3 Common Spending Mistakes People Make in Early Retirement

The early years of retirement can be exciting—and overwhelming. After decades of saving, new retirees suddenly face one of their biggest financial and psychological challenges: turning a lifetime of savings into a sustainable income stream. In our work, we see a few common spending mistakes in early retirement that can meaningfully impact long-term financial security.

1. Not Having a Tax-Smart Withdrawal Strategy 

One of the biggest missteps we see is not having an intentional plan for how to spend down assets. Should withdrawals come from pre-tax accounts, which are taxed at ordinary income rates? Should retirees start with brokerage assets to take advantage of capital gains rates? Or should Roth assets be used strategically to generate “tax-free” income? 

Without a coordinated strategy, retirees often end up with higher-than-necessary tax bills—costs that compound over time. For some, Roth conversions can be a powerful tool, especially before Required Minimum Distributions begin or Social Security benefits are claimed. But conversions come with upfront tax consequences, so timing and planning are key. 

2. Underestimating Healthcare and Long-Term Care Costs 

Healthcare is often one of the biggest surprises for new retirees. Those leaving the workforce before age 65 may face expensive Marketplace plans and the challenge of ensuring their doctors remain in-network. Even for those transitioning to Medicare later, the first several years of retirement can bring rising medical costs as health needs naturally increase. Not fully accounting for these expenses can put unnecessary strain on a retirement plan.

3. Forgetting to Account for Inflation 

Inflation may not feel urgent year to year, but its long-term impact is significant. Even a modest 3% annual inflation rate can reduce purchasing power by roughly 15% in just five years. Stretch that over 20–30 years, and the effect can be dramatic. A very common spending mistake made in early retirement is underestimating how much costs will grow over time.

Avoiding These Pitfalls 

Planning early—and planning thoughtfully—is the best defense. Retirees should work toward a framework that considers tax implications, withdrawal sequencing, investment returns, healthcare needs, and long-term goals. It’s helpful to map out multiple scenarios: the ideal case, a realistic case, and a downside case. This builds flexibility for whatever retirement brings. 

And perhaps most importantly, retirees benefit from working with a fiduciary advisor—someone committed to acting in their best interest. At minimum, an advisor serves as a sounding board. At best, they’re a proactive partner who monitors the plan, stays on top of tax and estate law changes, and helps retirees navigate evolving market environments so they can live out the future they envision.