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Retiring? Nervous now that the paycheck will be gone? Worried if the portfolio is invested properly for your retirement?

Here are 5 major mistakes to avoid for the newly retired:

1. Investing too conservatively. – The key here is to understand it will be stocks that will keep your portfolio from being ravaged by inflation. Any investment returning less than 3% will diminish your purchasing power of your investment dollars over time. Usually this investment is cash and bonds. The question you need to answer here is how much of my retirement portfolio will I put in bonds to reduce the downsides I would experience if I had a 100% stock portfolio in a bear market.

2. Spending too much early – You just got rid of your boss and you are going to enjoy retirement. “Back to back vacations, Baby!” Hey, how do you say, “Round the World Cruise?” This may work but test the spending against the portfolio and your other income streams before making the reservations. You may live to 95 and it is going to be tough if you are out of money at 85!

3. Underestimating Expenses – Track your expenses for at last two years before retiring. I will keep it simple here: Social Security\Pension Income + Income from portfolio – Expenses = Impact on the Portfolio. With a bad expense projection, we are just working with a bad number that can really increase the “hurt” in a down market.

4. Creating Unnecessary Taxes – The rule of thumb is that you pull retirement income from your taxable accounts first and then your IRAs or other qualified accounts. But, if your future Required Minimum Distributions are going to drive you to a higher tax bracket at 70 ½, and you are at a lower bracket now, there may be an opportunity to reduce taxes by taking IRA withdrawals in your 60’s.

5. Falling for investment pitches that are too good to be true – Annuities come to mind here; “Income for Life” is the pitch. They may be appropriate for some people, but I think if most products were described to clients as required by the regulators in “the Best Interest of the Client” rule, most investors would never buy an annuity.

Now, try to relax and if you want more information on these mistakes, do not hesitate to give me a call.

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Peter B. Smith is a Family Wealth Advisor at the Planning Solutions Group in Fulton, MD and is an Annapolis resident. He can be reached at 301-543-6008 or by email at