8 Money Moves That Could Backfire Badly After You Turn 60

Most worrying retirement decisions don't involve reckless spending. They often come from timing and interconnected decisions that seniors aren't aware of until it's too late.

We've identified some of the most common retirement plan decisions that leave retirees with regret. No single move here is the most expensive, but taken together, they could easily derail your best-laid retirement plans.

Missing out on Roth conversions

The years after employment ends but before required withdrawals begin may offer an opportunity for partial Roth conversions. If your taxable income is lower during those years, moving some savings from a traditional retirement account into a Roth IRA could mean paying less tax now than you would on traditional account withdrawals later. Qualifying Roth withdrawals are tax-free.

The key is to consider converting smaller amounts. You want to reduce future required withdrawals, and balance your tax bill now against what you might owe when RMDs and Social Security benefits begin. It's important to note that Roth IRAs don't require future withdrawals during the owner's lifetime. 

Converting too much to a Roth in a year

On the flip side of that advice is trying to fix the entire problem with one large conversion. Taxable conversion income could increase current taxes and trigger income-related Medicare surcharges, which use the tax return from two years earlier. These surcharges affect both Part B and Part D.

While distributions from IRAs and qualified retirement plans aren't themselves net investment income, they could raise modified adjusted gross income enough to trigger the net investment income tax on other investment income. Compare several smaller conversions using the total tax-and-premium cost. Don't just rely on the available room in an ordinary income-tax bracket.

Cashing out a 401(k) when leaving a job

Taking the payout may seem like an easy way to cover retirement transition costs. The trade-off is a large income spike and savings taken out of your nest egg.

A properly handled rollover to a traditional IRA or another eligible pretax retirement plan could preserve tax deferral without creating the taxable income associated with a Roth conversion. The taxable portion of an eligible rollover distribution paid to the worker is generally subject to 20% federal income tax withholding, but direct rollovers aren't.

Withholding, however, isn't always the final tax balance owed.

Claiming Social Security at 62 by default

It's appealing to think of getting benefits as soon as you're eligible, but claiming at 62 instead of a full retirement age (FRA) of 67 means receiving about 30% less in monthly Social Security benefits. That reduction is generally permanent. (FRA is 67 for people born in 1960 or later.)

Starting benefits also changes the income picture used to determine benefit taxation. If you make Roth conversions after claiming, the added taxable income could cause more of your Social Security benefits to become taxable, increasing the conversion's overall tax cost. That makes it smart to consider your cash needs, health, and personal circumstances instead of choosing a claiming age simply because you're eligible.

Moving the entire portfolio to cash and bonds

It may feel sensible to avoid stock-market losses, especially as retirement approaches. But while short-term stability may seem safe, you also lose out on purchasing power since inflation could erode cash returns and fixed income may not keep up.

Bonds also carry credit and interest-rate risk and aren't interchangeable with FDIC-insured cash in a bank. Allocation should reflect your personal time horizon and risk tolerance rather than a hard rule that eliminates growth investments when you hit a certain age.

Draining retirement accounts to pay off your home

Many people love the idea of eliminating a big monthly bill, and the mortgage may be the biggest. A large pretax withdrawal to pay off your home could create taxable income and cause the same Medicare surcharges and tax consequences as mentioned earlier.

Instead, compare the mortgage interest avoided with the withdrawal's tax cost, along with remaining accessible savings to see if it's worth it.

Buying an annuity without reading the surrender schedule

Annuities might seem like a sure-fire way to get guaranteed income in retirement. But the contract lays out the rules for the surrender period, charges, permitted withdrawals, and terms for accessing money if your needs change. If you withdraw some or all of a deferred annuity's value during the specified period, you could incur surrender charges and reduce the annuity's value and return.

Read (and understand) the contract to know what's allowed and how withdrawals affect your future.

Co-signing on a loan you couldn't repay yourself

Helping even a responsible child or family member secure a loan could seem like a loving decision. Co-signing creates a repayment obligation, and this obligation doesn't care about the character of your loved one or your ability to repay on your own if something happens.

If the primary borrower stops paying on the loan, you, as the co-signer, may owe the full debt, plus late fees or collection costs, which could go far beyond what you imagined when you signed for the loan. If you help, count the loan as a potential line item in your own retirement budget. If you couldn't make the payment on your own without sacrificing your retirement, it's not in your best interest to oblige.

Bottom line

Decisions that seem efficient, caring, or clever but might become costly financial mistakes when combined with the other realities of retirement. To avoid surprises, model them over multiple future years to see what the math would look like in real terms.

Many of these scenarios hinge on aspects of tax planning too complicated for pen and paper. If new tax laws or changing budget needs have you second-guessing what's right, enlist the help of a pro who could spell out options and plan for proper tax withholding.

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