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In Practice May 22, 2026
Common Pitfalls Can Endanger Retirees’ Finances
Debt and risky investments can frequently lead to long-term retirement consequences.
Reported by
Mallika Mitra
Risk can be a healthy aspect of a financial plan, but it also can be detrimental to retirees’ long-term plans.
From investing too aggressively to claiming Social Security too early, numerous actions can cause financial harm. Here are several that experts say retirees—and the advisers helping them reach their financial goals—should be wary of.
Taking Too Much Risk
Investment risk can be a major issue in retirement because it is possible to invest both too aggressively and too conservatively, says Craig Copeland, the director of wealth benefits research at the Employee Benefit Research Institute. Older investors have to strike the right balance between investing for the long term—especially since some people may live decades beyond their initial retirement—and having enough to pay for expenses.
“If you’re overinvested, then you can have that situation where you could be wiped out prematurely,” Copeland says. “But if you invest too conservatively, then you may not have as much as you could have had toward the end of your retirement years.”
Similarly, withdrawing too much can be detrimental to long-term savings (and the right amount to regularly withdraw continues to be up for debate). One way people can protect themselves is by purchasing annuities, which, as insurance products, can provide income over the long term.
Carrying Debt
Generations ago, paying off debt was a rite of passage before entering retirement. But with prices rising on everything from housing to groceries, many people leave the workforce still in debt. Roughly 40% of retirees are paying off debt, including credit card debt (28%), a mortgage (20%), other consumer debt (8%) and student loans (2%), according to a report from the Transamerica Center for Retirement Studies published in December 2025.
Mortgages are often homeowners’ largest expense, and retirees are often homeowners: The share of real estate wealth of people older than 70 surpassed that of people aged 40 to 54 for the first time on record during the second quarter of 2025. But taking on a mortgage near retirement—at age 60, for example—can be risky.
“Many people end up retiring not too many years after that, so that could put them at risk for an expense that they don’t have a lot of flexibility with, particularly if it’s a high percentage of their income that they won’t be able to adjust if their income goes down,” Copeland says. “That could put them in a situation where they’re going to have to downsize and … depending upon the market, you could lose money by having to sell your house quickly.”
“Gray divorce” can especially shake up finances and force someone to take on debt. More than one in five people who divorced at age 50 or older took on new debt within six months just to stay afloat, according to a study from Western & Southern Financial Group. The survey also found that 59% of divorcee survey respondents lost at least 25% of their retirement savings, including 28% who lost at least 50%.
Claiming Social Security Too Early
Most retirees know that waiting until full retirement age or beyond to tap their Social Security benefits means getting a larger monthly benefit. But they may still be tempted to start receiving benefits earlier instead of digging into their savings, Copeland says.
“If you’re a fully healthy person and you’re still able to work, claiming Social Security may not make sense,” he says. “If you can delay those benefits, that’s really going to help you, because you’re going to have a larger income source that’s going to help with both the longevity and inflation risk.”
Investing in Children’s Endeavors
Many retirees invest in businesses started by their adult children. Crystal McKeon, chief compliance offer at TSA Wealth Management, says her firm has seen this with a wide range of ventures—single-family rental property portfolios, weight-loss clinics, fishing charter operations, wineries, and even oil and gas projects—and the outcomes of these investments vary.
“When we evaluate whether this type of investment makes sense, … it’s important to ensure [clients] can afford to take on the additional risk without compromising their long-term security,” McKeon says. “They should be approached with the same level of caution and due diligence as any other investment decision.”
If a retiree does choose to invest in a child’s business, she recommends formally writing up a contract with the child, specifying how the parent will be paid back. It does not necessarily need to result in legal action, but it ensures that everyone is on the same page.
“I would advise a client not to loan their child more than they can afford to lose,” McKeon adds. “You don’t want both of you going through hard times if the business goes under.”
Foregoing Estate Planning
A survey by the Transamerica Center of Retirement Studies’ found that among surveyed retirees age 50 and older, 55% had a last will and testament; 46% had a power of attorney or medical proxy; 43% had an advance directive or living will; and 41% had a power of attorney designated to make financial decisions on their behalf. The many respondents lacking those documents could find it very difficult for family members to intervene in health and financial decision-making, notes Catherine Collinson, the Transamerica Institute’s CEO and president.
“If there’s an inability to pay their bills, to make financial decisions, to file their taxes, it can be very difficult to obtain that legal authority if the person is incapacitated,” she says. “It can throw things into limbo.”
Lacking Plans for Healthcare, Long-Term Care
Retirees sometimes need to take on unexpected financial risks—especially due to healthcare expenses, which are often underestimated in retirement planning, sources say. According to Fidelity Investments’ most recent Retiree Health Care Cost Estimate, a 65-year-old retiring in 2025 could expect to spend an average of $172,500 in health care and medical expenses throughout retirement, an increase of more than 4% from 2024. Additionally, nearly two-thirds of pre-retired investors expect healthcare costs to be at least $1,220 less than the $8,600 annual estimate, according to a report published last year by Jackson National Life Insurance Co. Only 15% of retirees surveyed by Transamerica were very confident they could afford long-term care.
“A lot of individuals tend to rely on Medicare as a safety net without fully understanding what it does and doesn’t cover,” says Georgia Lord, head of financial planning at Corbett Road Wealth Management. “A major health event like an unexpected surgery or a fall can derail an otherwise solid financial plan seemingly overnight. An event like this may force people to draw down their portfolios earlier than planned, which compounds the damage over the years ahead.”
She said this can become even more detrimental as people age and become more vulnerable to medical billing errors, scams and poor financial decisions. But there are ways to prepare, such as contributing to a health savings account, building a dedicated healthcare bucket separate from general retirement savings, and considering solutions like long-term-care insurance.
