I’m a Financial Advisor: Here Are 5 Red Flags in Your Retirement Plan That You’ll Probably Miss

Even experienced savers can overlook costly red flags in their retirement plans. According to financial advisor Stoy Hall, CEO and founder of Black Mammoth, these hidden pitfalls can drain savings, create unexpected tax burdens and force difficult lifestyle changes.

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From misjudging the true cost of retirement to relying too heavily on one income source, these issues can undermine even well-prepared plans. Here are five red flags Hall sees most often and the practical steps to address them before it’s too late.

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Not Knowing the Real Cost of Retirement

Misjudging how much money is needed to retire comfortably is a common red flag in a retirement plan. Many people set vague goals without calculating their current monthly lifestyle costs or projecting how those expenses could increase with healthcare, inflation or family commitments.

“They throw out numbers like ‘I think a million will do it,’” Hall said. “But they have no clue what their monthly lifestyle costs now, let alone what it’ll look like when healthcare hits, inflation eats their cash flow, or travel, caregiving, or grandkids come into the picture.”

Hall said tracking actual monthly spending and adjusting for 3% to 4% inflation annually can prevent underfunding a retirement plan and help retirees plan with confidence.

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Depending on One Income Source

Dependence on a single type of account or income stream is another red flag in a retirement plan. Hall said this can result in substantial tax hits, limit flexibility and increase the risk of running out of money prematurely.

“Massive tax hits in retirement happen when you start pulling money from all-taxed accounts with no flexibility,” he said. “That can lead to running out of money early because your plan was based on assumptions, not real numbers.”

Hall said retirees should evaluate their plans using three key benchmarks: a sustainable withdrawal rate of 4% or less, no more than 80% of savings in taxable accounts, and replacing at least 70% to 80% of current take-home income in retirement.

Meeting these targets, Hall said, can help safeguard income and reduce the need for sudden lifestyle changes later in retirement.

Saving in the Wrong Buckets

Concentrating savings in pretax accounts such as 401(k)s is a red flag in a retirement plan. Without other account types, retirees may face large tax bills and reduced flexibility later.

“Most people are dumping all their money into pre-tax accounts thinking they’re ‘doing the right thing,’ but they’re unknowingly setting themselves up for a massive tax bomb in retirement,” Hall said. “If all your money is tied up in accounts that will be taxed later, you’re playing Russian roulette with future tax rates.”

Diversifying savings across pretax, post-tax and taxable accounts can help manage future taxes and give retirees more flexibility when creating retirement income, Hall said.

Underestimating Healthcare Costs

Underestimating future healthcare expenses is a major red flag in a retirement plan.

Fidelity’s 2025 Retiree Health Care Cost Estimate projected that a 65-year-old retiring in 2025 may need about $172,500 for medical expenses throughout retirement, and that figure doesn’t include long-term care.

Factoring these costs into a retirement plan can help ensure savings last and reduce the risk of unexpected medical bills derailing finances.

Following the Wrong Retirement Map

Relying on generic advice or copying someone else’s strategy without understanding personal needs is a red flag in a retirement plan. Hall said banks, brokers and employers often promote certain accounts or target numbers without explaining the reasoning behind them.

“Most people are just copying what their peers are doing, not realizing their goals, health, taxes and timelines are completely different,” he said. “It’s like borrowing someone else’s GPS and wondering why you’re lost.”

Building a plan around personal factors like income sources, tax exposure, healthcare needs and lifestyle goals can help retirees avoid costly mistakes, Hall said.

Catching these red flags early can make the difference between a retirement that feels secure and one that’s full of financial stress. Hall said reviewing the plan regularly, and adjusting for costs, taxes and personal goals, can help retirees protect their savings and keep their lifestyle on track for decades to come.

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This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: Here Are 5 Red Flags in Your Retirement Plan That You’ll Probably Miss