Skip to content

Retiring on a Middle-Class Income? Don't Make These 9 Mistakes, Experts Say

Here's how to stay on track for financial freedom.

Securing your financial future is an important way to safeguard your quality of life well into your senior years. Of course, in today's economy, that's easier said than done—especially on a middle-class income. If you're starting to plan for retirement or are ready to make the transition, it's important to be aware of the pitfalls that could sway you off course. In particular, financial experts say you'll want to avoid these nine common mistakes if you're retiring on a middle-class income.

RELATED: 10 Things You Should Stop Buying When You Retire, Finance Experts Say.

Retiring too soon

Mature couple smiling and sitting at their kitchen table looking at documents
Monkey Business Images / Shutterstock

It may be tempting to leave the working world behind as soon as you can, but experts say that retiring too early can have a damaging impact on your long-term finances.

Bob Chitrathorn, CPFA, the CFO and Vice President of Wealth Planning at Simplified Wealth Management, says it's important to run the numbers to be sure you can comfortably make ends meet before severing ties with your current company.

He adds that people who retire early without a plan will start spending down their retirement funds and lose out on the benefits of compound interest. "It may force them back to work in later years," he warns.

Not having a distribution strategy

Hands of a person counting hundred-dollar bills in front of an ATM

If you don't have a designated distribution strategy, you won't know how much money you're able to take out each year without running out of money down the line. Some retirees overspend in the early stage of retirement, leaving them high and dry later in life.

When you make your plan, be sure to account for a long life expectancy so that you don't run into a problem in old age, says Diana Howard, financial analyst at CouponBirds. "It's better to have more than you need, to leave to loved ones or important charities, than not enough to live comfortably in your later years," she tells Best Life. 

Not planning for healthcare costs

Close up of a medical billing statement and health insurance claim form

When planning for retirement, lots of middle-class retirees fail to account for the high cost of healthcare. They also fail to realize just how much their health-related needs may increase as they get older.

As these costs crop up, you may find yourself spending down your hard-earned savings if you haven't created a designated cushion to offset health bills. Chitrahorn says this "could drastically hurt your plan to stay in retirement."

Though enrolling in Medicare provides many seniors with basic coverage, you may need to pay out of pocket for more than you did under private insurance while working. Calculating these costs ahead of time, and allotting generously for medical emergencies, could pay off in the long term.

RELATED: 25 Best Ways to Save for Retirement.

Not proactively planning your taxes

A mature couple sitting on their couch looking at something on a laptop

Another common mistake made by people retiring on a middle-class income is failing to take advantage of the tax breaks available to them.

"Everyone should have the goal of legally reducing the amount of tax they are expected to pay throughout their lifetime," says Chris Urban, CFP, RICP, founder at Discovery Wealth Planning.

"If you are a couple, you need to consider each spouse/partner's Social Security benefits alongside your current income(s) to come up with a strategy to minimize the tax burden on your current/future benefit," Urban continues. "Up to 85 percent of your Social Security benefit could be taxable based on the Social Security Administration's 'combined income' calculation. Thoughtful planning and consideration of the cost-benefit for claiming each spouse's benefit between the ages of 62 and 70 is needed to ensure a preferred tax outcome."

The financial expert adds that besides having a Social Security claiming strategy, proactive tax planning should also take into account the tax environment where you live, how long you will continue to have earned income, opportunities to convert pre-tax assets into after-tax assets (Roth IRA conversions, for example), and more. Consulting with a financial planner can help you navigate these topics with all the necessary information.

Underestimating retirement expenses

A senior couple hugging while holding keys to a new home
Shutterstock / Fabio Camandona

Tyler Meyer, CFP, a financial planner and founder of Retire To Abundance, says that many middle-class retirees also underestimate their general expenses in retirement. This can lead to budgetary shortfalls later on, he warns.

This might include the rising cost of rent, leisure activities, unexpected emergencies, and more. "Retirees should conduct a thorough assessment of their anticipated expenses and incorporate a buffer for unforeseen circumstances to ensure financial stability in retirement," he recommends.

Overestimating the value of Social Security benefits

Social Security Cards
Lane V. Erickson / Shutterstock

Social Security was never intended to provide a living wage to retirees. In fact, the Social Security Administration estimates that the program should account for roughly 40 percent of the average worker's former wages.

However, plenty of people rely on Social Security as a primary source of income in retirement, according to The Motley Fool. Roughly 62 percent of retirees who are receiving Social Security say it accounts for at least half of their monthly income, while 34 percent say it provides between 90 and 100 percent of their monthly income.

"Depending solely on Social Security may leave retirees vulnerable to benefit cuts or inflationary pressures, jeopardizing their financial security," says Meyer. "Instead, retirees should diversify their income sources by supplementing Social Security with personal savings, pension benefits, and investment income to achieve greater financial resilience."

RELATED: 7 Budget Hacks For Retirement, According to Financial Experts.

Mismanaging debt

Rubber stamp with the text past due over an invoice document.

Another mistake that middle-class retirees make is mismanaging their debt as they transition to a fixed income. This can be in the form of credit card debt, student loans, or mortgages, all of which can strain a limited retirement income.

"Failing to address debt before retirement can impede financial flexibility and erode retirement savings over time," says Meyer. "Retirees should prioritize debt repayment before retirement, focusing on high-interest debt first and adopting prudent debt management strategies to alleviate financial burdens in retirement."

Not starting to save early in life

Mature couple sitting on their couch looking through documents

Howard says that one of the biggest mistakes anyone can make is not investing in retirement early enough in life. That's because compound interest is crucial in building up your nest egg. If you haven't been saving—or haven't been saving enough—the best time to start investing in your future is right now.

"Start saving for your retirement as soon as you can. While this isn't a mistake you can undo if you're close to retirement, everyone who still has a good number of years left in employment should heed this advice," Howard says. Be sure to take advantage of any 401(k) matching programs your employer may offer, she adds.

Using your 401(k) for non-retirement expenses

top-down view of a woman sitting on the floor among bills

Finally, Howard says that many middle-class retirees make the mistake of withdrawing from their retirement funds for non-retirement expenses, incurring huge fees in the process.

"If you withdraw from your 401(k) before you are 59 and a half, in most cases you will be subject to a 10 percent early distribution tax penalty. You might qualify for a hardship withdrawal which may be exempt, but this would have to be discussed with your employer's plan administrator. Naturally, there is also another drawback outside of the penalty—you will have less money in your account when you retire," she warns.

Best Life offers the most up-to-date financial information from top experts and the latest news and research, but our content is not meant to be a substitute for professional guidance. When it comes to the money you're spending, saving, or investing, always consult your financial advisor directly.

Lauren Gray
Lauren Gray is a New York-based writer, editor, and consultant. Read more