Over the next few years, more than 4 million Americans will reach the age of 65 each year, according to a study from the Alliance for Lifetime Income and the Retirement Income Institute. But is this demographic, deemed “peak boomers,” ready for retirement? The study revealed that more than half (52.5%) of baby boomers nearing the age of 65 have less than $250,000 in assets for retirement.
Even if you have millions saved, you can still fall victim to financial mistakes that can eat into your retirement savings. Whatever your portfolio looks like right now, avoid these traps if you’re preparing for retirement in 2026.
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You’ve saved and invested for retirement throughout your career. Now that the day has come, you might think it’s time to tap into your 401(k) or IRA immediately.
But experts said this is a mistake. “Doing so early can trigger taxes and penalties,” said Tansley Stearns, Community Financial Credit Union president and CEO. “Not only does this reduce your retirement nest egg, but you also lose out on potential growth.”
Instead, speak to a financial advisor about the best ways to stretch your retirement income through other forms of savings.
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Likewise, many retirees are tempted to tap into Social Security benefits as soon as they turn 62. But this leads to a permanent reduction in your monthly benefits, according to experts.
Lisa A. Cummings, Esq., attorney and executive vice president at Cummings & Cummings Law, recommended using the Social Security benefit calculator online to compare your monthly benefit at your current age, full retirement age (FRA) and age 70.
“Waiting until full retirement age, or even later, can mean significantly more income for life,” Cummings said.
“Taxes don’t disappear when your paycheck does,” Cummings pointed out. “Withdrawals from traditional IRAs, 401(k)s and certain pensions are taxed as income. Social Security may also be taxable.”
Before you make a move, speak with a tax advisor to estimate your annual taxable income and consider tax strategies that can reduce those obligations, such as Roth conversions.
Strategic asset location, or the practice of getting investments into the right types of accounts, is another way to minimize taxable income in retirement, according to experts.
