On paper, Parker looked like a success story. Parker had raised a family, paid off their home, and diligently saved a significant sum in their 401(k)s. Parker had done everything they thought was right. But as we peeled back the layers of Parker’s financial life, a terrifying reality emerged.
A series of unexamined assumptions, a few critical oversights, and a major health event had put Parker on a trajectory to outlive their money. The fear in Parker’s eyes was palpable.
Parker’s story is not unique. In my years as a financial advisor, I have seen that retirement failure is almost never a sudden event. It’s not a market crash or a single bad decision. It’s a slow erosion, a death by a thousand cuts caused by a series of predictable, and entirely preventable, red flags.
The Anatomy of a Failed Plan
I’ll never forget Parker, who came into my office a few years ago. Parker was in their late 60s, had been married for over four decades, and was visibly distressed.
On paper, Parker looked like a success story. Parker had raised a family, paid off their home, and diligently saved a significant sum in their 401(k)s. Parker had done everything they thought was right.
But as we peeled back the layers of Parker’s financial life, a terrifying reality emerged. A series of unexamined assumptions, a few critical oversights, and a major health event had put Parker on a trajectory to outlive their money. The fear in Parker’s eyes was palpable.
The stakes have never been higher. The gap between the retirement people dream of and the one they are prepared for is a chasm. In 2025, the “magic number” Americans believe they need to retire comfortably is $1.26 million.
The Dream vs. The Reality
- The Dream: The amount Americans think they need to retire comfortably: $1.26 Million
- The Reality: The median retirement savings for households aged 55-64: $185,000
| The Dream vs. The Reality | |
| The Dream: The amount Americans think they need to retire comfortably | $1.26 Million |
| The Reality: The median retirement savings for households aged 55-64 | $185,000 |
This is not just a gap; it’s a crisis in confidence and preparation. Let’s walk through the 12 red flags that create this divide and, more importantly, what you can do to turn them into green lights on your road to a secure retirement.
Red Flag 1: Your “Plan” Is Just a Vague Idea in Your Head
This is the foundational error, the one from which all other mistakes grow. When he ask a new client about their retirement plan, the most common answer he get isn’t a document; it’s a vague sentiment. “I’m putting money in my 401(k).” “I hope to retire around 65.” “I think we’ll need about $80,000 a year.”
A retirement “plan” that isn’t written down, that isn’t specific, and that isn’t reviewed regularly is not a plan; it’s a wish. And a wish is a terrible financial strategy.
The Sobering Reality
The data paints a clear picture of a nation planning by guesswork. Only about half of all civilian workers (56%) even participate in a workplace retirement plan.
A broader Gallup poll finds that only 59% of American adults have any kind of retirement savings account, like a 401(k) or an IRA. If so few people are even participating in the basic mechanisms of saving, the number with a formal, written financial plan is vanishingly small.
Without a written plan, your financial decisions are not guided by logic and long-term goals; they are driven by the emotions of the day.
You are susceptible to panic during market downturns and irrational exuberance during bubbles. As the legendary investor Warren Buffett has said, “The most important quality for an investor is temperament, not intellect”.
A written plan is the anchor for your temperament. It is the constitution you write for yourself during a time of calm that you must obey during a time of crisis. It prevents you from making the catastrophic mistake of selling at the bottom or buying at the top.
The Advisor’s Prescription
Turning this red flag green is the most important first step you can take. It requires moving from abstract hope to concrete action.
Step 1: Define Your “Why.” Before you touch a calculator, take out a piece of paper. Don’t start with numbers; start with your vision. What does retirement actually look like for you? Is it traveling the world? Is it living near your grandkids?
Step 2: Quantify the Vision. Now, translate that vision into a number. This is where high-quality financial tools become invaluable. You don’t need to hire an advisor for this initial step.
Step 3: Create a One-Page Financial Roadmap. This doesn’t need to be a 100-page binder. A single page is powerful. It should include five key elements:
- Your retirement vision statement (your “why”).
- Your target nest egg number (the result from the calculator).
- Your required annual savings rate to reach that number.
- Your target investment asset allocation (e.g., 80% stocks, 20% bonds).
- A date, one year from today, for your first annual review.
This simple document transforms retirement from a fuzzy dream into a tangible project with clear, actionable steps. It is the single most powerful tool for success.
