Common Retirement Planning Mistakes and How to Check for Them

1. Planning with a single average return

A calculator that assumes a steady 7% a year will tell you that $1,000,000 can fund $40,000 of spending for ever: after 2.5% inflation, a 7% return is about 4.4% real, comfortably more than the 4% being withdrawn. Yet in the simulator, the same inputs with 12% yearly volatility succeed in only 82% of 30-year scenarios. The difference is the order of returns; see the guide to sequence of returns risk. Test any plan against bad scenarios, not just the average.

2. Leaving employer match unclaimed

A match is part of your pay. Suppose you earn $80,000 and the employer matches 50% of your contributions up to 6% of salary. If you contribute 6% ($4,800), the employer adds $2,400. Skipping that is the same as declining a 3% raise. Invested for 30 years at 6%, $2,400 a year grows to about $190,000. The 401k match calculator shows how much free money your own formula leaves on the table.

3. Claiming Social Security without checking the break-even

The Consumer Financial Protection Bureau says the monthly benefit depends on the age at which you claim. Claiming early gives smaller checks for longer; claiming later gives larger checks for fewer years. The right answer depends on your health, other income and whether a spouse relies on the benefit. Use the break-even calculator to see the age at which the later claim overtakes the earlier one, then compare it honestly with how long you expect to live.

4. Underestimating how long retirement lasts

The CFPB notes you may spend 20 or more years in retirement. For someone retiring at 55, 40 years is not unusual. The simulator's default table shows the cost: a 4% starting rate succeeds in 82% of 30-year runs, 65% of 40-year runs and 54% of 50-year runs. If you are retiring early or have a family history of long life, plan for a lower starting rate or flexible spending.

5. Forgetting required minimum distributions

Tax-deferred accounts must start paying out at age 73. A missed distribution can cost a 25% excise tax on the amount you should have taken, reduced to 10% if you fix it within two years, according to the IRS. On a $500,000 balance at age 75, the required amount is about $20,325, so the penalty on a fully missed year would be around $5,081. Use the RMD calculator each year, and remember that large forced distributions can push you into a higher tax bracket.

6. Ignoring taxes on withdrawals

$40,000 taken from a traditional account is taxable income; $40,000 from a Roth account generally is not. The same portfolio of $1,000,000 can support very different after-tax spending depending on how it is split between account types. The Roth vs. Traditional comparison shows how a lower or higher retirement tax rate changes which account comes out ahead, and the HSA calculator shows a third account type that can be tax-advantaged on the way in, on the way through and on the way out for medical costs.

7. Leaving out healthcare and long-term care

Spending does not always fall in retirement. Healthcare costs often rise with age and are the item many people underestimate. A plan built on today's spending but with no line for medical costs, insurance premiums or help at home is incomplete. Treat the spending number in any calculator as the average you expect, and keep a buffer for years in which it is much higher.

8. Carrying debt into retirement

The CFPB lists a mortgage in retirement as something that can strain a plan. Each dollar of mortgage payment is a dollar of fixed spending that cannot be trimmed in a bad year, which makes the portfolio less flexible. Before retiring, compare paying the loan off with investing the money, and see what your fixed costs are as a share of your guaranteed income.

A short checklist

• Have you stress-tested the plan with a bad first decade?
• Do guaranteed income sources cover your essential costs?
• Do you know your Social Security break-even age?
• Do you know when your first RMD is due?
• Is there a written rule for cutting spending in a bad year?