Common Retirement Planning Mistakes and How to Navigate Them
Retirement planning can often feel like solving a puzzle, where the pieces keep shifting. You might think saving a bit here and there is enough, only to realize later that taxes, healthcare costs, or even how long you'll live can seriously shake things up.
Whether you're enjoying Eugene's riverside trails or planning your next adventure in the Pacific Northwest, getting your retirement strategy right matters. Working with a knowledgeable retirement financial advisor in Eugene, OR, can help you spot these challenges early and build a plan that actually works in real life, not just on paper.
Common retirement planning mistakes include neglecting to account for tax impacts on withdrawals, being overly conservative with investments, and failing to plan adequately for healthcare expenses. Let's dive into the specific mistakes retirees often make and more importantly, how you can avoid them.
Overlooking Future Expenses
When retirees plan their budgets, it's natural to focus on day-to-day costs: groceries, utilities, and maybe the occasional dinner out at one of Eugene's favorite local spots. Yet this narrow view misses some of the most consequential expenses that emerge as you age.
Healthcare Costs Add Up Quickly
Healthcare stands out as one of the most significant expenses that many underestimate until it becomes unavoidable. As you age, costs can include:
Premiums for Medicare and supplemental insurance
Out-of-pocket charges for prescriptions and medical devices
Long-term care fees, whether at home or in a facility
Ignoring these can mean facing unexpected bills that quickly drain your savings.
Inflation Erodes Purchasing Power
Inflation is more than just an economic buzzword. It's a relentless force that gradually diminishes what your money can buy. Forgetting to factor in even modest inflation rates when planning retirement income means your dollar today won't stretch nearly as far two decades from now.
Imagine retiring with an income estimated at $50,000 per year. If inflation steadily runs at a moderate rate, the buying power of that income will decline significantly every year. After a couple of decades, you could feel the impact on your lifestyle and care options.
Longevity Risk is Real
With modern medicine and healthier lifestyles extending life expectancy, most people will spend two or more decades in retirement. This longevity risk means there's a real chance your savings needs will grow rather than shrink over time.
To navigate these risks effectively, it's vital to create flexible financial plans that take into account rising healthcare costs, persistent inflation, and increasing longevity. This often means working with financial professionals who understand how to model these complex variables together.
Understanding these hidden costs naturally leads us to the question: how can we actually build up enough savings to cover them?
Increasing Retirement Savings
Many people find themselves scrambling late in their careers, realizing their nest egg falls short of their retirement dreams. Avoid this common pitfall by making saving a consistent and growing priority.
Maximize Your 401(k) Contributions
For 2026, the IRS has set a contribution limit of $24,500, with an extra $8,000 catch-up allowed for those 50 and older—making this a powerful tool for accelerating your savings as you approach retirement.
Aim to contribute at least enough to receive any employer match offered. This match is essentially free money that immediately boosts your investment returns.
Automate Your Savings
Setting up automatic transfers directly from your paycheck or checking account into your retirement funds removes the temptation to spend rather than save. This habit enforces discipline without constant effort on your part.
Redirect Raises and Bonuses
When you get a raise or bonus, it's tempting to increase spending first. Yet redirecting a portion of these income boosts right into your retirement accounts not only accelerates growth but keeps future you ahead of the game.
Make it a habit to raise your contribution percentage annually or whenever you receive additional income. Even a modest increase per year can translate into substantial additional savings at retirement due to compound interest.
Consulting with a financial advisor can refine strategies tailored specifically to your goals and risk tolerance. Building a robust savings foundation is crucial, but expanding and diversifying sources of income will further strengthen your financial independence in retirement.
Diversifying Income Sources
Relying exclusively on a pension or Social Security benefits can leave you vulnerable. Social Security typically covers roughly 40% of an average retiree's expenses, which leaves a significant gap to fill.
Consider Rental Income
Investing in rental properties during your working years can transform into reliable passive income later on. For Eugene residents, the local rental market driven by University of Oregon students and growing professional populations can offer opportunities.
However, this requires choosing locations wisely, understanding tenant management, and accounting for upkeep expenses.
Explore Dividend-Paying Stocks
These stocks not only provide the possibility of price appreciation but also deliver regular dividend payments, which can supplement your monthly income needs. It's important to remember that dividend stocks are subject to market risks and fluctuations.
Integrating them as part of a diversified portfolio helps maintain balance across asset classes.
Part-Time Work in Retirement
Engaging in part-time jobs tied to your interests allows you not only to boost your funds but also to stay mentally sharp and socially connected. Whether it's consulting, teaching classes at Lane Community College, volunteering with local Eugene organizations, or starting a small business based on hobbies, part-time work blends financial and personal fulfillment.
To build a resilient retirement plan, consider combining these options strategically. Consulting with knowledgeable professionals at Tetralogy Financial Planning Group can help tailor diversification tactics specific to your goals, risk tolerance, and timeline.
Tax-Efficient Withdrawal Strategies
Poor withdrawal planning can quietly drain your retirement portfolio by triggering unnecessary taxes. But a thoughtful approach transforms this challenge into an opportunity for preservation and growth.