Red Flag 2: You’re Ignoring the $172,500 Healthcare Bill
In every failed retirement plan I’ve analyzed, there is one line item that is either dangerously underestimated or missing entirely: healthcare. This is the silent plan-killer. Most people assume that once they turn 65, Medicare will cover all their medical needs.
This is a profoundly costly mistake. Medicare is not free, and it does not cover everything. The out-of-pocket costs are substantial and can easily derail an otherwise solid plan.
The Sobering Reality
Each year, Fidelity Investments releases its Retiree Health Care Cost Estimate, and every year it sends a shockwave through the financial planning community.
The 2025 estimate is staggering: a single 65-year-old person retiring this year can expect to spend an average of $172,500 on out-of-pocket healthcare expenses throughout their retirement. For a couple, that number is $345,000.
This figure accounts for Medicare Part B and D premiums, co-pays, and other costs not covered by the program.
Think about that number for a moment. It’s more than the median retirement savings for people on the cusp of retirement. And here is the most critical detail: that $172,500 figure does not include the potentially catastrophic cost of long-term care, which we will address next. Despite this massive liability, the data shows a shocking level of unpreparedness.
The Advisor’s Prescription
Fortunately, there is a uniquely powerful tool designed specifically to combat this threat: the Health Savings Account (HSA). In my practice, I tell clients to stop thinking of the HSA as a healthcare account and start seeing it for what it truly is: a “Retirement Super-Account,” arguably the most tax-advantaged investment vehicle in existence.
The power of the HSA lies in its “triple-tax advantage”:
- Contributions are tax-deductible: The money you put in reduces your taxable income for the year.
- The money grows tax-free: Your investments within the HSA compound over time without being taxed.
- Withdrawals are tax-free: You can pull the money out at any time to pay for qualified medical expenses without paying a dime in taxes.
No other retirement account—not a 401(k), not a Roth IRA—offers this combination of tax benefits. For 2025, you can contribute up to $4,300 for an individual or $8,550 for a family, with an additional $1,000 catch-up contribution for those aged 55 and older.
The key strategic mistake people make is using their HSA like a debit card for current medical expenses. This negates its power as a long-term investment vehicle. The optimal strategy is to max out your HSA contributions each year, invest the funds aggressively (just as you would your 401(k)), and pay for your current, minor medical expenses out-of-pocket.
This allows the HSA balance to compound for decades, creating a dedicated, tax-free war chest for your healthcare costs in retirement. Sadly, only 3 in 10 people with HSAs are actually investing the assets, leaving massive growth potential on the table.
Red Flag 3: You Treat Long-Term Care as a Problem for “Someone Else”
If the $172,500 healthcare bill is the hole in the boat, long-term care (LTC) is the iceberg that can sink it in an instant. This is the single greatest financial threat to a lifetime of savings.
It is the one expense that can single-handedly wipe out a multi-million dollar portfolio in just a few years, leaving a surviving spouse destitute and erasing any hope of a legacy for the next generation. Treating it as a remote possibility or a problem for “someone else” is a gamble you cannot afford to take.
The Sobering Reality
The costs are almost beyond comprehension. The 2025 national median annual cost for a semi-private room in a nursing home is $114,665. For a private room, it’s $131,583. These are not one-time expenses; they are annual costs that can persist for years.
Even less-intensive care is crushingly expensive, with the median cost of an assisted living facility now exceeding $70,000 per year.
Furthermore, these national averages are misleading because the cost of care is intensely local. A semi-private room that costs $5,639 per month in Texas can cost a mind-boggling $31,282 per month in Alaska.
The financial devastation is not an abstract risk; it is a clear and present danger. The failure to plan for this cost is not just a financial error; it has profound consequences for the entire family.
When there is no financial plan for care, the burden of providing that care—both physically and emotionally—falls on adult children, disproportionately on daughters.
This can force them to leave the workforce during their own peak earning years, jeopardizing their careers, their savings, and their own future retirement. The financial cost is quantifiable; the emotional and generational cost is incalculable.
The Advisor’s Prescription
There is no single, perfect solution for the LTC risk. The key is to have a deliberate, conscious strategy in place rather than hoping for the best. He walk my clients through three primary approaches:
Insure: The most direct approach is to purchase a traditional long-term care insurance policy. This transfers the risk to an insurance company in exchange for a premium.
