This article is for general informational and educational purposes only and is not intended as personalized financial advice.
Retirement planning mistakes often arise from timing, tax coordination, and benefit interactions rather than poor saving habits. Even experienced investors and disciplined savers can encounter planning missteps that gradually reduce long-term efficiency.
From unintentionally increasing taxable income to triggering higher Medicare premiums, relatively small decisions may create ripple effects across tax, benefit, and income planning strategies.
Below are 16 common financial planning issues that individuals may encounter during retirement planning.
1. Moving Into a Higher Tax Bracket Unintentionally
Substantial withdrawals from retirement accounts, large capital gains realizations, or significant Roth conversions within a single year may increase marginal tax rates. Higher taxable income can also influence Medicare premiums and other income-based calculations.
Multi-year income projections are sometimes used to evaluate how taxable events may affect future tax exposure, though outcomes depend on future law and individual circumstances.
2. Triggering IRMAA (Medicare Premium Adjustments)
Medicare’s Income-Related Monthly Adjustment Amount (IRMAA) increases Part B and Part D premiums for individuals whose Modified Adjusted Gross Income exceeds certain thresholds. For 2025, thresholds begin at $106,000 (single) and $212,000 (married filing jointly), based on current published guidance and subject to annual adjustment.
Because Medicare premiums are determined using income from two years prior, elevated income in one year may affect premiums in a later year.
Income planning techniques are sometimes evaluated in advance to better understand potential IRMAA exposure, though results vary and thresholds may change.
3. Increasing the Taxation of Social Security Benefits
Up to 85% of Social Security benefits may become taxable once provisional income exceeds specified thresholds. IRA withdrawals, pension income, and investment income may influence provisional income calculations.
Withdrawal sequencing strategies are sometimes reviewed to better understand how different income sources may interact, though no approach guarantees a specific outcome.
4. Poorly Timed Roth Conversions
Roth conversions may provide long-term tax diversification, but the timing and size of conversions can materially affect current-year tax liability and Medicare premium calculations.
Multi-year analyses are often used to evaluate trade-offs between current tax costs and potential future tax-free growth. Outcomes depend on future tax policy, income levels, and investment performance.
5. Missing Required Minimum Distributions (RMDs)
Failing to take required minimum distributions from applicable retirement accounts may result in a penalty of 25% of the missed amount, which may be reduced if corrected within the permitted time frame.
RMD rules and starting ages have changed under recent legislation, and coordination with custodians or tax professionals may help ensure compliance.
6. Overlooking Capital Gains Timing
Realizing capital gains without reviewing total taxable income may result in higher-than-necessary taxation. For 2025, married couples filing jointly with taxable income below $94,050 may qualify for a 0% long-term capital gains rate (based on current published thresholds, subject to change).
Annual income reviews are sometimes used to evaluate how capital gains may interact with overall tax positioning.
7. Overlooking the Net Investment Income Tax (NIIT)
Taxpayers with Modified Adjusted Gross Income exceeding $250,000 (married filing jointly) or $200,000 (single) may be subject to an additional 3.8% Net Investment Income Tax on certain investment income.
Asset sales and large income events are sometimes evaluated in advance to understand potential surtax implications.
8. Mismanaging Tax-Loss Harvesting
Tax-loss harvesting may offset realized gains, but improper execution — including wash-sale rule violations — may disallow losses.
Tax-loss harvesting involves risks and may not be appropriate in all market environments or for all investors.
9. The Widow’s Tax Shift
After the death of a spouse, a surviving spouse generally transitions from Married Filing Jointly to Single filing status. This shift may result in higher marginal tax rates even if income remains similar.
Some long-term planning approaches evaluate potential filing status changes in advance, though outcomes vary.
10. Ignoring State Tax Considerations
State taxation of retirement income varies. Some states tax pensions and Social Security benefits, while others do not.
State-specific tax treatment may be relevant when evaluating relocation or retirement timing decisions.
11. Claiming Social Security Without Evaluating Timing Trade-Offs
Claiming Social Security at age 62 reduces monthly benefits permanently. Delaying benefits up to age 70 increases monthly payments but requires other income sources during the delay period.
Breakeven and longevity analyses are sometimes used to evaluate claiming timing, though no strategy is universally optimal.
12. Holding Tax-Inefficient Investments in Taxable Accounts
Certain investments, such as REITs, bond funds, mutual funds, and high-dividend securities, may generate taxable income.
Asset location strategies are sometimes evaluated to improve after-tax efficiency, though results depend on tax rates, account types, and investment performance.
13. Ignoring Sequence of Returns Risk
Market downturns early in retirement may have a disproportionate effect on long-term portfolio sustainability.
Some retirement income frameworks incorporate scenario modeling, withdrawal flexibility, or cash reserves to manage volatility. No strategy eliminates market risk.
14. Failing to Coordinate Estate and Tax Planning
Outdated estate documents or beneficiary designations may create unintended tax or administrative consequences.
Coordination among legal, tax, and financial professionals may help align estate plans with broader financial objectives.
15. Overlooking Future Tax Law Changes
Certain provisions of the 2017 Tax Cuts and Jobs Act are scheduled to expire after 2025 unless extended by Congress.
Future legislative outcomes are uncertain. Planning often includes evaluating multiple potential tax scenarios rather than assuming current rates will remain in place.
16. Taking Social Security While Still Working
Claiming Social Security prior to full retirement age while earning wages may result in temporary benefit reductions under the earnings test.
Integrating employment income with benefit timing may reduce unexpected adjustments, though circumstances vary.
The Bottom Line
Many retirement planning challenges arise from lack of coordination rather than lack of savings. Income timing, tax thresholds, Medicare premium calculations, and benefit interactions often overlap in ways that are not immediately visible.
Evaluating these factors together may provide greater clarity regarding potential trade-offs, though outcomes depend on individual financial circumstances, future legislation, and market conditions. No strategy guarantees improved results.
Disclosures
The information provided is for general informational and educational purposes only and should not be construed as personalized investment, tax, legal, or financial advice. This article was written on 10/04/2025, and opinions expressed are subject to change without notice based on market, economic, legislative, or regulatory conditions.
Investment strategies discussed may not be suitable for all individuals. Tax laws, account rules, and benefit provisions may change over time. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal. Readers should consult with qualified financial, tax, or legal professionals regarding their specific circumstances before making financial decisions.