Retirement specialists who work with clients through multiple market cycles tend to notice one consistent pattern: the mistakes that do the most lasting damage aren’t dramatic. They’re quiet decisions made in the first few years after leaving work, when the stakes are highest and the margin for error is smallest. A 70-year-old CPA who has spent decades working with retirees through recessions, recoveries, and everything in between has seen this play out repeatedly. The lesson, repeated across client after client, is almost always the same: it’s rarely the market that breaks a retirement plan. It’s the behavior around it.
For retirees facing economy uncertainty in 2026, that distinction matters more than it has in years. Confidence in retirement security has been declining among both workers and retirees, with inflation, rising healthcare costs, and potential changes to the retirement system all adding pressure to household budgets that no longer have a paycheck to absorb shocks. The good news is that the highest-risk behaviors are well-documented and largely avoidable, once you know what to look for.
Five of them show up with particular frequency, across planning practices and portfolio sizes alike. Each one is specific, each one is common, and each one does damage that compounds quietly until it can’t be undone.
1. Ignoring Sequence-of-Returns Risk in the First Five Years
A market downturn at 55, for a worker still contributing to a 401(k), is a setback. The same downturn at 67, for someone drawing down savings to cover living expenses, can permanently impair a portfolio, even if markets fully recover afterward. Two portfolios can have identical 20-year average annual returns and produce wildly different outcomes depending solely on when the bad years hit. A portfolio that drops 25% in year one, while its owner is withdrawing annually, starts a compounding cycle of loss that positive years later cannot fully undo.
The practical response isn’t paralysis. It’s building a buffer. Retirees should maintain 12 to 36 months of living expenses in cash reserves to avoid selling investments during downturns. That cushion means you draw from the reserve instead of liquidating stocks at a loss when markets fall, giving the portfolio time to recover. In a volatile year like 2026, that buffer is the single most reliable defense against sequence-of-returns damage.
2. Withdrawing Too Much Too Soon
Morningstar’s retirement income research, published in December 2025, puts the highest safe starting withdrawal rate at 3.9% for retirees seeking a consistent level of inflation-adjusted spending across a 30-year retirement, assuming a 90% probability of having funds remaining at the end. That’s slightly below the 4% rule that dominated planning conversations for decades. The difference sounds small, but on a $750,000 portfolio, it means taking $29,250 per year instead of $30,000. Over 30 years, the compounding effect of that gap is significant, especially during stretches when markets underperform.
The research is clear that retirees should not adjust their withdrawal percentage to reflect each year’s safe rate; rather, they should start with the rate that applies to the year of retirement and adjust for inflation. Go above that rate early, especially in poor market conditions, and you’re eroding the foundation that later withdrawals depend on. Many retirees make larger withdrawals early because they’re healthier and more active, intending to spend less as they age. That logic has some merit, but it doesn’t protect against a bad market sequence hitting precisely when the larger withdrawals are happening.
Morningstar’s full 2026 State of Retirement Income research lays out several withdrawal strategies that can push the sustainable rate higher, up to 5.7% annually under a flexible spending approach, but those methods require discipline and ongoing adjustments most retirees don’t make in practice. The safer default is reviewing your actual withdrawal rate annually against your current portfolio value rather than an original projection made years earlier, and adjusting down if the math no longer holds.
3. Letting the Portfolio Drift Without Rebalancing
Markets don’t care about your target allocation. A portfolio designed at 60% stocks and 40% bonds in 2023 didn’t stay there. Strong equity performance in 2025 shifted many allocations meaningfully toward stocks, increasing unintended market risk. A retiree living through a sudden market correction feels that drift in real dollars, not just percentages.
The case for rebalancing isn’t about timing the market. It’s about keeping risk exposure where you actually set it. Rebalanced portfolios tend to be less volatile and recover losses faster in downturns than static ones. For retirees, that volatility reduction matters more than it does for younger investors. There’s less time to sit out a prolonged drawdown, and ongoing withdrawals mean the portfolio is shrinking even while it waits to recover.
Rebalancing once a year, or whenever an asset class drifts more than five percentage points from its target, is a straightforward discipline that most brokerages make easy to execute. The bigger obstacle is psychological: selling a winning asset class feels counterintuitive. For a retiree managing sequence-of-returns risk, controlling the portfolio’s actual risk exposure is more important than riding any single asset’s momentum. If you haven’t reviewed your allocation since early 2025, the portfolio you hold today is probably not the portfolio you think you have.
4. Making the Wrong Call on Social Security Timing
Claiming Social Security at 62 versus waiting until 70 creates approximately a $1,080 per month difference on the same earnings record, with a breakeven age of around 80. A retiree who claims early and lives past 80 will have collected less in total lifetime benefits than one who waited. For a couple where one or both spouses are in good health, delaying is frequently the higher-value financial decision.
