Three Worst Retirement Mistakes

Over the last 25 years I have seen many, too many, retirement planning mistakes. One of the most serious retirement planning mistakes that you can make is to sell your portfolio at the bottom of a bear market. The problem becomes, when do you buy back in?

 As we can see here from October of 07 to the bottom in 2009, the stock market, the S&P 500, went down 56%. For those who had sold at the bottom, they had to buy back in at a much higher price.

The last 14 years have been an incredible bull market for the S&P 500.

I think that the next decade is going to look a lot more like the period of 2000 to 2013 where we had no appreciation from the S&P 500 for 13 years and some very big drops.

Along the way, if we do get a market like 2000 to 2013, then it's very important that you have enough confidence in your investment strategy to stay invested and resist the urge to sell out if we get big drops in the stock market due to recessions.

The second big mistake that I see retirees make is using an asset allocation that doesn't match their portfolio income needs. For example, if you had invested $1,000,000 in the S&P 500 twenty-three years ago, and distributed 4% per year grown for inflation. This is what would have happened, after twenty-one years, you're out of money.


Here are the numbers.


We start the year 2000 with $1,000,000 investment in the S&P 500. Then we start taking four percent, 40,000 per year grown by inflation 3% every year and 21 years later. We're out of money.

The third big mistake that I see retirees make is taking an annual distribution that is too large and not sustainable. Here is an illustration for a $1,000,000 investment 23 years ago in the Vanguard Balanced Index fund taking an annual 5% distribution, too much in my opinion, and growing the distribution by 3% for inflation every year. What we see is that it only took twenty-three years and the portfolio ran out of money.



Here are the numbers.


If we invested $1,000,000 in the year 2000, we took $50,000 in the first year. Then we grew the distribution by 3% inflation every year. In the year 2022, we were out of money, so to sum it all up, the three big mistakes that you can make as a retiree are market timing, having an improper asset allocation and a distribution that is too large relative to your portfolio.

All of these mistakes can be avoided with proper planning and advice!

Written by Ethan S. Braid, CFA


HighPass Asset Management