What Are the Worst Investing Mistakes Retirees Make?
Last reviewed: July 2026
The investing mistakes retirees make are rarely about picking the wrong fund. They are about behavior: holding too much cash out of fear, selling after a drop, ignoring how withdrawals get taxed, and forgetting to adjust the plan as life changes. Once you stop saving and start spending, those habits get expensive fast, because you have less time to recover from an avoidable error.
On This Page
- Key Takeaways
- Why Does Behavior Cost Retirees More Than the Market Does?
- How Much Cash Should a Retiree Actually Hold?
- Why Does Timing the Market Hurt Retirees So Much?
- How Do You Withdraw Retirement Money Tax-Efficiently in Maryland?
- Is Chasing Yield a Mistake for Retirees?
- How Often Should Retirees Rebalance a Portfolio?
- Why Is Reacting to the News So Costly in Retirement?
- Should Your Investment Strategy Change as You Age?
- A Simpler Way to Fix the Investing Mistakes Retirees Make
- Frequently Asked Questions
- Disclosures
Key Takeaways
- The average investor earned 1.2% less per year than their own funds over the past decade, according to Morningstar.
- Missing only the 10 best market days over 30 years cut returns roughly in half.
- In Maryland, retirees crossing the $218,000 IRMAA threshold pay higher Medicare premiums for two years.
- Required minimum distributions now begin at age 73, so a withdrawal plan needs to exist before then.
About the Author: Jeff Judge, CFP®, AEP®, ChFC®, CLU® is Managing Partner of Chesapeake Financial Planners in Forest Hill, Maryland. He has been helping families and business owners in Harford County and the Baltimore metro area navigate retirement investing decisions since earning his CFP® certification in 2013, by using Chesapeake Financial Planners’ signature process, the R.U.D.D.E.R. method™. Jeff has watched more retirements get derailed by a panicked sell button than by a bad fund choice, and the panicked sell button is the one you can actually control.
Why Does Behavior Cost Retirees More Than the Market Does?
The single most expensive thing in most retirement portfolios is the person managing it. Over the past decade, the average dollar invested in US mutual funds and ETFs earned 1.2% less per year than the funds themselves returned, according to Morningstar's 2025 Mind the Gap study. That gap comes from timing: buying after things feel safe and selling after they feel scary.
During your working years, a gap like that stung but healed. You kept contributing, and time did the repair work. In retirement the math flips. You are withdrawing, not adding, so a bad year combined with forced selling can leave a permanent dent. As Morningstar's Jeff Ptak put it, "the more volatile its returns… the less of that fund's total returns investors capture. They get rattled."
What makes retirement behavior different from accumulation behavior?
The shift from saving to spending changes the stakes. A 64-year-old in Bel Air who reacted to every headline for 30 years still retired fine, because paychecks kept funding the account. The same reaction at 74, while drawing income, can lock in losses with no paycheck behind it. The good news is that these are habits, not market forces, which means they respond to a plan.
How Much Cash Should a Retiree Actually Hold?
Most retirees should hold one to three years of planned spending in cash or short-term bonds, then invest the rest for longer-term goals. An emergency reserve is smart. The mistake is letting fear push a large slice of the portfolio into cash and leaving it there for years.
Cash feels safe, and it is, right up until inflation quietly eats it. After taxes, many cash yields struggle to keep pace with rising prices, so the "safe" money loses purchasing power every year you hold it. That is a real risk, not a theoretical one, especially over a retirement that may run 30 years.
The fix is to give every dollar of cash a job. When a cash balance is tied to a specific purpose, next year's property taxes, a roof, two years of grocery and gas money, it calms nerves instead of feeding them. When it is just a vague pile sitting there because the market felt scary in March, it tends to grow and grow until it becomes its own problem.
Does a bigger cash cushion make a retiree safer?
Not past a point. Beyond a few years of spending, additional cash tends to add inflation risk rather than reduce real risk. Jeff Judge often runs a simple test with clients: if you can name the month and the bill each cash bucket is for, keep it. If you cannot, that money probably belongs in a longer-term sleeve doing more work.