Delayed retirement credits increase Social Security benefits by 8% for each year you wait beyond your full retirement age, up to age 70, with no additional benefit accruing after that. An 8% guaranteed annual increase is difficult to match with almost any other financial instrument, particularly in a volatile market environment. For retirees with other income sources, such as a pension, a spouse’s benefit, or savings they can draw on, delaying Social Security specifically to capture those annual increases is one of the most effective risk-reduction strategies available.
Social Security benefits received a 2.8% cost-of-living adjustment for 2026, according to the Social Security Administration. Because those monthly premiums are typically deducted directly from Social Security benefit payments, the Medicare Part B premium increase affects just how much of that cost-of-living increase beneficiaries actually see. The Social Security Administration says the average retired worker’s monthly benefit rose from $2,015 to $2,071 as a result. That adjustment applies to whatever base benefit you locked in at the time of claiming, so a higher starting benefit compounds upward with each annual COLA. Claiming early doesn’t just reduce this month’s check; it reduces every check for the rest of your life, including all future inflation adjustments.
5. Underestimating Healthcare as a Financial Risk
According to the 2025 Fidelity Retiree Health Care Cost Estimate, a 65-year-old individual may need $172,500 in after-tax savings to cover health care expenses in retirement. That figure is up 4% from the prior year. It covers Medicare premiums, out-of-pocket costs, and related expenses, and it does not include long-term care.
According to a 2026 paper from the LIMRA Retirement Income Institute, healthcare costs, long-term care needs, and caregiving responsibilities consistently rank as consumers’ top threats to long-term financial security, above market declines or recessions. The paper, “The Growing Influence of Health Risks on Retirement Security,” was written by Chris Heye, PhD, a Fellow at the LIMRA Retirement Income Institute, and analyzes population-level health data alongside consumer survey results. Long-term care costs, often exceeding $100,000 per year, remain largely uncovered by public programs. Medicare doesn’t cover custodial long-term care. Medicaid requires spending down most assets first.
The standard Medicare Part B premium increased to $202.90 per month in 2026, up 9.7% from $185 per month in 2025, according to the Centers for Medicare and Medicaid Services. Higher-income retirees face IRMAA surcharges (Income-Related Monthly Adjustment Amounts, which are additional Medicare charges based on income from two years prior) that can push that monthly premium considerably higher. The monthly Part B premium that includes an income-related adjustment for 2026 ranges from $284.10 to $689.90, depending on an individual beneficiary’s modified adjusted gross income. Failing to structure income in the years before Medicare eligibility to avoid triggering IRMAA is a costly oversight that shows up repeatedly in retirement planning mistakes.
On retirement account rules and RMD timelines, the stakes around required minimum distributions are equally serious. RMDs must begin at age 73 for individuals born between 1951 and 1959, and are required by December 31 each year, with a 25% penalty on any missed distribution, according to the IRS. Missing an RMD isn’t just a financial mistake; it’s a tax penalty that reduces the very savings you’ve spent decades protecting.
Read More: 10 Mistakes to Avoid After Your Partner Passes Away (for Those Over 60)
What to Do Now
Run the numbers that matter most before making any irreversible decisions. Check your actual withdrawal rate against your current portfolio balance, not a projection from three years ago. Review your asset allocation to confirm whether market drift has moved you into a riskier position than you intended. If you haven’t modeled the lifetime difference between claiming Social Security now versus waiting even two more years, run that calculation before making the decision. Morningstar’s research found that delaying Social Security is a wise decision for retirees aiming to boost lifetime income, with the best-case scenario being a retiree who delays and relies on non-portfolio income until Social Security comes online.
Healthcare planning is the most consistently underweighted item in retirement budgets. Starting a realistic projection now, including an honest assessment of long-term care exposure, puts you in a far stronger position than waiting for a health event to force the conversation. For those still working, the IRA contribution limit rose to $7,500 for 2026, up from $7,000 in 2025, with those age 50 and older able to contribute an additional $1,100 in catch-up contributions, an increase made possible by a SECURE 2.0 Act provision requiring annual cost-of-living indexing on the catch-up amount. This is the first time the IRA catch-up contribution limit has been increased, rising to $1,100 from the long-standing $1,000. Every dollar in a tax-advantaged account before retirement is a dollar that compounds without the drag of annual taxes. In an uncertain economy, that margin is worth protecting.
Disclaimer: This information is not intended to be a substitute for professional financial advice, investment advice, tax advice, or legal advice, and is provided for informational purposes only. Always seek the guidance of a qualified financial advisor, accountant, or other licensed professional regarding your personal financial situation or investment decisions. Do not make financial, investment, or tax decisions based solely on information presented here. Past performance is not indicative of future results, and all investments carry risk, including the potential loss of principal.
AI Disclaimer: This article was created with the assistance of AI tools and reviewed by a human editor.