What Is the Number 1 Mistake in Retirement Planning?
Why Misjudging Your Future Income Needs Can Threaten Your Financial Security and How to Avoid It
Retirement should be a time to slow down, enjoy what you’ve built, and live life on your own terms. But for millions of Americans, retirement brings more financial stress than expected; not because they failed to save entirely, but because they made one crucial mistake along the way.
So, what is the single biggest mistake in retirement planning? For Andrew A. Agemy MRFC, Founder and CEO, who draws on decades of experience advising pre-retirees and retirees, the answer is unequivocal:
“The biggest mistake people make in retirement planning is underestimating how much income they’ll need—and how long they’ll need it.” His insight highlights a critical factor many overlook when preparing for a secure and comfortable retirement.
This single miscalculation can ripple into every part of your financial life. It affects your lifestyle, healthcare decisions, investment strategy, tax obligations, ability to leave a legacy, and even your emotional well-being in retirement.
But the good news? It’s a mistake you can avoid if you understand why it happens and how to correct the course.
In this in-depth guide, we’ll break down the root causes, the consequences, and the specific steps you can take now to help secure a retirement that’s truly sustainable.
Why So Many Americans Underestimate Their Retirement Income Needs
Many people approach retirement with a simple question: “How much do I need to save?” But the real question should be: “How much income will I need every single year, and will it last as long as I do?”
This shift in thinking matters because retirement has changed dramatically.
1. Longevity
Many retirees today will spend 25 to 30 years, or more, in retirement.
That means your savings must last longer than previous generations ever had to.
2. Inflation Erodes Purchasing Power
Even at modest levels, inflation chips away at your lifestyle. What costs $70,000 today may cost $100,000 in a decade.
Underestimating inflation is one of the biggest blind spots in retirement planning. A retirement built on static numbers simply won’t survive a dynamic economy.
3. Healthcare Costs Are Higher Than Expected
Healthcare is consistently one of the top three expenses in retirement. Medicare is not free, and long-term care is not covered by Medicare at all.
Without planning for rising healthcare and long-term care needs, retirees risk draining their savings faster than anticipated.
4. Retirement Is No Longer Linear
Retirement isn’t a straight line where spending steadily decreases. Today, it has phases:
- Go-Go Years: Travel, hobbies, experiences; often the highest-spending phase.
- Slow-Go Years: Spending stabilizes, but healthcare rises.
- No-Go Years: Healthcare and support costs spike.
If you assume you’ll spend less each year, you’re likely underestimating what you truly need.
5. Overreliance on Rules of Thumb
Rules like the “4% withdrawal rule” or “save 10x your salary” can be helpful benchmarks, but they’re not personalized. They don’t account for taxes, market volatility, interest rate changes, or personal health.
Relying on oversimplified rules leads many retirees to assume their money will stretch farther than it actually will.
How Underestimating Income Needs Impacts Your Retirement
Underestimating the amount of income you’ll need can lead to a series of cascading problems. Here’s what this mistake looks like in real life.
1. Running Out of Money Too Soon
This is the most feared outcome and the hardest to recover from. Once you’re retired, you have fewer options to generate new income, and protecting what you have becomes vital.
Without accurate income projections, retirees may:
- Withdraw too much too early
- Sell investments during downturns
- Take on unnecessary risk
- Rely more heavily on Social Security
Running out of money is a real risk, not a hypothetical one.
2. Paying More in Taxes Than Necessary
Taxes don’t disappear in retirement. In fact, without a strategy, taxes can take an even bigger bite out of your income.
Underestimating income needs:
- Causes retirees to pull from taxable accounts inefficiently
- Increases Social Security taxation
- Leads to unexpectedly higher Medicare premiums
- Triggers costly Required Minimum Distributions (RMDs)
A coordinated tax strategy is often missing, and without it, income shortfalls become more severe.
3. Sacrificing Quality of Life
Misjudging income needs often leads to cutting back more than expected. Travel plans shrink, home maintenance is delayed, gifts to family are reduced, and the lifestyle you envisioned feels out of reach.
Retirement should be enjoyable, not restrictive due to planning mistakes.
4. Increased Stress and Anxiety
Financial uncertainty is one of the top sources of stress for retirees. When income doesn’t feel secure or predictable, it affects mental and emotional health.
Living with financial anxiety in retirement is avoidable, but only with a stronger income plan.
