4 Financial Planning Mistakes to Avoid Before Retirement
Even a well-constructed financial plan can become less effective as your life changes. Outdated accounts, unnecessary investment costs, emotional decisions, and overlapping investments can create risks that are easy to overlook.
As you approach retirement, reviewing these areas can help ensure your financial resources remain aligned with your goals and the life you want to live.
1. Holding On to Financial Decisions That No Longer Fit
A financial decision that made sense ten or twenty years ago may no longer be appropriate today.
You might have a 401(k) from a former employer, an insurance policy purchased when your children were young, or an investment strategy established when retirement was decades away.
These are not necessarily problems. But they deserve another look.
Major life changes, including a new job, marriage, divorce, inheritance, or approaching retirement, can affect your financial priorities.
Review your retirement accounts, beneficiary designations, insurance coverage, and investment allocations periodically. Consider whether each still serves a purpose in your overall financial plan.
For example, consolidating an old 401(k) might simplify your finances, but there may be reasons to keep it where it is. Investment options, fees, withdrawal flexibility, and certain tax rules can influence that decision. Our article on the Rule of 55 and rolling over a 401(k) explains one consideration that can be particularly important for people retiring before age 59½.
The goal is not to change things simply for the sake of change. It is to make sure your financial decisions still reflect your circumstances.
2. Overlooking Investment Fees
Investment fees may seem relatively small, but their impact can accumulate over time.
Mutual fund expense ratios, advisory fees, and other investment expenses reduce the amount of money that remains invested. Some costs are deducted automatically, making them less noticeable.
That does not mean every fee is unnecessary or that the lowest-cost investment is always the best choice.
The more useful question is whether you understand what you are paying and what you receive in return.
Review the costs associated with your investment accounts and consider whether they are appropriate for the services, investment strategy, and financial planning support you receive.
As retirement approaches, understanding these expenses becomes particularly important because investment costs are one factor you can influence, even when market returns are uncertain.
3. Making Investment Decisions Based on Market Emotions
Market volatility can make it difficult to remain focused on long-term goals.
When stocks decline sharply, investors may feel compelled to sell to avoid further losses. When markets are rising, the fear of missing out can encourage taking more risk than originally intended.
Both reactions can pull an investment strategy away from its purpose.
Your portfolio should reflect your financial circumstances, investment time horizon, cash flow needs, and tolerance for risk. Market fluctuations are an expected part of investing, not necessarily a reason to abandon a carefully considered strategy.
This is especially relevant during the transition into retirement, when your portfolio may need to support withdrawals rather than simply accumulate assets.
A sound retirement strategy considers how much income you need, where that income will come from, and how your investments fit into the broader plan.
For additional perspective, see our article on retirement planning beyond the 4% rule.
4. Owning Investments That Do Not Work Well Together
A collection of individually attractive investments does not automatically make a well-diversified portfolio.
For example, you may own several mutual funds that invest in many of the same companies. Or you might have a substantial position in your employer's stock, creating more concentration risk than you realize.
These issues are particularly easy to miss when investments are spread across multiple retirement accounts, brokerage accounts, and employer-sponsored plans.
Rather than evaluating each account independently, consider your entire portfolio.
Look at how your investments work together, where exposures overlap, and whether the overall allocation reflects your goals and ability to withstand market fluctuations.
The objective is not simply to own more investments. It is to own investments that serve a coordinated purpose.
Your Financial Plan Should Evolve with Your Life
Financial planning is not a one-time exercise.
The priorities you had while building your career may be different from those you have as retirement approaches. Your focus may shift from saving and accumulating wealth to generating income, managing risk, and deciding how you want to spend your time.
At Stordahl Capital Management, we believe financial planning should support those decisions, not simply measure the size of your portfolio.
Regularly reviewing your accounts, investment costs, behavior during market volatility, and overall portfolio construction can help keep your financial strategy connected to what matters most.
If you would like to discuss whether your financial plan still reflects your goals, we invite you to schedule a complimentary 15-minute call.
Frequently Asked Questions
How often should I review my financial plan?
An annual review is a reasonable starting point. Major life events, such as retirement, a job change, divorce, or inheritance, may warrant additional attention.
Should I roll over an old 401(k) before retirement?
Not necessarily. A rollover may simplify your finances, but fees, investment options, withdrawal rules, creditor protections, and tax considerations should be evaluated before making a decision.
How do investment fees affect retirement savings?
Investment fees reduce the amount of money available to remain invested. Over time, the cumulative effect can be meaningful, particularly when the forgone investment growth is considered.
How can I tell whether my portfolio is properly diversified?
Review your investments across all accounts, not just individually. Look for overlapping holdings, concentrated positions, and whether your overall allocation is appropriate for your financial goals, time horizon, and risk tolerance.
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This material was written in collaboration with artificial intelligence (ChatGPT) and derived from sources believed to be correct.
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