The 2 Mistakes Retirees Make


That Can Easily Threaten Their Financial Security

Are you retired or planning to retire in the next five years?

•    Do you currently or plan to take income from your retirement savings to support your lifestyle?

•    Do you want to protect your retirement savings against too-much market risk (and do you want to know what “too much” market risk is)?

Mistake #1:

No Clear Retirement Income Plan

I see this first mistake in our financial planning office all the time when we meet with someone new. It is extremely rare that someone comes into our office with a clearly defined income plan for his retirement.

A retirement income plan is really quite simple. You should have a plan for how your retirement accounts are going to deliver income to you that is:

•    Guaranteed to last as long as you do (and your spouse if married)

•    Designed to have inflation adjusted step-ups

•    Flexible enough to handle the curve balls that you will be thrown, such as increased healthcare expenses, new roof, new car and that trip to Australia

•    Bullet proof against market downturns, meaning that your income is not negatively affected when the markets aren’t cooperating.

Right now, you should be asking yourself if you have a retirement income plan that satisfies all of those requirements. And by the way, you should also have a pretty decent understanding of how each account in your plan works in the overall scheme of things. You don’t need to know all the details, but you do need to understand the big picture.

A Clearly Defined Retirement Income Plan vs. What You Likely Have

Now, how does the plan I described above compare to what the vast majority of people have for their retirement income plan? Here’s what most people have:

•    A traditionally “balanced” portfolio of roughly 50 percent stocks and 50 percent bonds. Income taken is usually around four percent of the initial portfolio value.

•    Income from a combination of stock dividends, bond interest and limited partnership distributions.

•    Shortfalls which are often made up by selling something in the portfolio.

•    Inflation protection accomplished through capital gains in the value of the stock positions in the portfolio.

•    Portfolio values that fluctuate every day—throughout the year they can go up and down significantly. This works out well when the markets cooperate (go up) and works out very poorly when the markets choose to be difficult (go down).

Here’s a clue to see if you’re plan is in there: if your portfolio statements are a classic mixture of stocks, bonds and mutual funds, then you are in category number two. This is fine during your working years when you are growing a portfolio, but it can be deadly when it comes to creating a safe and sustainable retirement income plan.

What You Should Do

The only way you will be able to get a clearly defined retirement income plan is to talk to an independent financial advisor who specializes in retirement planning. They will be able to outline the steps you need to take to create your own retirement income plan utilizing a model I use in my practice every day, called a “Sequential Income Planning System.” If you are looking to take retirement income from your portfolio, you’ll want to learn more.

Mistake #2:

Too Much Portfolio Risk

If there is the only one thing you get out of this entire article, I hope this is it because unquestionably, one of the biggest mistakes retirees make is keeping too much money in the stock market after they retire.

You have likely heard the old saying that when you are younger, you take more risk because you have more time, but as you age, you should take less risk, and once you retire, ideally you should be at a point where you no longer have to take any risk at all. This is good advice, but it’s only part of your overall retirement investment strategy.

I’ve been able to create a great model to help you match up where you should put your money based on where you are in life called the “Three Stages of Money.”

Here’s a bird’s eye view of the three stages of your life: youth, adult, and maturity.

Stage #1:

Youth | Savings

The very first financial institution you were introduced to was your local bank. The bank provided you a safe and liquid place for your savings. A common mistake i often see is that a retiree keeps way too much money at the bank. Here is what you should have at the bank in savings (P.S. CD’s count as savings):

•    Emergency money: Have at least four-six months of income held at the bank.

•    Money earmarked for a future purchase: do you expect to buy a new car or two during your retirement? You’ll want to pay for such expenses in cash and a bank is a great place for this money.

That’s it. If you are keeping any other money in the bank, you are overdoing it. In the financial industry, we call it “going broke safely” because the interest you earn is currently less than inflation. You can do better!

Stage #2:

Adult- The Stage of Wall Street

As an adult you’ll likely begin investing a portion of your paycheck with the brokerage houses and the money managers. This is the stage of risk and return. The purpose of this stage is to grow and accumulate your money. It is the stage of putting together an asset allocation of stocks, bonds and mutual funds.

The big mistake retirees make here is they forget the purpose of this stage. Remember, the purpose of stage #2 is growth and accumulation, not preservation and income.

Here’s what you should have in brokerage accounts:

•    Money you don’t expect to need for income in the next 10 years.

That was simple, wasn’t it?

Trying to preserve your portfolio while taking income is not what this stage is about, and you end up using the wrong tool for the job when you make the attempt. This is okay in periods when markets cooperate but it is deadly when they don’t.

Stage #3:

Maturity- Preservation and Income

The job of your money has now changed. It’s time to transition from growth and accumulation to preservation and income.

Key point: once you’ve reached the point of financial security, your number one task is to keep it! (I know, crazy idea, eh?)

Stage #3 is the stage of the legal reserve life insurance companies. From a financial perspective you need to understand that nobody – and I mean nobody – does a better job at preserving your assets and providing contractually guaranteed lifetime income than legal reserve life insurance companies.

Here is what I’m telling you: You should be utilizing insurance accounts to contractually guarantee your base income.


If you want a well-diversified retirement portfolio, you will end up with money in all three stages that we’ve just covered. Utilizing just one stage could cripple you, while using all three allows you to enjoy the best of all worlds.

Okay, we’ve covered two of the biggest mistakes retirees routinely make that can easily threaten their financial security. Odds are good that you are making more than one of these mistakes right now. Financial independence doesn’t happen by accident. It takes a well thought out plan to ensure that you fully enjoy your retirement, free of financial stress, knowing that you’ve made the right choices with your money for you and your family.

Cathy Mendell of Elevation Capital Strategies, Bend Office , 400 SW Bluff Drive Suite 101, 541-728-0321 ,,


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