The best time to explore this is typically in your mid-50s, when you are still healthy enough to qualify and premiums are more affordable. To set expectations, a healthy 55-year-old couple might pay around $418 per month for a solid policy.
Hybridize: A growing and popular alternative is a hybrid policy, which combines life insurance or an annuity with an LTC rider. These products address the primary consumer complaint about traditional LTC insurance—the “use it or lose it” problem.
With a hybrid policy, if you never need long-term care, your heirs receive a death benefit. If you do need care, the policy accelerates that death benefit to cover your costs.
Self-Fund: This is a viable option only for the very wealthy. As a rule of thumb, I tell clients this should only be considered if they have over $5 million in investable assets. Even then, it’s not a passive strategy.
It requires earmarking a specific portion of the portfolio—a “LTC war chest”—that cannot be touched for other retirement goals. You are essentially creating your own private insurance pool.
Choosing to ignore this issue is choosing to leave your family’s financial future to chance. Planning for long-term care is not a selfish act of self-preservation; it is a selfless act of protecting your children’s financial future.
Red Flag 4: You’re Fixated on Claiming Social Security at 62
Of all the decisions a person makes at the cusp of retirement, the choice of when to claim Social Security benefits is one of the most consequential—and one of the most frequently botched.
Claiming as early as possible, at age 62, is an incredibly common and often financially devastating mistake. It is an irreversible decision that can permanently reduce your income for the rest of your life.
The Sobering Reality
The impulse to claim early is understandable. After a lifetime of working, the desire to start receiving benefits is strong. While the trend is slowly improving, a significant number of Americans still pull the trigger far too soon.
In 2022, 29% of new claimants started their benefits at the earliest possible age of 62. Many are forced into this decision by an unexpected job loss or health issue, solving a short-term cash crunch by creating a permanent, long-term income problem.
The financial penalty for this impatience is severe. Claiming at age 62 results in a benefit that is permanently reduced by up to 30% compared to what you would receive if you waited until your Full Retirement Age (FRA), which is typically 66 or 67.
The flip side of this penalty is an incredible reward for patience. For every year you delay claiming benefits past your FRA, up until age 70, your benefit grows by a guaranteed 8%. This is not a projected market return; it’s a guaranteed, inflation-adjusted increase backed by the U.S. government. You simply cannot find a better or safer “return” anywhere.
The Advisor’s Prescription
Red Flag 4: The Age 62 Trap!
Why claiming Social Security early is a common and costly mistake.
The Costly Mistake
The Power of Patience
Your Benefit Roadmap
| Claiming Age | Monthly Benefit | Annual Benefit | Increase from Age 62 |
|---|---|---|---|
| Age 62 | ~$1,750 | ~$21,000 | 0% |
| Age 67 (FRA) | $2,500 | $30,000 | +43% |
| Age 70 | ~$3,100 | ~$37,200 | +77% |
The Advisor’s Toolbox
- Build a “Social Security Bridge”: Create a dedicated savings bucket to cover living expenses from retirement day until you claim at age 70.
- Use the Official Tools: Go to the Social Security website to see your personalized benefit estimates. Seeing the real numbers is a powerful motivator!
- Coordinate with Your Spouse: Have the higher earner delay to age 70. This maximizes their benefit *and* the survivor benefit for their partner.
The solution is to reframe the problem. The goal is not just to start Social Security, but to maximize it. This often requires building a “Social Security Bridge”—a dedicated pool of funds designed to cover your living expenses from the day you stop working until the day you claim your maximized benefit at age 70.
Create a Bridge Fund: In the years leading up to retirement, build a specific “bucket” of funds in a brokerage or high-yield savings account for this express purpose. This is your bridge to a higher lifetime income.
Use the Official Tools: Don’t rely on guesswork. The Social Security Administration provides excellent, personalized estimators on its website that allow you to see exactly what your benefit will be at different claiming ages. Seeing the numbers in black and white is a powerful motivator.
Coordinate with Your Spouse: For married couples, the claiming decision is even more complex and important. A strategic approach, such as having the higher earner delay to age 70 to maximize the survivor benefit for the lower-earning spouse, can be one of the most valuable financial planning moves a couple can make.