Why Does Timing the Market Hurt Retirees So Much?
Timing the market hurts because the best days tend to cluster right next to the worst ones, and stepping out often means missing the rebound. Hartford Funds research found that missing just the 10 best market days over the past 30 years would have cut your total return roughly in half. Miss the best 30 days and the damage compounds far worse.
Selling after a decline feels like protecting yourself. In practice it often does the opposite: it converts a temporary drop into a permanent loss and raises the odds you are on the sidelines when prices snap back. Volatility and permanent loss are not the same thing. A portfolio that falls 20% and recovers cost you nothing if you did not sell.
If you genuinely want less risk, adjust your allocation on purpose rather than jumping in and out on headlines. There is a real difference between a deliberate decision to hold more bonds and a 2 a.m. decision to go to cash because the news scared you. One is planning. The other is the mistake.
What should a retiree do when the market drops?
Return to the written plan and confirm whether anything actually changed in your life, not just in the headlines. This is where the R.U.D.D.E.R. Method™ earns its keep. The R.U.D.D.E.R. Method™ is Chesapeake Financial Planners' six-step planning process: Review and Recognize, Uncover and Understand, Design and Develop, Discuss and Decide, Execute and Empower, and Reassess and Refine. A downturn is a Reassess moment, not a Sell-everything moment.
What Is Market Volatility and How Should I Handle It?
How Do You Withdraw Retirement Money Tax-Efficiently in Maryland?
Retirement dollars are not all taxed the same, so the order you tap accounts matters as much as how much you withdraw. Taxable brokerage accounts, traditional IRAs, and Roth IRAs each behave differently at tax time. Many retirees spend from taxable assets first, then coordinate tax-deferred withdrawals, and preserve Roth flexibility for later years when it helps most.
Maryland adds its own wrinkle. The state taxes most retirement income, though residents 65 and older can qualify for a pension exclusion that shelters a portion of eligible pension and retirement-plan income. That exclusion changes the math on which account to draw first, and it is one reason a generic national rule of thumb can quietly cost a Forest Hill retiree money.
Two federal triggers make sequencing urgent rather than optional. First, required minimum distributions begin at age 73 under SECURE 2.0, forcing taxable withdrawals from pre-tax accounts whether you need the money or not. Second, Medicare surcharges. A single filer whose income crosses $109,000, or a couple crossing $218,000, pays an income-related surcharge on Part B premiums two years later. A poorly timed Roth conversion or IRA withdrawal can push you over that line by accident.
Which accounts should a retiree spend first?
The right order is personal, but the goal is steady: decide in advance which accounts fund baseline spending, which cover one-time expenses, and which are the long-term backstop. Even a simple plan made before age 73 beats an elegant one improvised after RMDs and Medicare brackets have already boxed you in.
| Account type | Taxed on withdrawal? | Common role in the plan |
|---|---|---|
| Taxable brokerage | Capital gains on growth only | Early-retirement spending, flexible |
| Traditional IRA / 401(k) | Ordinary income | RMDs start at 73; manage bracket and IRMAA |
| Roth IRA | Not taxed if qualified | Late-stage flexibility and legacy |
What is the best order to withdraw from my 401k, Roth IRA, and taxable accounts in retirement?
Is Chasing Yield a Mistake for Retirees?
Chasing yield is often a mistake because a high distribution rate can hide credit risk, interest-rate risk, or concentration risk that surfaces at the worst possible time. Yield is seductive when rates are low or markets feel shaky, but a high payout is not a free lunch.
A more durable lens is total return. Income matters, and so does the stability of the principal behind it and the tax treatment of what you receive. If a "high income" holding can drop 20% in a bad year, the income it throws off is not the safety net it appeared to be. You wanted reliable funding, and instead you bought volatility with a nice coupon attached.
This shows up often with retirees who fall for a single eye-catching dividend or a niche fund promising outsized payouts. The distribution looks impressive in the brochure. The drawdown shows up in the statement. Reliable funding for your spending is the actual goal, not the headline rate.
How can a retiree tell if a yield is too good to be true?
