After forty years in this business, I have seen intelligent, successful people make the same common retirement mistakes over and over. Many are completely avoidable. Significant wealth does not shield you from these errors, and in some cases, it amplifies the consequences.
The families who navigate retirement well understand what can go wrong before it happens. This is what I see most often.
Ignoring the Sequence of Returns Risk
Most people understand market risk during their saving years. Fewer realize how that risk changes fundamentally once withdrawals begin.
Sequence of returns risk is the danger of experiencing significant market losses early in retirement while simultaneously withdrawing from your portfolio. Research from Charles Schwab illustrates this clearly: two investors starting with identical portfolios and identical withdrawal rates can end up in dramatically different financial positions depending entirely on when a major market decline occurs. The investor who faces a significant drop in the first two years of retirement may run out of money far sooner than one who experiences the same decline a decade later.
For families with substantial assets, the concern is often less about whether the money runs out and more about whether poor early sequencing forces them to sell assets at depressed prices, permanently reducing the base available for future growth. A withdrawal strategy that accounts for market conditions rather than simply drawing from the most accessible account can make a meaningful difference over a long retirement. The years immediately before retirement are among the most important for getting that positioning right.
Getting the Retirement Withdrawal Order Wrong
Many retirees draw from their accounts in whatever order feels most straightforward, often depleting taxable accounts first, then tax-deferred accounts, then Roth accounts. That sequence may work for some people, but for high-net-worth families, it could leave significant tax efficiency on the table.
Your withdrawal order affects your annual tax bracket, how much of your Social Security income becomes taxable, whether you trigger Medicare IRMAA surcharges, and what you leave behind for heirs. For families with $3.5 million or more spread across multiple account types, coordinating withdrawal sequencing deserves as much attention as the investment strategy itself.
Tax laws change, and individual circumstances vary widely, so there is no single correct sequence that applies to everyone. Working through this with a qualified tax professional alongside your financial advisor may help identify a more efficient approach for your specific situation. If you would like to discuss what that coordination looks like in practice, we are glad to talk through it.
Mishandling Required Minimum Distributions
Required Minimum Distributions trip up even well-organized families. Beginning at age 73, the IRS requires minimum annual withdrawals from tax-deferred retirement accounts, and missing those deadlines or miscalculating the amounts can trigger a 25% excise tax on the amount that should have been withdrawn.
For families with large pre-tax balances, RMDs can become a significant and growing forced income event each year, pushing income into higher tax brackets, increasing Medicare premiums, and affecting the taxation of Social Security benefits. Treating RMDs as an isolated compliance task rather than a coordinated part of your overall income strategy is a mistake that tends to become more expensive over time.
The years between retirement and age 73 present a window to consider strategies that may reduce future RMD exposure, including Roth conversions during lower-income years. Whether that makes sense depends on your specific tax situation, and the analysis requires modeling across multiple years. Consulting a qualified tax professional before acting is an important step.
Underestimating Healthcare Costs in Retirement
Healthcare tends to be significantly underestimated in retirement budgets, particularly for families who retire before Medicare eligibility at age 65. Covering private insurance during that gap and then supplemental coverage once Medicare begins can add up more quickly than most projections account for.
Business owners who have had employer-sponsored or business-sponsored coverage for decades often underestimate how substantially the picture changes when those costs shift to personal funding. Building realistic healthcare estimates into your retirement income plan, including provisions for long-term care, is a step that pays dividends well before those costs arrive.
Treating the Estate Plan as a One-Time Event
A retirement plan and an estate plan are related documents, and many families update estate documents once and consider the work done. Beneficiary designations, trust structures, and asset titling need to be reviewed regularly because life changes and tax laws change, and what gets overlooked in those documents can create significant problems for the people left behind.
Outdated beneficiary designations on retirement accounts are a particularly common issue. Those designations override whatever a will says, which means an account can pass to the wrong person if the designations have not been updated after a divorce, a death in the family, or a change in your intentions.
What to Do With This
None of these mistakes requires extraordinary circumstances. They happen to be smart, successful people who did not have a coordinated plan that addressed each of these areas before retirement began.
The time to address the sequence of returns risk, withdrawal sequencing, RMD strategy, healthcare costs, and estate document maintenance is before you need any of them to perform under pressure. If you would like to review where your current plan stands in any of these areas, feel free to reach out. We are glad to take a look.
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Frequently Asked Questions
What are the most common retirement mistakes high-net-worth families make?
The most frequently observed retirement mistakes among families with significant assets include ignoring sequence of returns risk, drawing from accounts in a tax-inefficient order, mishandling Required Minimum Distributions, underestimating healthcare costs, and failing to update estate documents as life circumstances change.
What is the sequence of returns risk in retirement?
Sequence of returns risk refers to the danger of experiencing significant market losses early in retirement while simultaneously making withdrawals from your portfolio. Because losses early in retirement reduce the base available for future growth, the timing of a market decline can affect long-term outcomes more significantly than the average return over the full retirement period.
When do Required Minimum Distributions begin?
Under current IRS rules, Required Minimum Distributions from tax-deferred retirement accounts generally begin at age 73. Missing the deadline or withdrawing less than the required amount can trigger a 25% excise tax on the shortfall. For individuals born in 1960 or later, the RMD age is scheduled to increase to 75 beginning in 2033.
Why does withdrawal order matter in retirement?
The sequence in which you draw from taxable, tax-deferred, and tax-free accounts affects your annual tax liability, Medicare premium costs, and how much of your Social Security income becomes taxable. For high-net-worth families with assets across multiple account types, coordinating that sequence with a tax professional may improve overall tax efficiency over the course of a long retirement.
TL:DR High-net-worth families make predictable retirement mistakes, including poor withdrawal sequencing, mishandled RMDs, underestimated healthcare costs, and neglected estate documents, and each of these errors tends to be more expensive at the scale of wealth these families have accumulated. Most of these mistakes are avoidable with coordinated planning that addresses each area before retirement begins, rather than after the damage is done. Individual circumstances vary significantly, and working with qualified financial and tax professionals is an important part of building a plan that holds up over a long retirement.