People are living longer than ever. A 65-year-old man can expect to live to nearly 83, and a 65-year-old woman to over 85. By claiming early, you are betting against your own longevity and locking in a smaller check for what could be a 20, 25, or even 30-year retirement.
Red Flag 5: Your Investment Strategy Is Stuck in the Wrong Decade
Throughout your working years, your investment strategy has a single, clear objective: growth. You take on risk because you have a long time horizon to recover from market downturns. But the moment you retire, the game changes completely. Your portfolio is no longer just a growth engine; it’s a paycheck generator.
Continuing to use the same investment strategy that worked for you as a 30-year-old can be catastrophic for a 65-year-old.
The Sobering Reality
Retirees face two opposing but equally dangerous risks. On one hand, if your portfolio is too aggressive and heavily weighted in stocks, you expose yourself to Sequence of Returns Risk. This is the danger that a major market crash in the first few years of your retirement can permanently cripple your portfolio.
Why? Because you are forced to sell assets at deeply depressed prices to fund your living expenses, locking in losses and dramatically depleting the capital base your portfolio needs to last for decades.
On the other hand, if you react to this risk by becoming too conservative—fleeing to the perceived safety of cash and low-yield bonds—you face the silent killer: inflation. With the annual inflation rate hovering around 3%, a portfolio earning 1% or 2% is actually losing purchasing power every single year.
You’re not losing money, but you’re losing what your money can buy. This can be just as devastating over a 30-year retirement as a market crash.
The Advisor’s Prescription
The most effective way I’ve found to navigate these twin risks is to stop thinking of your portfolio as one big pile of money and instead adopt a “Bucket Strategy”. This approach mentally and strategically divides your assets based on when you’ll need them.
| The Retirement Bucket Strategy | ||
| Bucket Name | Time Horizon | Sample Investments |
| Bucket 1: Liquidity | Years 1-3 | Cash, High-Yield Savings, Money Markets, CDs |
| Bucket 2: Lifestyle | Years 4-10 | Short-Term Bonds, Balanced Funds (e.g., 60/40) |
| Bucket 3: Legacy | Years 11+ | All-Stock ETFs, Growth Stocks, Real Estate |
Bucket 1 (Years 1-3): Cash & Equivalents. This bucket holds one to three years of your essential living expenses in ultra-safe, liquid assets. This is your buffer. When the stock market crashes, you are completely insulated. You draw your income from this bucket and are never a forced seller of your growth assets.
Bucket 2 (Years 4-10): Income & Stability. This bucket is invested more conservatively, perhaps in a mix of high-quality bonds and dividend-paying stocks. Its primary job is to generate stable income and modest growth, and its secondary job is to periodically refill Bucket 1 as you spend it down.
Bucket 3 (Years 11+): Long-Term Growth. This bucket can, and should, remain invested aggressively for long-term growth. Because its time horizon is still 10, 20, or even 30 years out, it has plenty of time to recover from market downturns and serve as the powerful engine that outpaces inflation and ensures your plan’s longevity.
The bucket strategy’s greatest strength is not just financial; it’s psychological. It creates a mental firewall. By knowing your next few years of income are secure in cash, it gives you the emotional fortitude to weather market volatility without panicking.
Red Flag 6: You Assume Spending Stays Flat (or Magically Drops)
One of the most common shortcuts in retirement planning is the simple “income replacement” model. Financial websites and simplistic calculators often suggest you’ll need about 80% of your pre-retirement income to live comfortably.
While this is a decent starting point for a 30-year-old, it is a dangerously blunt instrument for someone on the cusp of retirement. Real-life spending is not a flat line; it is dynamic and follows a predictable, multi-stage pattern.
The Sobering Reality
Research clearly shows that retiree spending patterns change significantly with age. We can think of retirement as having three distinct phases: the “Go-Go” years, the “Slow-Go” years, and the often healthcare-dominated “No-Go” years.
Spending is frequently highest in the early years of retirement. Newly retired individuals, finally free from work constraints and still in good health, tend to spend more on travel, hobbies, dining out, and home improvements.
As people age, their spending tends to decline. Data shows that households aged 75 and older spend about 19% less on average than those aged 65-74. However, the composition of that spending changes dramatically.
