3 Retirement Spending Mistakes That Could Derail Your Plan (And How to Avoid Them)
Retirement is the season you work hard to reach, but once you get there, the financial decisions don’t stop. In fact, one of the biggest transitions is moving from saving and accumulating to actually spending the money you’ve built.
In Episode 35 of Retire and Thrive, Dan Langworthy digs into three common spending mistakes that could derail retirement. The good news is each mistake is potentially avoidable with the right planning, the right habits, and a mindset shift toward intentional spending.
Below is a written version of their conversation, with the main takeaways organized for easy reading.
Why spending matters just as much as saving
Kamie opens the episode with a point many retirees eventually realize: retirement is not only about having income, it’s about using it well.
Dan agrees and frames it simply. The reason retirement income exists is so you can spend it. But spending without a strategy can create risk, and spending too cautiously can keep you from enjoying the retirement you planned for.
That’s why this episode focuses on three spending mistakes that show up often, not only for retirees but also for people earlier in life building toward retirement.
Mistake #1: Overspending too early
The first mistake is overspending without a plan.
Dan notes this can happen in different stages:
- Early in life, overspending in your 20s and 30s can slow down long-term progress.
- Early in retirement, overspending can be even more dangerous if it happens before you understand your withdrawal strategy.
Overspending is often a planning problem
Dan explains that when a retirement plan is built, it typically includes more than basic monthly bills. It can include:
- day-to-day living expenses
- property taxes
- healthcare expectations
- travel budgets (for example, a higher travel budget during ages 65 to 80)
- gifting goals for children or grandchildren
A plan like that helps forecast how the next 10, 15, or 20 years might look. But retirees still need flexibility because life changes. Unexpected expenses happen, priorities shift, and markets don’t behave perfectly.
The hidden risk: sequence of returns
Overspending early can become more damaging when paired with a concept Dan brings up: sequence of returns risk (also called sequence of withdrawals or sequence of returns).
Here’s the idea:
- Most retirement models assume a relatively steady average return (for example, 5 percent).
- In real markets, returns are not smooth.
- If you retire and begin withdrawals right before or during a prolonged market downturn, the withdrawals can compound the damage.
Dan gives a simple example:
- With a $1,000,000 portfolio, withdrawing 4 percent is $40,000 per year.
- If the portfolio averages 5 percent returns, the math can look sustainable.
- But if the market drops significantly early in retirement while you keep withdrawing, the portfolio balance shrinks faster than expected.
- What started as a 4 percent withdrawal can become 6 percent, 7 percent, or more because the denominator (the portfolio value) is smaller.
This is an illustrative example, not a projection.
This is one of the reasons spending early in retirement needs guardrails.
A practical solution: create a cash cushion
Dan’s suggested mitigation is straightforward: keep a cash cushion.
Instead of pulling all withdrawals from an investment portfolio during down markets, set aside a portion in a safer, more stable bucket. That way, if markets drop, you can spend from the cushion rather than selling investments at depressed prices.
The goal is to reduce the likelihood you lock in losses during a down cycle.
Mistake #2: Underspending out of fear
Kamie points out something that surprises many people: underspending can also derail retirement.
Dan agrees and says it happens frequently. Even retirees with strong financial plans and substantial assets can struggle emotionally with the transition from accumulating to withdrawing.
The mindset shift is real
Dan shares a story about a retiree who had done everything right:
- high income during working years
- strong retirement savings
- a solid plan
- guaranteed income sources that covered the majority of their needs
Even with that, the retiree still asked a question Dan hears more than you might expect: “Where does the money come from?”
When someone is working, the paycheck system is predictable. Money arrives regularly, and spending feels connected to that income stream. In retirement, the paycheck is gone and the retiree has to intentionally create income, usually by drawing from savings or investment accounts.
Even if the numbers work, the habit of pulling money out can feel uncomfortable.
Two priorities: security and enjoyment
Dan explains how he frames the goal for clients:
- Do everything possible so you reduce the risk of running out of money.
- Encourage you to spend intentionally and do the things you want to do while you are still healthy.
He also notes the biggest_attaching uncertainty in retirement planning is life expectancy. Planning for someone living to 95 is materially different than planning for someone living to 75. That uncertainty can fuel fear, which then fuels underspending.
But the point of retirement planning is not only to preserve assets. It is to support your life.
Mistake #3: Ignoring inflation
The third mistake is failing to account for inflation over a long retirement timeline.
Dan is direct here: inflation is real, and it matters.
He notes inflation was relatively contained for many years, but the COVID-era experience made it tangible for many households. Prices rose noticeably, sometimes in a way that made everyday expenses feel unpredictable.
Why inflation is especially challenging for retirees
Retirees often rely on guaranteed income sources such as:
- Social Security
- pensions
While some pensions include increases, many do not keep up with inflation. That creates pressure on the rest of the plan.
Dan warns against building a retirement plan that assumes spending stays flat forever. For example:
- spending $4,000 per month at age 65
- keeping it at $4,000 per month for 25 or 30 years
In real terms, the buying power of that $4,000 erodes over time unless the plan accounts for inflation.
How often should you review your retirement plan?
Kamie asks a practical question: how often should someone review their plan, especially if looking at finances feels intimidating?
Dan’s recommendation is a minimum of once a year.
He suggests a simple annual checkup:
- review guaranteed income
- review how much you’re withdrawing from your portfolio
- calculate your withdrawal rate
- compare it to returns over time, knowing returns will vary year to year
It does not need to be an all-weekend project. The key is consistency.
The bottom line: be intentional
Dan closes the conversation with a word he uses often, and it fits this topic well: intentional.
Retirement spending should not be random. It should be tied to what you want your retirement to look like.
When asked whether retirees should budget to spend more or less, Dan’s answer is not one-size-fits-all. It depends on what you want to do, how you want to live, and what goals you have for your time.
The most important part is having a plan that supports those choices and revisiting it regularly.
Key takeaways from Episode 35
- Overspending early can be harmful, especially without a plan.
- Sequence of returns risk can magnify damage when withdrawals happen during down markets.
- A cash cushion may help reduce the need to sell investments when markets are down.
- Underspending can be a problem too, especially when fear prevents retirees from enjoying life.
- Inflation can erode buying power over decades, and many guaranteed income sources do not keep up.
- Review your plan at least once a year.
- Spend intentionally, aligned with your "goals and priorities.
Fortress Financial Group LLC (“FFG") is a registered investment advisor. Advisory services are only offered to clients or prospective clients where FFG and its representatives are properly licensed or exempt from licensure. For current FFG information, please visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with FFG’s CRD# 315329
This content is provided for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. All examples are hypothetical and for illustrative purposes only.
Investing involves risk, including the potential loss of principal. Market returns are not guaranteed and will vary. Past performance does not guarantee future results.
Retirement planning strategies, including withdrawal approaches and cash reserve strategies, may not be suitable for all investors and should be evaluated based on individual circumstances.
We encourage you to consult with a qualified financial professional before making any investment decisions.
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