Retirement should be a time to enjoy life, not stress over cash flow, but some common money mistakes may be putting boomers at risk. Even those who have diligently saved for decades can run into trouble if they’re not managing their withdrawals correctly. From underestimating inflation to relying too heavily on Social Security, certain missteps can drain savings faster than expected.
A common mistake retirees make is not taking IRA withdrawals in low tax years. According to Matt Hylland, a financial planner, if a majority of your savings is in a traditional IRA, your tax liability will likely increase as you age. This is due to required minimum distributions (RMDs) and additional income sources such as Social Security.
For example, in 2025, a married couple aged 65 with no other income could withdraw $130,000 from IRAs and still remain in the 12% federal tax bracket. Delaying IRA withdrawals until you start claiming Social Security can incur tens of thousands of dollars in additional tax liability each year. Waiting until retirement to figure out your tax strategy may jeopardize your finances.
Hylland notes that many retirees try to defer taxes as long as possible with their 401(k)s. However, once you enter retirement, it may be optimal to prioritize IRA withdrawals and pay some taxes. This can avoid higher taxes later by preventing retirees from being pushed into a higher tax bracket due to RMDs and taxable Social Security benefits.
Retirement cash flow management insights
Another problem arises when retirees act too conservatively and fail to consider the impact of inflation in the first five to seven years of retirement. Myles McHale, an adjunct professor, explains that high inflation early in retirement will force higher withdrawals from retirement portfolios.
Some boomers believe that if they didn’t save enough for retirement and are now at least 55, they have no options. McHale suggests that even in this position, you can still make headway by working longer, increasing your saving rate, and delaying claiming Social Security benefits. Many boomers don’t realize they could spend more years in retirement than they did working.
Longevity is a significant factor influencing retirement, and McHale recommends working with advisors to build holistic strategic plans. This process includes developing comprehensive transition plans for aging, addressing key risk factors like diminished capacity and elder abuse, and implementing practical solutions for housing, transportation, and safety needs. While saving money for retirement is crucial, investing in income-generating assets can provide a steady stream of income.
Jared Hubbard, a fintech product manager, suggests options like dividend-paying stocks, money market funds, or bonds. Financial education tools can help retirees determine the best level of risk for their financial plans and ensure their investments align with their retirement goals. Remember, a well-thought-out strategy can prevent these cash flow mistakes and secure a more comfortable and financially stable retirement.
These insights highlight the importance of having a strategic plan for withdrawals, tax management, inflation considerations, and investments to safeguard retirement savings.
Image Credits: Photo by Anthony Fomin on Unsplash