While discretionary spending on travel and entertainment falls, spending on healthcare inevitably rises, often significantly, in the later years. A flat budget model completely fails to account for this crucial and predictable shift, potentially leaving you underfunded for the active years and unprepared for the high medical costs of later life.
This pattern creates a hidden danger. The high-spending “Go-Go” years directly coincide with the period of maximum vulnerability to Sequence of Returns Risk. This sets up a perfect storm: retirees are withdrawing the most money from their portfolios at the exact moment a market downturn would be most damaging.
The Advisor’s Prescription
Instead of a single, static budget, I advise clients to create a dynamic, three-stage retirement spending plan.
Stage 1 (Ages ~65-75): The Go-Go Years. Your budget should be at its peak here. Plan for higher spending on travel, hobbies, and other discretionary items that are important to your retirement vision. The funding for these “wants” should be carefully planned and ideally drawn from your safest investment buckets, not from selling growth assets.
Stage 2 (Ages ~75-85): The Slow-Go Years. In this phase, you can anticipate a reduction in travel and other high-activity expenses. However, this is the time to begin increasing the line item for healthcare. Budget for higher co-pays, more frequent prescriptions, and the potential need for some in-home assistance.
Stage 3 (Ages 85+): The No-Go Years. For this final stage, the budget may become dominated by healthcare needs. Discretionary spending may be minimal, but the potential costs of assisted living or nursing care must be the primary financial focus.
Using a detailed retirement budget worksheet can help you get granular and plan for each of these stages with greater accuracy. By acknowledging the changing nature of retirement spending, you can build a more resilient and realistic plan.
Red Flag 7: You Underestimate Your Own Lifespan
In the world of financial planning, we have a term for the risk of living too long: “longevity risk.” And in many ways, it is the biggest risk of all. What good is a perfectly constructed, multi-million-dollar portfolio if you outlive it by a decade?
Many people anchor their plans to average life expectancies without fully grasping what those averages mean. In retirement planning, you cannot plan for the average; you must plan for the best-case health scenario, which is the worst-case financial scenario: living a very, very long life.
The Sobering Reality
According to the Social Security Administration’s 2025 data, a 65-year-old man today has an average life expectancy of another 17.48 years, taking him to nearly age 83. A 65-year-old woman can expect to live another 20.12 years, to just past age 85.
The critical word here is average. By definition, half of the population will live longer than that. For a healthy, non-smoking married couple who are both 65 today, there is a very high probability that at least one of them will live into their 90s.
As financial personality Dave Ramsey bluntly puts it, “People underestimate how long they’ll live and how much money they’ll need. They retire broke or way too early. It’s like jumping out of a plane without checking your parachute”.
The financial industry has spent decades training people to focus on “wealth accumulation”—that is, growing the biggest possible pile of money. But it has largely failed to prepare them for the real challenge of retirement: “income distribution,” which is the science of turning that pile into a reliable paycheck that will last for 30 years or more.
The Advisor’s Prescription
Combating longevity risk requires a shift in mindset from simply saving to building durable, lifelong income streams.
Plan to Age 95. Parker ironclad rule for clients is that we build every financial plan to provide sufficient income until at least age 95. For a couple, we often plan for the younger spouse to reach 100. This builds in a necessary and prudent buffer. It may mean saving more or working a bit longer, but it is the only responsible way to plan.
Maximize Your Longevity Insurance (Social Security). This brings us back to the critical importance of delaying your Social Security benefits, as discussed in Red Flag #4. Your Social Security check is an inflation-adjusted income stream that you cannot outlive. By delaying to age 70, you are buying the best and most cost-effective longevity insurance on the market.
Consider a Private Pension (Annuities). With the disappearance of traditional corporate pensions, retirees must create their own. For a portion of your assets, an annuity can serve this purpose.
Red Flag 8: You’re Planning to Retire with a Mortgage and Car Payments
Entering retirement carrying significant debt is like trying to run a marathon with a weighted vest on. It slows you down, drains your energy, and makes the entire journey exponentially more difficult.
Every dollar that is contractually obligated to a lender is a dollar that is not available for your healthcare, your travel, or your peace of mind. It creates a level of financial fragility that is simply incompatible with a secure retirement.
