Retirement should be a time to enjoy financial security, not stress about cash flow. Also, some common money mistakes can threaten boomers.
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Even those who have diligently saved for decades can find themselves in trouble if they don’t manage their withdrawals, spending habits or investment strategies wisely.
From underestimating inflation to over-relying on Social Security, certain missteps can drain your savings faster than expected. Here are some cash flow mistakes boomers make when saving for retirement and how to avoid them.
According to Matt Hylland, a financial planner at Arnold and Mote Wealth Management, a common mistake retirees make is not taking IRA withdrawals in low-tax years.
“If most of your savings are in a traditional IRA, your tax liability will likely increase as you age. This is due to the onset of RMDs (required minimum distributions) and other income such as Social Security.”
Although withdrawals from IRAs are taxed as income, retirees without other sources of income are likely to be eligible for very low tax rates on cash withdrawals, Hylland noted.
“For example, in 2025, a 65-year-old married couple with no other income could withdraw $130,000 from an IRA and still remain in the 12% federal tax bracket.”
Waiting to withdraw from your IRA before you start claiming Social Security benefits can result in tens of thousands of dollars in additional taxes each year, Hylland said.
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If you wait until retirement to start figuring out your tax strategy, you could be putting yourself at risk, Hylland said. “Many retirees have spent decades trying to defer as much tax as they can with their 401(k)s. But when you retire, your optimal strategy may be to prioritize IRA withdrawals and consciously pay some taxes.”
Retirees often use cash savings, brokerage accounts or even Roths in early retirement to keep their tax bills very low, he said. “While this may save money in the short term, it can be very expensive in the long run.”
The reasons are that delaying taking RMDs can result in higher taxes later because retirees are pushed into a higher tax bracket. Also, if retirees take their taxable income early in retirement, they may miss out on the opportunity to convert their pre-tax savings into a Roth IRA with a lower tax rate. Finally, Social Security benefits become taxable if total income exceeds certain thresholds.