Roth Conversions Can Help
By converting funds from traditional IRAs to Roth IRAs during your early retirement years, before Required Minimum Distributions (RMDs) kick in, you pay taxes now at presumably lower rates. This might feel counterintuitive, but it can provide benefits later by allowing future withdrawals to be tax-free.
Ideally, conversions are laddered, spread over several years, to keep taxable income within lower brackets while maximizing the amount shifted into Roth accounts.
Withdrawal Sequencing Matters
The general principle suggests beginning withdrawals from taxable investment accounts first because they benefit from favorable long-term capital gains rates. Next come traditional tax-deferred accounts like IRAs or 401(k)s that will eventually require RMDs. Lastly, tapping into Roth accounts makes sense, especially if you find yourself in a higher tax bracket during retirement.
Don't Forget About RMDs
Under current IRS rules, mandated RMDs begin at age 73 for those born after 1959. Failing to take these withdrawals on time can result in hefty penalties of up to 25% of the amount not withdrawn.
Proactively integrating RMDs into your tax-efficient withdrawal plan allows you to avoid such pitfalls and better manage your annual taxable income.
Because every retiree's situation varies, individualized advice and ongoing strategy reviews are essential parts of effective Eugene retirement planning.
Setting Realistic Retirement Goals
One of the most overlooked pitfalls is having unrealistic goals that don't align with your actual financial situation. You might dream of traveling extensively or maintaining the exact lifestyle you had during your peak earning years, but these aspirations need grounding in reality.
Assess Your Living Standards
Take a close look at your current living expenses and figure out which parts are essential and which could be adjusted. For example, downsizing to a smaller home in one of Eugene's more affordable neighborhoods could free up funds for other needs.
Consider not only direct costs like utilities and property taxes but also indirect ones such as increased healthcare needs or transportation expenses.
Budget for Leisure Activities
Whether you want to golf regularly at one of Eugene's beautiful courses, explore the Oregon Coast, or pursue hobbies, set budgets that match your expected income and savings.
Eugene offers plenty of low-cost or free activities, from hiking Spencer Butte to enjoying concerts at the Hult Center, that can enrich your retirement without breaking the bank.
Build an Emergency Fund
Maintaining a dedicated emergency fund outside your retirement investments is vital. By setting aside three to six months' worth of living costs in easy-to-access cash accounts, you gain confidence that unexpected events won't force you into unfavorable withdrawals.
Achieving realistic retirement goals requires honest self-assessment and meticulous budget planning.
Working With a Financial Advisor
Picking a financial advisor isn't just about numbers or flashy credentials. It's about finding someone who truly understands your unique retirement vision.
Look for Proper Credentials
Credentials like CERTIFIED FINANCIAL PLANNER™ professional or CFP® serve as important markers of an advisor's expertise and ethical standards. These certifications indicate that the advisor has undergone rigorous education, examination, and ongoing training.
Verify Fiduciary Status
A fiduciary bears a legal responsibility to put your interests ahead of their own profits or commissions. This means their advice should be transparent, personalized, and tailored strictly to what benefits you most.
Find the Right Fit
Compatibility matters because retirement planning involves discussing deeply personal topics: your fears, hopes, lifestyle expectations, and family considerations. An advisor's communication style must resonate with you.
At Tetralogy Financial Planning Group, Ryan Lew, CFP®, and Ben Wenzel, CFP®, work with Eugene-area residents to develop personalized retirement strategies. Ryan, who was born and raised in Eugene, maintains close ties to the local business community and provides detail-oriented financial planning.
Take the Next Step Toward Your Retirement Goals
Avoiding these common retirement planning mistakes doesn't have to be overwhelming. With the right guidance and a personalized strategy, you can navigate the complexities of retirement planning with confidence.
At Tetralogy Financial Planning Group, we work with Eugene-area residents to create comprehensive retirement strategies that account for healthcare costs, tax efficiency, income diversification, and realistic goal-setting.
Give us a call at (541) 600-3344 to schedule your complimentary consultation, or book an appointment online at your convenience.
Frequently Asked Questions
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Eugene retirees often underestimate healthcare costs, especially long-term care expenses. Another common mistake is failing to account for Oregon's state income tax on retirement distributions. Many local retirees also don't adequately plan for inflation's impact on their purchasing power, particularly concerning housing costs in Lane County.
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Oregon taxes most retirement income including Social Security benefits, pension payments, and IRA distributions at the state level. However, Oregon does offer some retirement income exclusions for those 62 and older. Understanding how to optimize your withdrawal strategy to potentially mitigate both federal and Oregon state tax liability is crucial.
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The earlier, the better, but it's never too late to start. Ideally, begin working with a retirement advisor in your 40s or 50s to maximize planning opportunities. Even those approaching retirement age or already retired can benefit significantly from professional guidance.
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Prioritize both through strategic allocation. First, contribute enough to capture any 401(k) employer match. Then build your down payment fund through automatic transfers. Once your home timeline is set, increase retirement contributions again. A Certified Financial Planner can help model scenarios based on your ages, income, and goals.
Important Disclosures
Tetralogy Financial Planning Group and LPL Financial do not provide legal advice or tax services. Please consult your legal advisor or tax advisor regarding your specific situation.
This material is for general information and educational purposes only and is not intended to provide specific advice or recommendations for any individual.
Investing involves risk including the loss of principal. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