Ask what risk you are being paid to take, then size the position as if that risk will show up. If you cannot explain in one sentence why the yield is higher than a Treasury, that is your answer. Jeff has seen retirees anchor an entire income plan to one high-yield holding, only to watch it cut its payout in the exact year they needed it most.
How do I create reliable income from my retirement savings?
How Often Should Retirees Rebalance a Portfolio?
Most retirees should rebalance either on a set schedule, such as once a year, or when an allocation drifts past a preset threshold, such as five percentage points off target. Without rebalancing, risk drifts on its own. After a long bull run, a portfolio quietly becomes stock-heavy. After a sharp drop, many people freeze and stay too conservative for years.
Vanguard research shows that systematic, threshold-based rebalancing helps keep a portfolio at its intended risk level and can improve long-run outcomes. The point is not to chase performance. The point is to keep the portfolio from drifting into a risk level you never chose.
Rebalancing does not have to mean extra trades. If you are already withdrawing for income, those withdrawals can do double duty: sell from whatever is overweight to fund this quarter's spending, and you have rebalanced without a separate transaction. That approach is also more tax-aware in a taxable account, since you are trimming the position that has run up anyway.
Can withdrawals double as rebalancing?
Yes. Funding spending from an overweighted asset class trims risk and raises cash at the same time, which removes the need for separate rebalance trades. This is one of the quieter advantages of having a withdrawal plan: the routine of funding your life keeps the portfolio in line as a byproduct.
Should I rebalance my investment portfolio every year?
Why Is Reacting to the News So Costly in Retirement?
Retirees who check their portfolio every day feel more stress and make more reactive decisions, and reactive decisions are where the damage lives. The market does not reward the person who watches it most closely. It rewards the one who can leave it alone.
A better setup is a consistent review cadence, quarterly or semi-annual check-ins, paired with a written investment policy statement that spells out exactly what you will do when markets fall. The decision is far better made on a calm Tuesday than in the middle of a sell-off. A written policy turns "what do I do now?" into "I already decided this."
The urge to "do something" when markets are down is almost always a signal to do the opposite: go back to the plan and confirm whether anything in your actual life has changed. Almost always, nothing has. The headline changed. Your retirement did not.
How Do Investment Biases Affect Your Financial Decisions?
How often should a retiree check their accounts?
Quarterly is plenty for most retirees, with a fuller annual review of allocation, spending, and taxes. Daily monitoring tends to raise anxiety without improving outcomes. Jeff often tells clients in Harford County that the people who sleep best are the ones who look least, because they decided the rules ahead of time and trust them.
Should Your Investment Strategy Change as You Age?
Yes. The allocation that fit at 65 is often wrong by 75 or 85, because your time horizon, spending needs, and risk tolerance all shift. The portfolio is not a set-it-and-leave-it object; it is supposed to track the life it funds.
Blunt rules like "100 minus your age" for stock allocation are crude, but the instinct behind them is sound: revisit your mix periodically and adjust to real cash-flow needs, health, and goals rather than a number you picked a decade ago. A federal worker who retired from Aberdeen Proving Ground with a heavy Thrift Savings Plan balance, for example, often needs to revisit how that TSP allocation is split between the stock and bond funds as the income phase begins, since the right mix for a 58-year-old saver is rarely the right mix for a 72-year-old spender.
It also helps to ask what each piece of the portfolio is even for. Some assets fund near-term spending. Some are earmarked for legacy. Some act as insurance against a long life. Those purposes shift as life unfolds, and the allocation should shift with them.
What is the biggest strategy mistake retirees make over time?
The biggest mistake is treating the retirement portfolio as finished on day one and never revisiting it. Goals change, health changes, and tax law changes. Jeff Judge builds a scheduled reassessment into every plan precisely because the version that was right at 65 quietly stops fitting, and most people never notice until something forces the issue.
How does FERS retirement planning work for federal employees?
How should Aberdeen Proving Ground federal employees manage their FERS, TSP, and benefits?
A Simpler Way to Fix the Investing Mistakes Retirees Make
You do not need a perfect portfolio to retire well. You need a handful of habits you can actually keep:
- Set a cash reserve that matches real spending, not your anxiety level.
