Retirement planning mistakes: 8 costly errors to avoid – from skipping withdrawal plans to ignoring medical expenses

For many, retirement is imagined as a time of ease—slower mornings, quality time with family, travel, and indulging in long-postponed hobbies. The picture, however, often collides with reality. A surprisingly large number of retirees discover that their savings don’t stretch far enough, or that a single medical emergency wipes out years of careful planning. Others end up tying up funds in rigid products that create cash-flow stress.What looks like small missteps during the working years or early retirement can snowball into major crises across a 20-25 year retired life. The silver lining: most of these errors are avoidable with foresight and discipline. Here are some common mistakes, according to an ET analysis– that could wreck your finances in retirement—along with smarter alternatives.No withdrawal planWithout a systematic withdrawal strategy, even a well-built corpus may run dry too soon. Experts suggest fixing a sustainable drawdown rate rather than linking withdrawals to monthly expenses.“An optimum withdrawal rate could be between 3-4% in the first year, followed by inflation-indexed withdrawals from the second year onwards,” Shilpa Bhaskar Gole, Principal Officer, Nerdybird Wealth Advisory told ET.Consider this: a Rs 2 crore corpus compounding at 8%, with withdrawals of Rs 1 lakh a month, will last 21 years (assuming 6% inflation). Increase that monthly withdrawal by just Rs 50,000, and the kitty will deplete in 13 years.Financial planners advise continuing part-time work or building alternate income streams in the early years so that the corpus remains untouched and continues to grow.Locking too much in annuitiesAnnuities promise guaranteed income for life, but tying up the bulk of retirement savings here can backfire. Most annuities in India offer only 5-6% returns — often lower than inflation.“The biggest drawback is inflexibility. What looks adequate at 60 may feel hopelessly insufficient at 75,” explains Gole. Liquidity is another issue, as once you buy into an annuity, the terms can’t be altered.A smarter approach is to use annuities for essential outgoings like rent and groceries, while deploying the rest across senior citizen schemes, debt funds, or systematic withdrawal plans for flexibility.Avoiding equities altogetherThe fear of volatility pushes many retirees into debt-only portfolios. But ignoring equities completely is a mistake, since inflation silently eats into fixed-income returns.“Even at 70-plus, retirees should keep 10-15% in high-quality, dividend-yielding stocks,” says Dinesh Rohira, Founder & CEO, 5nance.com told ET. This ensures growth without excessive risk.At the same time, too much equity early in retirement can trigger ‘sequence of returns risk’, where poor markets combined with withdrawals deplete wealth quickly. The middle path? Keep 5-7 years’ worth of expenses in debt instruments, while letting the equity portion grow.Relying only on cash for medical expensesHealthcare inflation in India is running at 12-14% annually. Yet many retirees either cut back on health insurance or drop it altogether when premiums rise, assuming a cash buffer will suffice.“That’s a dangerous gamble,” warns Rohit Shah, Founder & CEO, GYR Financial Planners. “A single major illness can easily wipe out lakhs. Even if bought later at a higher premium, health insurance offsets a bulk of these costs,” he told ET.The right strategy is to maintain a base health cover, add a super top-up, and use cash buffers for incidental expenses. Experts also caution against relying solely on corporate health policies — transition to an individual plan well before retirement to avoid rejection.Ignoring estate planningMany people believe wills and succession planning are only for the super-rich. In reality, not documenting wishes or failing to nominate beneficiaries can create chaos for families.“Nominees are just custodians, not owners,” points out Rajat Dutta, Founder, Inheritance Needs Services. “Actual ownership is decided through probate or succession certificates,” he was quoted as saying.Without a proper will, even families with modest wealth face disputes, delays, and unnecessary costs. Estate planning isn’t just about distribution of assets — it ensures smooth transfer, reduces legal battles, and protects your legacy.Holding wealth in illiquid assetsReal estate remains the default retirement asset for Indians. While home ownership provides security, parking too much wealth in property limits liquidity.A reverse mortgage can be a solution, says Shah: “It allows retirees to unlock property value for steady income while continuing to live in the house.” This can prevent financial stress without selling the home.Investing in tax-inefficient productsFixed deposits feel safe but come with a hidden cost — taxation. FD interest is taxed at slab rates annually, which can erode returns for retirees in higher brackets.“Alternatives like deep discount bonds are more tax-efficient. Held for over a year, gains qualify as long-term capital gains taxed at just 12.5%, far lower than income-tax slab rates,” says Gole. Over decades, this difference significantly boosts post-tax income.Carrying debt into retirementEntering retirement with unpaid loans or credit card dues is a surefire way to strain your corpus. With no steady salary, EMIs eat into funds meant for living expenses.“High-interest loans can force seniors to liquidate investments prematurely, adding unnecessary stress,” cautions Shah. The better move is to prepay liabilities before retirement. Even partial prepayments reduce tenure and interest burden substantially.