversely, delaying until age 70 can increase your benefit by roughly 24% above your full retirement amount.

Consider this example: If your Social Security benefit at full retirement age would be $3,000 monthly, claiming at 62 reduces it to $2,100 per month. However, waiting until 70 would increase it to $3,720 monthly — a meaningful difference that compounds over your lifetime.

This decision becomes particularly important for couples considering survivor benefits and individuals with longevity in their family history. The difference can amount to tens or hundreds of thousands of dollars over a retirement.

Social Security timing should integrate with your overall income strategy rather than being treated as an isolated decision.

Ignoring Tax Strategy in Retirement

Many pre-retirees assume they’ll automatically be in a lower tax bracket during retirement. While this proves true for some, it’s not universal — especially if most of your savings sit in tax-deferred accounts like traditional IRAs and 401(k)s.

At age 73, Required Minimum Distributions (RMDs) begin whether you need the income or not. These distributions can push you into higher tax brackets, increase Medicare premiums, and affect how much of your Social Security gets taxed.

Strategic tax planning during your pre-retirement years can significantly impact your lifetime tax burden:

  • Consider Roth conversions during early retirement years when you might be in lower brackets
  • Understand how different income sources affect your overall tax situation
  • Plan withdrawal strategies that minimize tax impact over time

Remember: it’s not just about what you earn or save — it’s about what you keep after taxes.

Using the Wrong Investment Strategy

The portfolio that helped you accumulate wealth during your working years may not be optimal for preserving and distributing it during retirement. However, this doesn’t mean moving everything to cash or bonds.

Being too conservative exposes you to inflation risk and longevity risk — the possibility of running out of money. Being too aggressive can leave you vulnerable to market downturns precisely when you need to withdraw funds.

The solution involves finding the right balance through a more diversified approach that maintains growth potential while incorporating safeguards to reduce volatility. This often includes shifting toward income-focused strategies while retaining enough growth exposure to combat inflation over potentially decades of retirement.

Not Preparing Emotionally for Retirement

This mistake doesn’t appear in financial spreadsheets but has an enormous impact on retirement satisfaction. For decades, your identity has been tied to your work. Retirement can feel simultaneously freeing and disorienting.

Many retirees experience boredom, lack of motivation, or feeling lost during their first few years because they didn’t plan for their time or sense of purpose. The most fulfilling retirements involve retiring TO something meaningful rather than just FROM work.

Consider what will give your life meaning in retirement — whether travel, hobbies, volunteering, time with grandchildren, or new pursuits. The best retirements balance financial security with personal fulfillment.

Trying to Navigate It Alone

Retirement planning involves complex interactions between investments, taxes, healthcare, income planning, and estate decisions. Even if you’ve successfully managed your finances throughout your career, retirement brings different rules and higher stakes.

Working with a fiduciary advisor — someone legally obligated to act in your best interest — can provide valuable guidance through this transition. The goal isn’t just avoiding mistakes but building a comprehensive plan that aligns your financial resources with your lifestyle goals and values.

Moving Forward With Confidence

The five years before retirement are both critically important and entirely manageable with proper guidance. These challenges don’t require perfect solutions—they need thoughtful, proactive approaches that address your specific situation and goals.

Whether you’re just beginning to think about retirement or already counting down the months, implementing these strategies can provide the clarity and confidence needed for a successful transition to the next chapter of your life.

Take the Next Step

Ready to develop a comprehensive pre-retirement strategy? I can help you evaluate your current position, identify potential pitfalls, and create a plan that addresses both the financial and personal aspects of your retirement transition.

To take the first step in aligning your money and your meaning and having the retirement you’ve always dreamed about, click to schedule a free consultation on our website.