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1. Overlooking inflation

Inflation could put a considerable dent in your nest egg — and ignoring or overlooking its effects could be a big mistake.

If you retire today, the inflation rate you’re expected to face over the next 30 years is 2.51%, according to a forecast by the Federal Reserve.

On an annual basis, these increases may not seem like much, but they can add up over time. For example, at 2.51% per year, a grocery bill of $100 today will cost you over $125 a decade from now.

Consider setting up a diversified portfolio and speaking to a financial adviser. Assets such as gold, real estate investment trusts and inflation-protected bonds may help your portfolio beat inflation, though they’re not the right investments for everyone.

You can also adjust your spending habits, like creating (and sticking to) a budget shopping around to lower your car insurance and reducing food costs through meal planning and coupons.

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2. Paying too much tax on retirement income

There are two ways you might be paying too much tax on your retirement income — not accounting for taxes on Social Security benefits and not planning for taxes on account withdrawals.

For example, if you’re jointly filing an income tax return with your spouse and your combined income exceeds $44,000 per year, up to 85% of your Social Security benefit can be taxed. You can use an online IRS tool to determine if your benefits are taxable.

Withdrawals from tax-advantaged accounts, such as 401(k)s and individual retirement accounts (IRAs), are taxed as ordinary income, so you’ll need to account for this in your planning and budgeting as well.

A financial planner can help you design a tax-efficient withdrawal strategy — but you’ll want to start this process long before retirement since some strategies, such as a Roth conversion, may be more tax-efficient if executed over several years.

3. Not adapting your investment portfolio to life changes

It’s also important to plan for changes in your investment strategy before and after retirement.

Retirees often fall into two camps: Those whose portfolios are too aggressive, opening them up to potentially large losses, and those whose portfolios are too conservative, creating the risk that their funds won’t last as long as needed.

When you retire, you may want to move to a more conservative portfolio to protect your gains and buffer your savings from stock market swings. But you could also balance this out by holding some stocks, so your savings will continue to grow (which also protects against inflation).

You’ll want to ensure your portfolio can support your planned income stream throughout your retirement, including required minimum distributions, and that they’re as tax-efficient as possible as well.

Financial planning is more than a savings strategy. It’s important throughout your entire life — and it doesn’t stop in retirement.

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Vawn Himmelsbach Freelance Contributor

Vawn Himmelsbach is a journalist who has been covering tech, business and travel for more than two decades. Her work has been published in a variety of publications, including The Globe and Mail, Toronto Star, National Post, CBC News, ITbusiness, CAA Magazine, Zoomer, BOLD Magazine and Travelweek, among others.

Disclaimer

The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.