Avoid common mistakes to optimize retirement income


Investing for retirement income is different from investing purely for growth.

Once you retire and begin withdrawing from your investments to support your standard of living, a single mistake can mean a significant compromise to your standard of living — if not today, maybe 10 or 20 years down the road when it’s too late to recover. Because of this fact, investing for retirement income is much more an exercise in avoiding mistakes, than an exercise in maximizing the potential for gains.

Avoid the following common mistakes and you’ll be well on your way to maximizing the standard of living you’ll enjoy throughout your retirement:

Saving to the Thrift Savings Plan last. The TSP is the best retirement savings and investment vehicle you’ll find anywhere. While you’re still a federal employee, you should direct your retirement savings into your TSP account before they go anywhere else.

Leaving the TSP early. Keep and manage your TSP account for as long as possible after you retire to take advantage of its unique benefits. You won’t beat the risk and return proposition offered in the TSP in any other investment account. Whenever possible, move your traditional IRA or employer-sponsored plan money into your TSP account.

Relying too heavily on investment products. There are four investment products that you should consider universally useful: TSP, low-cost exchange traded index funds, discount brokerage accounts and immediate fixed annuities. Everything you want to accomplish in investing can be accomplished optimally with some combination of these four. Most others are nothing more than expensive decoration. There is no investment product or security that meets all, or even most, needs. If you want the most out of what you’ve got, avoid prepackaged products.

Ignoring risk. There are many types of risk as you proceed toward, and through, retirement. Investors too often focus on the risk that seems the most threatening: the risk of loss in the investment markets. This focus on loss often leads investors to reduce investment volatility and sacrifice the potential for return. While you should avoid the unnecessary risk that can go with chasing more return than you need, squeezing too much return potential out of your portfolio can doom you to failure later.

Your success as an investor depends on two factors: where you are today, and what happens in the future. As the value of your portfolio falls with the vagaries of the market, its prospects for future growth actually climb. Conversely, as markets, and your portfolio’s value, climb, the expected rate of return for both tends to fall.

Many investors feel more confident with a portfolio comprised of only cash equivalents and bonds. While the volatility of such a portfolio will be relatively low, how comfortable will you be if, in exchange for this low volatility, your ultraconservative portfolio, when combined with your lifestyle, is certain to run you out of money while you still have some living to do?

Improper focus. Think paying off your mortgage in retirement is important in achieving the highest standard of living possible? It’s probably not. The same is true of finding the best mutual fund, or continuing to defer capital gains taxes on that stock you hold in such large quantities. Too many investors focus on the trivial at the expense of the critical.

Retirement investing is not about building economic wealth, it’s about supporting predictable cash flow. It doesn’t do any good to be fabulously wealthy, for example, if you can’t pay the bills when they’re due. Having the cash you expect to have, when you expect to have it is the name of the retirement investing game.

This list of mistakes can also serve as a litmus test for your investment adviser. If he recommends any of these mistakes, you should probably look for another source of advice.


About Author

Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at money.federaltimes.com.


  1. Avoid these common mistakes? Really? TSP is a good tool but risk and reward in other vehicles like emerging markets, REITs and commodities aren’t offered; the best is to match and send additional money into a low cost service provider like Vanguard. Think paying off your mortgage in retirement? The best comment is to pay off the mortgage before retirement and paying it off earlier might be smart if your 14% interest and in a 25% tax bracket and your investments are only returning 5%. Best bet, remember the same shoe doesn’t fit both feet. Remember to express your thoughts as opinions and not as a fact..

  2. Different Strokes on

    I take issue with one example identified as an example of “improper focus:” paying off the mortgage. In my case, paying off the mortgage before retirement is essential to cash flow early in my retirement (I have worked the numbers looking at both expenses and income). I do not want to delay retirement past age 62, so I have opted to pay-off the mortgage in order to retire at age 62. Being in good health early in retirement is more important to me than having more income by delaying my retiremetn date.

    Paying off the mortgage also makes sense if one believes that Congress will take away or limit the mortgage interest deduction for higher-income earners (that would include myself even in retirement).

    I believe that my situation is not unusual for many of the reaaders of Federal Times.

  3. “It doesn’t do any good to be fabulously wealthy, for example, if you can’t pay the bills when they’re due” – I don’t understand how a person could be “fabulously wealthy” and, simultaneously, unable to pay bills when they’re due. That sounds more like the type of wealth, cash versus other assets.

  4. I believe one should work as long as they are physically capable. As one gets closer to retirement, they should move their risky TSP choices to less risky TSP choices and leave them there after they are retired until they have to start drawing from TSP. paying off a low interest mortgage under 4% with a mortgage payment lower than rent is a bad idea, especially when the later payments are mostly principle anyway. I agree retirement should not be for a rich lifestyle. I am speaking of middle class income earners and higher. Lower class earners may only have social security to fall back on for obvious reasons. I wonder how many senior citizens there are who never paid into social security and have no other retirement income. Are they all the folks living in the streets, led a life of crime, or we’re paid under the IRS scope of cash paid only laborers mostly in southern states.

  5. I do not agree that an immediate fixed annuity is a good investment. It is an Insurance product and not a good investment. IF you put your money in they will pay you a certain amount a month but that money is gone, you cannot change your mind, you cannot get your money out (minus what you have been paid), that money now belongs to the Insurance company you invested it in. NOT sure about the Hybrid annuity but I would say if it has Annuity attached to its name, BEWARE. Our retirement is an annuity but we did not really take a chunk of money and hand it over to be dealt out to us, we did pay in but it was matched and then some by the government which is a different subject. The annuities are SOLD to you by a broker who often takes your money and then takes a percentage each year of YOUR money. Do not do it!

  6. Kathryn Holdem on

    I retired (CSRS) over 9 Years ago . I have worked part time and have contributed the maximum allowed to both myself and husband’s traditional IRA. My PT job has supported several trips to Europe and allowed growth to my IRA. Our TSP will mot be touched int sge 70. highly recommend doing something you enjoy while continuing contributing to your retirement!

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