- Commit to an allocation you can hold through a 20% drop without flinching.
- Build a withdrawal plan that accounts for Maryland taxes, RMDs at 73, and Medicare brackets.
- Rebalance on a schedule or a threshold, not on a mood.
- Review less often than your emotions want you to.
If you do only one thing, do this: write the plan down while markets are calm, then use it as your decision filter when they are not.
Frequently Asked Questions
What is the most common investing mistake retirees make?
The most common investing mistake retirees make is reacting emotionally, often selling after a market drop or hoarding cash out of fear. Morningstar found the average investor trailed their own funds by 1.2% a year over the past decade, and most of that gap traces back to poorly timed buying and selling rather than bad investments.
How much cash should I keep in retirement?
Most retirees should hold one to three years of planned spending in cash or short-term bonds, then invest the rest for longer-term goals. The aim is a cushion that covers near-term expenses without dragging down the whole portfolio, because cash held for years loses purchasing power to inflation after taxes. Tie each cash bucket to a specific bill.
Does market timing actually work for retirees?
No. Market timing consistently hurts retirees because the best market days cluster near the worst ones. Hartford Funds found that missing only the 10 best days over 30 years cut total returns roughly in half. Adjusting your allocation deliberately is reasonable; jumping in and out based on headlines tends to lock in losses and miss rebounds.
How does Maryland tax retirement income?
Maryland taxes most retirement income, but residents age 65 and older can qualify for a pension exclusion that shelters part of their eligible pension and retirement-plan income. That exclusion affects which accounts you should draw from first, so a withdrawal order that works in a no-tax state can cost a Maryland retiree money. Coordinate the sequence with your specific situation.
When do required minimum distributions start?
Required minimum distributions now begin at age 73 under the SECURE 2.0 Act. You must take your first RMD by April 1 of the year after you turn 73, then annually after that. Building a withdrawal plan before 73 helps you manage your tax bracket and avoid an avoidable Medicare surcharge once those distributions begin.
How do Medicare IRMAA surcharges affect retirement withdrawals?
Medicare adds an income-related surcharge to Part B premiums once income crosses a threshold, $109,000 for single filers and $218,000 for couples in 2026. Because the surcharge uses income from two years prior, a large IRA withdrawal or Roth conversion today can raise your premiums later. Planning withdrawals around these brackets helps avoid the surprise.
How often should retirees rebalance their portfolios?
Most retirees rebalance once a year or when an allocation drifts past a set threshold, often around five percentage points. Vanguard research supports systematic, threshold-based rebalancing for keeping risk at the intended level. If you withdraw for income, you can rebalance by selling from whatever asset class is overweight to fund spending, which avoids extra trades and is more tax-aware.
Should a federal retiree near Aberdeen Proving Ground change their TSP allocation in retirement?
Often, yes. A Thrift Savings Plan mix built for a younger saver is rarely the right mix for someone now spending the balance. As the income phase begins, many Aberdeen Proving Ground retirees revisit how their TSP is split across stock and bond funds to match real cash-flow needs and a shorter recovery window. Review it alongside your full retirement income plan.
Ready to put a plan around the investing mistakes retirees make? Jeff Judge and the Chesapeake team serve families, federal employees, and business owners across Harford County and the Baltimore metro. Schedule a free fit call and bring your current allocation so we can pressure-test it together.
A version of this article originally appeared in Kiplinger.
Disclosures
The information provided is for educational purposes only and should not be construed as investment advice. Investment strategies should be tailored to individual circumstances, risk tolerance, and goals. Past performance doesn't guarantee future results. Consult with qualified financial professionals regarding your specific situation.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
Advisors associated with Chesapeake Financial Planners may be either (1) LPL Financial Registered Representatives offering securities through LPL Financial, Member FINRA and SIPC, and investment advisor representatives offering investment advice through Great Valley Advisor Group; or (2) solely investment advisor representatives offering investment advice through Great Valley Advisor Group and not affiliated with LPL Financial. Great Valley Advisor Group, and Chesapeake Financial Planners are separate entities from LPL Financial.
