The goal isn’t just to survive retirement, it’s to enjoy it. Your retirement should feel like the reward for a lifetime of hard work. But heading into it without a clear view of your financial risks? That can turn a dream into a stress test.
At Martello Retirement & Wealth, we believe that smart retirement planning isn’t just about building wealth; it’s about protecting it. That starts with understanding the biggest financial pitfalls people face in the final decade before retirement.
Here are the top five risks we see and what to do about them.
Too many people assume their taxes will go down in retirement. But once you start drawing from pre-tax accounts like 401(k)s or traditional IRAs, those distributions count as income. Add in Social Security, required minimum distributions (RMDs), and even part-time income, and you might land in a higher tax bracket than you expected.
Segment your accounts by tax type: Understand your tax-deferred (401k/IRA), tax-free (Roth), and taxable buckets.
Plan your withdrawal strategy: Take advantage of lower-income years early in retirement to convert traditional IRA dollars to Roth.
Coordinate with Social Security: The more income you have, the more of your Social Security is taxable. Strategic withdrawals can reduce that hit.
A personalized tax strategy can save you tens of thousands over your retirement. And it starts before you retire. At Martello, we help you see how all your money choices are linked. For example, taking Social Security at a certain age changes your total income, which can affect how much of it is taxed. Taking money out of savings for health costs or selling investments when the market is down can also cause unexpected taxes. Since all these parts are connected, we look at your whole money picture, not just one thing at a time.
Thinking about how taxes might affect your retirement money? Our free Retirement Readiness Quiz touches on this!
You may be done working, but your body isn’t done needing care. From Medicare premiums and deductibles to long-term care, healthcare is often one of the largest retirement expenses and one of the most underestimated.
Understand Medicare: Know the difference between Parts A, B, D, and supplemental or Advantage plans (C). Original Medicare has Part A (hospital) and Part B (doctor visits). Part D is for medicine.
Budget for out-of-pocket costs: Premiums, copays, and uncovered expenses can add up fast. Many people buy extra insurance (like Medigap) or choose an Advantage plan to help pay deductibles and copayments.
Plan for long-term care: Most long-term care needs aren’t covered by Medicare. Explore insurance or self-funding options.
Health costs don’t have to derail your retirement, but ignoring them just might. Often, people don't think they will live as long as they might, or need as much healthcare. Relying on general ideas about costs can leave you not ready for the actual money you'll need, especially if you need long-term care. At Martello, we help people think about how much they might need for health costs and plan ways to help pay for them.
Inflation is the silent budget killer. Even at modest rates, it cuts the value of your money over time. A $75,000 lifestyle today could cost over $100,000 in just 10 years.
Keep growing: Don’t get too conservative too soon. Your portfolio still needs to outpace inflation.
Layer your income: Historically, some investments, like stocks, have grown faster than inflation over long periods. But these investments also go up and down. A retirement plan often needs a mix of safety and growth to fight inflation over many years. Combine Social Security, growth investments, and annuities or pensions to build flexibility.
Match income to time horizon: Use a "bucket strategy" to segment near-term needs from long-term growth.
Inflation doesn't feel like a risk, until it is. Planning for it means preserving your lifestyle.
Sequence-of-returns risk is real. If you retire into a bear market and start drawing from investments that have dropped in value, it can permanently erode your savings. Why is timing key? If your investments lose value just when you need to sell them for income, you are forced to sell when prices are low. This locks in the losses and leaves less money to grow later, possibly making your savings run out much faster.
Build a buffer: Keep 1-2 years of expenses in cash or low-volatility assets.
Diversify: The saying "don't put all your eggs in one basket" fits here. Use a mix of stocks, bonds, and other assets tailored to your risk tolerance and time horizon.
Avoid emotional selling: Panic leads to losses. A plan gives you the confidence to stay invested.
Adjust Risk: As you approach retirement, many plans gradually shift some funds from investments that can grow faster but are more volatile (like stocks) to safer options (like bonds or cash). This creates a buffer to protect the money you need soon from market fluctuations.
Have a Plan for Taking Money Out: Knowing which money “pots” to use first for income can help you avoid selling investments when the market is down. Some retirement plans allocate "pots" of money for needs in the next year or two, over the next few years, and for the long term.
You can’t control the market, but you can control your plan for inevitable market downturns.
Most people take Social Security early. But doing so locks in a reduced benefit for life and can impact spousal or survivor benefits, tax strategy, and Medicare premiums. Deciding when to start getting Social Security payments is one of the biggest decisions you'll make.
You can start getting payments as early as age 62, wait until your "Full Retirement Age" (which is 67 for most people retiring now), or wait even longer, up to age 70. The age you choose to start taking Social Security has a permanent impact on your monthly check. Here’s the tradeoff:
Age 62: You can claim early, but your benefit will be reduced by as much as 30% compared to your full amount.
Full Retirement Age (around 67): You’ll receive your standard, full benefit with no reduction.
Age 70: By waiting, you’ll earn delayed retirement credits, boosting your monthly check by up to 24% over your full amount.
The "risk" is picking a time that isn't best for your situation, possibly leading to less money over your lifetime or missing chances.
Know your Full Retirement Age: And understand how much you gain by waiting.
Coordinate with your spouse: A delay in one spouse’s benefit can strengthen the surviving spouse’s income.
Run the numbers: Social Security isn’t just a check. It’s a lever that affects your entire income strategy.
Social Security decisions aren’t reversible. Get it right the first time and make it part of a bigger plan.
Retirement isn’t just about growing assets. It’s about building a strategy that can stand up to tax surprises, rising prices, market downturns, healthcare costs, and income timing. The risks are real. But so are the opportunities to plan around them.
At Martello, we work with you to design a strategy that integrates all the moving parts, so you’re not just hoping for the best; you’re planning for it.
Curious how ready you really are? Take our quick Retirement Readiness Quiz to see which risks might be hiding in your current plan.
Martello Retirement and Wealth, LLC is a Registered Investment Adviser. For more information about our firm, including our services, fees, and conflicts of interest, please refer to our Form ADV Part 2A, available on our website at https://www.martelloretirement.com/l/adv.
This content is for informational and educational purposes only and is not intended to provide specific tax, legal, or investment advice. Tax laws are complex and subject to change. Always consult with a qualified tax professional or attorney regarding your specific situation before making any tax-related or estate-planning-related decisions.
Past performance or hypothetical scenarios are not indicative of future results.
There are no guarantees that any tax or estate planning strategies discussed will achieve specific outcomes or avoid future tax liabilities.
The information provided is general in nature and does not consider your individual circumstances, financial goals, or needs. Personalized financial or tax advice can only be provided after a comprehensive understanding of your personal situation.
Unless expressly stated otherwise, any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code.