Why This Mistake Happens: The Psychology Behind Retirement Planning
Underestimating retirement income needs isn’t just a math issue; it’s a human issue. Several psychological factors contribute to this mistake.
1. Optimism Bias
Many people assume:
- “I won’t live that long.”
- “My expenses will drop significantly.”
- “Healthcare won’t affect me personally.”
Optimism is helpful in life, but can be dangerous in retirement planning.
2. Difficulty Visualizing Future Expenses
Most people plan using today’s numbers, not tomorrow’s realities. It’s natural to underestimate future costs because they feel distant and abstract.
3. Fear of Confronting the Unknown
Thinking about aging, health issues, or market downturns can be uncomfortable. So people avoid detailed planning.
4. Lack of Education
Retirement planning isn’t widely taught. People rely on generic advice or guesswork rather than comprehensive analysis.
This is exactly where financial professionals can help provide clarity and direction.
The Solution: Focus on Income Planning, Not Just Savings
Traditional retirement planning focuses heavily on accumulation; saving and investing as much as possible. But the real challenge begins once the paychecks stop.
Accumulation gets you to retirement. Income planning gets you through retirement.
Here’s how to avoid underestimating your retirement income needs and build a plan that lasts.
5 Steps to Avoid the #1 Mistake in Retirement Planning
1. Calculate a Personalized Retirement Income Target
You need a realistic projection, not a rule of thumb. A comprehensive income analysis should include:
- Projected living expenses
- Inflation-adjusted spending
- Healthcare and long-term care costs
- Taxes
- Lifestyle goals (travel, hobbies, philanthropy)
- Emergency buffers
- Longevity considerations
A detailed, customized plan is the foundation of retirement security.
2. Create a Multi-Source Income Strategy
A strong retirement plan doesn’t rely on a single income stream. It integrates:
- Social Security
- Pensions
- Investment withdrawals
- Tax-free income sources (like Roth accounts)
- Real estate income
- Cash reserves
- Part-time income (if desired)
The goal is to create reliable, predictable income that supports your lifestyle.
3. Mitigate the Effects of Inflation
To help protect your purchasing power over decades, your plan should include:
- Investments that outpace inflation
- Income sources with built-in increases
- Strategies to adjust withdrawals as needed
- Tax-efficient growth to avoid losing ground
Inflation-proofing is essential for long-term comfort.
4. Implement Tax-Smart Withdrawal Strategies
The order you withdraw funds from your accounts can significantly affect how long your money lasts.
A well-designed plan considers:
- Roth conversions
- Minimizing Social Security taxation
- Reducing Medicare IRMAA penalties
- Managing RMDs
- Balancing tax-deferred, taxable, and tax-free accounts
A tax-efficient strategy helps put more money in your pocket and extends the life of your savings.
5. Stress-Test Your Retirement Plan
A strong retirement plan must be able to withstand:
- Market volatility
- Interest rate changes
- Healthcare shocks
- Longevity risk
- Inflation spikes
Stress testing gives you peace of mind and allows you to make confident decisions, even during uncertain times.
How Agemy Financial Strategies Helps You Avoid This Critical Mistake
At Agemy Financial Strategies, we’ve spent decades helping retirees and pre-retirees navigate complex financial decisions with clarity and confidence. Our approach is rooted in education, transparency, and strategy.
Here’s what sets us apart:
✔ We Focus on Income First
Not just investments, but actual income you can depend on.
✔ We Prioritize Tax Efficiency
Because what you keep matters more than what you earn.
✔ We Build Sustainable, Personalized Plans
Every plan is tailored to your goals, lifestyle, and longevity.
✔ We Stress-Test for Real-Life Scenarios
Your plan must withstand changing markets, rising costs, and unpredictable expenses.
✔ We Provide Ongoing Guidance
Retirement planning isn’t one-and-done; it evolves as your life evolves.
Final Thoughts
The number one mistake in retirement planning, underestimating how much income you will need and how long you will need it, is both common and costly. But it’s also avoidable.
Your retirement should be secure, enjoyable, and stress-free. With the right strategy, disciplined planning, and guidance from trusted professionals, you can build a retirement income plan that truly lasts.
If you’re ready to avoid this mistake and build a plan designed to sustain the retirement you’ve dreamed of, Agemy Financial Strategies is here to help.
Ready to Strengthen Your Retirement Plan?
Let’s build an income plan that supports your lifestyle, helps protect your savings, and gives you confidence for the decades ahead.
Contact Agemy Financial Strategies today for a personalized retirement income analysis.