The Sobering Reality
Parker often hear from clients who assume they can just “manage” their mortgage and car payments in retirement. This is a dangerous assumption. As Dave Ramsey states, “They hang onto debt. Especially mortgages and car payments.
Then they assume they’ll just ‘manage it’ in retirement… The fix is simple. Attack that debt with intensity now, before you step into your golden years”.
Fixed debt payments create immense fragility in a retirement income plan. When you have a non-negotiable $2,000 mortgage payment due on the first of every month, you have zero flexibility.
If the market drops 20% or you face an unexpected medical bill, you are forced to sell assets from your portfolio to make that payment, regardless of market conditions. Debt removes your ability to adapt.
Many people fall for the seemingly clever mathematical argument that they should keep their low-interest mortgage and invest the difference, hoping to earn a higher return in the market. This logic is a dangerous fallacy for retirees because it completely ignores the behavioral and risk-management aspects of retirement.
The Advisor’s Prescription
The goal should be to enter retirement completely debt-free.
Set a “Mortgage Freedom Date.” Make paying off your house by your planned retirement date a primary, non-negotiable financial goal. Frame it on your wall.
Systematically Attack the Principal. You don’t have to find thousands of extra dollars. Even an extra $100 or $200 a month applied directly to the principal can shave years off your loan and save you tens of thousands in interest.
No New Debt After 50. In the decade leading up to retirement, make it a hard and fast rule not to take on any new consumer debt. This means no new car loans, no home equity lines for renovations, and no large credit card balances.
Red Flag 9: You’re Relying on “Average” Stock Market Returns
This is perhaps the most subtle and misunderstood concept in retirement planning, but it is critically important. Most financial projections are built on the idea of an “average” annual stock market return. Historically, the S&P 500 has returned about 10% per year.
The fatal flaw in many retirement plans is assuming you will actually get that 10% every year. In reality, the market is volatile. The order, or sequence, of your returns will ultimately determine your fate.
The Sobering Reality
Let him illustrate the danger of Sequence of Returns Risk with a simple but powerful example based on real-world analysis. Imagine two retirees, Investor A and Investor B.
Both start with identical $1 million portfolios, both plan to withdraw an inflation-adjusted $50,000 per year, and both achieve the exact same average annual return over their first 18 years of retirement. The only difference is the order of those returns.
- Investor A retires just as a bear market begins. Their portfolio loses 15% in Year 1 and another 15% in Year 2 before recovering and enjoying a long string of positive returns.
- Investor B gets the positive returns first, and the two-year, 15% drop doesn’t happen until the end of their 18-year period.
The result? Investor B’s plan succeeds beautifully. But Investor A’s portfolio is devastated. By being forced to withdraw money and sell stocks during the deep early losses, their capital base is so severely eroded that it never recovers, even with years of subsequent good returns. They are on a path to running out of money.
This is Sequence of Returns Risk in action. It’s not a market crisis; it’s a liquidity crisis. The problem isn’t that the market went down; the problem is that you were forced to sell into that downturn to pay your bills.
The Advisor’s Prescription
The solution is not to try to predict the market, which is impossible. The solution is to build a plan that is resilient to bad timing.
Implement the Bucket Strategy. This is the ultimate justification for the bucket system described in Red Flag #5. By holding one to three years of your living expenses in a cash bucket, you create a buffer that severs the link between short-term market performance and your short-term income needs.
When the market crashes, you simply draw from your cash and allow your growth investments the time they need to recover. You are never a forced seller.
Be Flexible with Withdrawals. A retirement plan cannot be rigid. The ability to adapt is crucial. After a year where the market has fallen significantly, consider making small sacrifices. Forgo the inflation adjustment on your withdrawal for one year, or postpone a large discretionary purchase like a new car or a big vacation.
Research shows that even a small, temporary reduction in the withdrawal rate after a market crash has a massive positive impact on the long-term sustainability of a portfolio.
View Your Plan as Liability-Driven. Think like a pension fund manager. Your “liabilities” are your living expenses for the next 30 years.
Your job is to match your assets to those liabilities based on their timing. Near-term liabilities (next month’s bills) must be funded by near-term, risk-free assets (cash). Long-term liabilities (your expenses in the year 2045) can and should be funded by long-term, growth assets (stocks).
