The potential pitfalls threatening a successful retirement are many, and the biggest errors fall into both psychological and financial categories, according to financial advisers. CNBC spoke with eight advisers, who between them came up with the eight most common mistakes made in retirement.
Lack of clarity
"The greatest concern we have with our clients is the psychological part," said Michael Randolph, senior adviser and certified financial planner with Willow Creek Wealth Management. "They'll say: 'What do I do? Paint the fences? Then what?'"
Advisers get many retired clients who are "lost" and not focused on their finances or their future, he added, because after having been very successful throughout their career, they now feel they no longer have a sense of control.
"They feel cast adrift, [and] it's troubling, [so] it's very important to think it through before you retire so you know what to plan for," Randolph said. "If you don't have a great deal of clarity for what you want by retirement, then when will you have it?"
Refusal to accept change
Many people don't understand how to allocate resources over an unknown period of time, according to Kathleen Roth, a certified financial planner and partner with Waterstone Partners.
"The biggest thing is learning to accept that there might be a change in lifestyle and to live peacefully with that," she added. "But when you talk about budgets, people shut down."
As people feel they can no longer do what they want and regret perceived past carelessness, Roth said "it brings about a sense of denial and pain."
According to Roth, retirees need to learn new thinking skills, including:
- Getting in touch with personal values (i.e, realizing "it's us against the marketing machine").
- Making tough financial choices (i.e., eliminating the expenses—designer clothes, latte coffees, takeout meals—that put them at financial risk).
- Being mindful of cash flow.
Having a DIY mentality
Another area of erroneous thinking is going it alone. "Many baby boomers have a do-it-yourself mentality; they're used to going online to do their own research," said Michael Salley, wealth manager and president and CEO of Salley Wealth Advisors Group. "They think this holds [true] for financial planning, as well."
Without professional assistance, retirees typically will underestimate and overlook their financial needs.
"People become too focused on returns instead of focusing on their personal financial goals," said Herb White, certified financial planner and president of Life Certain Wealth Strategies.
Failing to establish a formal plan
Retirees also often fail to establish a formal written retirement-income plan, according to White. The plan should include both a detailed budget and forward-looking tax mitigation strategies.
"They don't understand that formal plans give them a) the ability to use a very disciplined approach—not react emotionally to the market—and b) assurances that there's a way to address unexpected events," White said.
Playing it too safe
"Retirees saw CDs do well in the 1990s, and they expect them to do better in the future," said certified financial planner Edward Kohlhepp Sr., president of Kohlhepp Investment Advisors. "But we might be in a low-interest environment for the next five to 10 years."
Investors should have a lump sum of 20 to 22 times the amount they need to generate annually, he noted.
Not really downsizing
Relocating doesn't always equal savings. "A number of retired couples think they can move and downsize to save money," Kohlhepp said. "In actuality, many times they don't save much money in the move."
For example, if clients sell a $500,000 house, they might spend almost as much purchasing a smaller but nicer new home. "Between closing costs [buying and selling], moving and buying new furniture, they may spend about $100,000," Kohlhepp explained.
Not planning for parents
Salley at Salley Wealth Advisors Group said that although many baby boomers are financially supporting their elderly mothers and fathers, only a small percentage integrate their parents' financial needs into their own comprehensive financial plans.
"We need to provide for our parents, keeping in mind they may live till very old age," he said. "And we need to structure their assets to protect them. If we don't, we expose ourselves to run out of our own assets."
Many clients avoid making these kinds of decisions, because they simply don't want to face them, Salley explained.
"People put blinders on and don't pay attention to areas that could potentially devastate their retirement." -Herb White, president of Life Certain Wealth Strategies
Failing to maximize Social Security
White at Life Certain Wealth Strategies said many people are of the mind-set they should start claiming Social Security benefits at the earliest time possible. "They think if [they] collect for a longer number of years, it will be more beneficial, but it's not," he said.
These strategies are not publicized, and the "difference between the best decision and the worst possible decision of when to elect … can be well over $100,000," according to an article by the International Association of Registered Financial Consultants.
White warns against head-in-the-sand thinking. "People put blinders on and don't pay attention to areas that could potentially devastate their retirement," he said.
-- By Deborah Nason, Special to CNBC.com