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8 Biggest Money Mistakes Retirees Make in Their First 12 Months

Avoid common mistakes that raise your taxes and impact your benefits.

By Ashley Donohoe, MBA, CFLP®, CFEI®, FPWMP® , Edited by Laura Hohenstein

Updated June 6, 2026

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The first 12 months of retirement are often exciting and filled with important decisions. You're transitioning from living off a steady paycheck and a predictable budget to figuring out Social Security, Medicare, retirement withdrawals, and taxes. Unfortunately, emotions, lack of awareness, and pressure can lead to irreversible decisions that threaten your long-term financial security.

Understanding your "new normal" and recognizing common retirement missteps might help you make the right moves. Here are eight of the biggest early money mistakes that retirees make.

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Overspending during the "honeymoon" phase

For many retirees, the early years are the most active and involve the highest spending. You might take advantage of your newfound free time to travel, engage in expensive hobbies, treat your grandchildren, or make major home improvements.

While treating yourself isn't necessarily bad, you risk running out of your retirement savings if you continue overspending for too long. You may have decades ahead of you, so revisit your spending plan and consider how early expenses affect your retirement savings runway and future investment growth.

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Jumping into claiming Social Security

You might feel tempted to claim Social Security right away to have a reliable monthly income in your budget. But if you do it as early as age 62, you may experience a permanent cut in benefits of up to 30% compared to if you wait until your full retirement age (FRA) of 66 or 67.

Plus, the earnings test means a temporary benefit reduction of $1 for every $2 you earn above $24,480 before FRA and $1 for every $3 you earn above $65,160 in the year you reach FRA, as of 2026.

Not to mention claiming Social Security also has tax effects at any age. Up to 85% of your benefits may be taxable, depending on your filing status and combined income. This can get costly if you're earning substantial income from a part-time job or investments, so consider your whole income picture.

Forgetting the Medicare enrollment deadline

At age 65, you typically must sign up for Medicare unless you're still receiving coverage from your employer or your spouse's. You get a seven-month initial enrollment period that includes your birth month and the three months before and after. Missing this deadline is a costly mistake to avoid.

First, it may permanently increase your Medicare Part B premiums by 10% for each year you could have signed up but didn't, and for Part D premiums, you'll pay an extra 1% each month you delay. That would add $20.29 to your monthly premium for each year you delayed. One year late adds $20.29, two years adds $40.58, and so on, permanently.

You may also experience a coverage gap, because if you miss your IEP, you must wait until the General Enrollment Period (January 1 to March 31), with coverage beginning as late as April 1. That leaves months without protection, depending on when your IEP ended.

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Ignoring the IRMAA Medicare surcharge

Medicare Part B and Part D premiums may increase with your income due to a Medicare surcharge known as the income-related monthly adjustment amount (IRMAA). For 2026, it applies to those earning more than $109,000 as a single tax filer or $218,000 as a joint tax filer, based on a two-year lookback period (2024 income). Medicare Part B premiums may reach $689.90 per month for the highest earners.

Unfortunately, this means that a high income during your final working years might increase your health care costs early in retirement. Income from other sources, such as Roth conversions and home sales, also count, making it important to plan transactions carefully before you reach Medicare age.

Missing the Roth conversion window

Starting at age 73, you typically must make required minimum distributions (RMDs) from tax-deferred retirement accounts, such as a traditional IRA and 401(k). This includes paying taxes on those withdrawals, including earnings, which especially strains your retirement budget when you're in a higher tax bracket.

Many retirees miss the Roth conversion window when they have a lower income and don't need to make RMDs yet. During this time, you might move money from your traditional retirement account to a Roth account, pay taxes at your current rate, and enjoy tax-free withdrawals after a five-year holding period.

Making large unplanned withdrawals without considering taxes

Large retirement account withdrawals may have costly tax consequences you don't consider. Pulling funds from a traditional account can leave you with a large federal income tax bill on the full distribution and make 50% to 85% of your Social Security benefits taxable. Plus, state taxes might apply.

To avoid a tax bill you can't comfortably afford, plan your early withdrawals carefully with all costs in mind. Note that you may usually withdraw funds from a Roth account without these effects, but that still requires considering the impact on how long your retirement savings will last.

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Underestimating sequence-of-returns risk

Since investments involve risk, there's uncertainty about how the market will affect your nest egg. Sequence-of-returns risk refers to the danger that poor market performance early in retirement can do lasting damage, even if long-term average returns look similar to someone who retired in a better market cycle.

When the market drops early in your retirement, and you need to access your funds, you may be forced to suddenly sell investments when they're down. This leaves you with even less money to fund the rest of your retirement, and you may permanently miss out on the compounding growth those funds could have provided over the years. Consider diversifying your income sources early in retirement to avoid unnecessary early withdrawals, especially in a down market.

Being too conservative with your portfolio

Once you retire, it's common to take a safer approach to investing that focuses on preserving your nest egg. For example, your portfolio might consist mostly of bonds and cash rather than stocks.

However, these conservative investments might not generate sufficient returns to help your portfolio cover another 20 to 30 years of expenses. Inflation also quietly erodes purchasing power the entire time, making the gap between what you earn and what you need even wider.

Since the right balance looks different for everyone, your investment plan should reflect your expected longevity, spending plans, other income sources, and risk tolerance, rather than defaulting to caution simply because retirement has begun.

Bottom line

You might avoid many of these early money mistakes if you prepare a solid retirement plan and start your research long before you quit your job. Having a realistic retirement budget, understanding the tax implications of each of your retirement accounts, and boosting your contributions while you're still working will go a long way toward stretching your savings.

However, no retirement plan is static, and your needs may change over the years. Whether you make one of these common mistakes or need to accommodate high spending, consult a financial advisor for smart strategies.

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