Red Flag 10: You’re Not Maximizing “Free Money”
In the complex world of finance, there are very few true freebies. The employer match in a 401(k) or similar retirement plan is the closest thing to one. It is, without exaggeration, a 100% risk-free return on your investment.
Failing to contribute enough to capture every dollar of your company’s match is one of the most basic and costly mistakes an employee can make, yet I see it happen with shocking frequency.
The Sobering Reality
While many employers have made their matching contributions more generous over time, a significant portion of employees still fail to take full advantage. This is not a small oversight. Let’s use a common example: Your company matches 50 cents on the dollar for the first 6% of your salary that you contribute.
If you earn $80,000 and only contribute 3% ($2,400), the company gives you $1,200. But if you contribute the full 6% ($4,800), the company gives you $2,400. By under-contributing, you are voluntarily walking away from a $1,200 raise.
Over a 30- or 40-year career, this seemingly small annual mistake compounds into a massive shortfall. That extra $1,200 per year, invested and growing over decades, can easily amount to hundreds of thousands of dollars in lost wealth by the time you retire.
This same principle applies to other forms of “free money,” like the tax deduction on Health Savings Account contributions. The tax savings you receive is effectively an instant, government-provided return on your money.
The failure to capture these benefits is often a symptom of a deeper issue: a lack of engagement with one’s own finances.
It suggests a person has not taken the time to understand the basic mechanics of their own benefits package, which likely means they are making other, less obvious mistakes as well, such as not knowing their plan’s fees or never reviewing their asset allocation.
“Are you getting your full match?” is one of the most powerful diagnostic questions I can ask a new client. The answer “no” or “I don’t know” is a major red flag.
The Advisor’s Prescription
Fixing this is simple, immediate, and incredibly impactful.
Priority #1: Get the Full Match. Before you pay an extra dollar on your mortgage, before you open a brokerage account, before you save for your kids’ college—your absolute first financial priority should be to contribute enough to your 401(k) to get the full employer match. This is non-negotiable.
Automate It. Don’t leave it to willpower. Log into your company’s HR portal today and set your contribution rate to at least the full match percentage. While you’re there, sign up for auto-escalation, which will automatically increase your contribution by 1% each year.
The SECURE Act 2.0 is making these features standard for many new plans, but everyone should do it voluntarily.
Priority #2: Max Out Your HSA. After you have secured every dollar of your 401(k) match, your next savings priority (if you are eligible for an HSA) should be to max out your HSA contributions. Because of its unique triple-tax advantage, it is a superior savings vehicle even to your 401(k) for healthcare-related retirement goals.
Red Flag 11: Your Withdrawal Rate Is Based on a 40-Year-Old Rule
Many people who have done some retirement research have heard of the “4% Rule.” It’s a popular rule of thumb which suggests that you can safely withdraw 4% of your initial portfolio value in your first year of retirement, and then adjust that dollar amount for inflation each subsequent year, without running out of money over a 30-year period.
The problem is that this rule, developed in the 1990s based on historical data from a very different economic era, may be dangerously outdated and is often misapplied.
The Sobering Reality
Blindly adhering to the 4% rule can create a false sense of security. In a world of potentially lower future stock returns and the persistent threat of inflation, many financial planners now believe a “safe” initial withdrawal rate is closer to 3% or 3.5%. But the bigger issue is how the rule interacts with the reality of most people’s savings.
Let’s look at the hard numbers. The median 401(k) balance for individuals aged 60 to 69 is $210,724. If we apply the 4% rule to this very real-world nest egg, it generates only $8,429 per year, or about $702 per month.
When you add the average monthly Social Security benefit of around $1,905, the total monthly income is just over $2,600. This falls dramatically short of the approximately $5,000 per month that the average retired household spends. This stark example shows that the 4% rule is not a magic bullet that makes any nest egg sufficient.
The blind adherence to this rule reflects a dangerous desire for automation and simplicity in a process that is inherently complex and dynamic.
It encourages a “set it and forget it” mentality at the precise moment when active monitoring and flexibility are most critical. A retiree following the rule might feel they are “on track” even as a severe market downturn in their early years has already made their plan mathematically unsustainable. The damage is done long before they realize it.
The Advisor’s Prescription
The key is to move from a static rule to a dynamic strategy.
