You’re nearing retirement. What are the most common mistakes you should avoid when planning for it?

1 Not having a clear retirement goal

One of the biggest mistakes you can make is not having a clear retirement goal. Without a clear goal, you won’t know how much money you need to save, how to invest your portfolio, or how to spend your time and energy. A clear goal will help you align your financial and lifestyle decisions with your values and priorities. To set a clear goal, think about what you want to do, where you want to live, and how you want to feel in retirement. Then, estimate how much income you will need to support your desired lifestyle and how long you expect to live.

3 Not diversifying your portfolio

A third common mistake is not diversifying your portfolio. Diversification means spreading your investments across different asset classes, sectors, geographies, and strategies. Diversification can help you reduce your risk, increase your returns, and cope with market volatility. If you put all your eggs in one basket, you expose yourself to unnecessary risk and miss out on potential opportunities. To avoid this mistake, diversify your portfolio according to your risk tolerance, time horizon, and retirement goal. You can also use asset allocation tools, index funds, or professional advice to help you diversify.

5 Not planning for taxes and inflation

Another mistake that can erode your retirement income is not planning for taxes and inflation. Taxes and inflation can reduce your purchasing power and affect your net income. Therefore, you need to plan for them in advance and use strategies to minimize their impact. For example, you can use tax-advantaged accounts, such as 401(k)s, IRAs, or Roth IRAs, to defer or avoid taxes on your retirement savings. You can also use tax-efficient withdrawal strategies, such as the Roth conversion ladder, to lower your tax bill in retirement. To combat inflation, you can invest in assets that can grow faster than inflation, such as stocks, real estate, or commodities. You can also use inflation-adjusted annuities, Social Security, or Treasury Inflation-Protected Securities (TIPS) to provide income that keeps up with inflation.

6 Not considering health care and long-term care costs

The last common mistake you should avoid is not considering health care and long-term care costs. Health care and long-term care costs can be one of the biggest expenses in retirement and can vary widely depending on your health status, insurance coverage, and location. If you don’t plan for them, you may face unexpected bills that can drain your savings and affect your quality of life. To avoid this mistake, estimate your health care and long-term care costs based on your current and projected health needs, insurance options, and preferences. You can also use strategies to reduce your costs, such as choosing a Medicare plan that suits your needs, using a Health Savings Account (HSA), or buying long-term care insurance.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?