Adopt a “Guardrail” Approach. Instead of a fixed percentage, use a more flexible method. For example, you might start with a 3.5% withdrawal rate. In years when strong market returns push your portfolio value up significantly, you can give yourself a “bonus” or increase your baseline withdrawal by 10%.
Conversely, in years after a market crash has reduced your portfolio’s value, you tighten your belt: you skip the inflation adjustment for a year or reduce your withdrawal by 10%. This creates a self-correcting system.
Separate “Needs” from “Wants.” A more robust approach is to build an income floor. The goal is to cover your essential, non-negotiable expenses (housing, food, utilities, healthcare) with guaranteed, predictable income sources.
This means maximizing Social Security and potentially using a portion of your assets to purchase an annuity. Once your essential “needs” are covered, you can use a more flexible, percentage-based withdrawal strategy from the rest of your portfolio to fund your discretionary “wants” (travel, hobbies, etc.). This separates your survival from market volatility.
Red Flag 12: You’re Letting Fear and Greed Drive Your Decisions
After decades of diligent saving and careful planning, the single greatest threat to your financial security in retirement is not the stock market, not inflation, and not interest rates. It is the person you see in the mirror every morning.
Your own emotional reactions to market events can cause you to make disastrous decisions from which your portfolio may never recover. More money has been lost by investors reacting to corrections than has been lost in the corrections themselves.
The Sobering Reality
The psychology of investing changes dramatically when you transition from accumulating assets to decumulating them. For 40 years, a market dip was an opportunity; your regular 401(k) contributions were simply buying more shares “on sale.”
It was an abstract concept. But once you retire, that portfolio balance is no longer an abstract future sum; it is your source of food, shelter, and medicine. A market dip now feels like a direct and immediate threat to your well-being.
This leads to two cardinal sins. The first is panic-selling. During a market crash like the one in 2008 or the brief but sharp drop in 2020, the emotional pressure to “just get out” is immense. Selling at the bottom turns a temporary, on-paper loss into a permanent, catastrophic loss of capital.
The Advisor’s Prescription
A successful retirement plan must include a “behavioral defense” strategy designed to protect you from your own worst, but entirely predictable, emotional instincts.
Revisit Your Written Plan. This is where we come full circle to Red Flag #1. Your written financial plan is your anchor in an emotional storm.
It was created during a time of calm, logic, and rational thinking. When the market is in turmoil and the talking heads on TV are screaming, you must turn off the noise and turn to your plan. Trust the strategy you built, not the panic of the moment.
Work with a Professional. A good financial advisor’s most important job in retirement is not to pick the hottest stocks. It is to be a behavioral coach.
It is to be the calm, objective voice of reason that talks you out of selling everything at the bottom or leveraging your home to buy into a speculative bubble at the top.
Tune Out the Noise. One of the best things you can do for your financial and mental health in retirement is to stop watching financial news 24/7 and stop checking your portfolio balance every day.
This constant stream of information only fuels anxiety and encourages short-term, reactive decision-making. Check in on your plan once a quarter, rebalance once a year, and get on with living your life.
Conclusion: Turning Red Flags into Green Lights
Parker have walked through the 12 most common red flags that can undermine a retirement plan: from having no written plan at all to letting emotions dictate your investment decisions. Seeing them laid out like this can feel overwhelming, but they should not be viewed as a list of failures.
Instead, see them as a proactive checklist, a diagnostic tool you can use to perform the financial equivalent of a regular health check-up.
You do not need to fix all 12 of these issues tomorrow. The key is to overcome inertia and take one single, concrete step this week. Pick the red flag that resonated most with you. Is it your lack of a plan for long-term care?
Your habit of claiming Social Security too early? Your outdated withdrawal strategy? Whatever it is, choose one and take a single action. Log in to your 401(k) portal and check your employer match. Use an online calculator to get a rough estimate of your retirement needs. Schedule a meeting with an insurance professional to get a quote for LTC coverage.
A successful retirement is not about achieving perfection or timing the market. It is about diligence, awareness, and the courage to confront these complex issues head-on. By identifying and addressing these red flags, you are not just managing money; you are taking control of your future.
You are turning a plan filled with anxiety and uncertainty into one grounded in confidence and security. As Dave Ramsey wisely says, “You may not have 40 years left, but you’ve got today. And that’s enough to start turning the ship around”.
