If you’re starting to think more seriously about your finances — whether it’s retirement, taxes, inheritance, or just making sure you’re “on track” — you’re in good company. These are the kinds of questions we help answer every day. But with more than twenty years as financial advisors in York, there are a handful of financial missteps that we see come up again and again, issues that can quietly (and quickly!) derail even a well-intentioned plan.
Here are five of the most common financial mistakes we’ve seen folks make in our area, and easy ways to avoid them.
Mistake #1: Claiming Social Security Too Early (Or At Least Without a Plan)
This one comes up all the time. People start (or want to start) Social Security benefits at 62 just because they can, only to regret locking in permanently reduced income years later. One gentleman we work with came to us at 62 with that exact story. Thankfully, we were able to help him reset his claiming strategy using a little-known Social Security do-over rule (yes, it exists!).
"But isn't social security on its way to bankruptcy?" Good question. It’s perfectly normal to feel anxious about Social Security’s future. With the trust fund projected to run low by the mid-2030s, some folks worry their Social Security benefits might not be around in ten or twenty years...and you've got to get while the gettin's good.
Our take is that Social Security isn’t going anywhere. It may evolve, especially for younger generations, but it’s still likely to be a cornerstone of retirement income planning for decades to come.
How to avoid it: Use financial planning tools to model a variety of claiming ages and decide what makes the most sense, both on paper and for peace of mind. A good Social Security strategy, especially for couples, can add six figures in lifetime income.
Mistake #2: Getting Locked into High-Fee, Hard-to-Exit Annuities
We’ve reviewed dozens of annuity contracts in York over the years, and the harsh truth is that most of these weren’t bought, they were sold.
Some of them sound great at first: “guaranteed income," and “no market risk”. But when you peel back the layers, you find high fees, complex riders, and long surrender periods.
Annuities are one-time sales products, meaning that insurance agents who sell them get a commission up front. That not only skews the incentives, but it also means you may not get the ongoing customer service you'd expect. Their money has been made, and they're on to the next prospect.
How to avoid it: If someone is pitching you a product with a 100-page contract that gives up liquidity, it’s worth slowing down. Get a second opinion from a York financial advisor who doesn’t have a commission riding on the outcome.
Mistake #3: Buying the Wrong Type of Life Insurance (for the Wrong Reasons)
Life insurance has its place, but only when it serves a clear purpose. Too often, we meet folks who were sold permanent life insurance policies with bells and whistles they don’t need. One retiree told me he thought he was “investing through life insurance” only to find out years later that most of his premium had gone to fees, and the policy ultimately ate itself alive.
Cash value life insurance can be useful — for estate planning, business succession, or funding a special need — but it’s not a one-size-fits-all retirement tool.
How to avoid it: Make sure your insurance policy is solving a specific problem: usually legacy goals or even for long-term care benefits. And, try to suss out whether your salesperson is recommending it because it’s right for you or because it earns them a commission. That means seeing multiple quotes from multiple carriers and asking for a range of illustrations.
Mistake #4: Ignoring Tax Planning Until It’s Too Late
Did you know that your growing 401K balance is likely only "worth" about 80% of the number you see on your statement? That's because, for most workers, your contributions to a traditional 401K plan were never taxed. They will be someday, and you can expect to see 20-30% of your future distributions disappear into Uncle Sam's pockets.
401K balances or Traditional IRA balances have also become a massive tax bomb for your heirs thanks to some tax code changes a few years ago.
One of the best tax planning opportunities in retirement happens in the “gap years”, after you stop working but before you take Social Security or step into Required Minimum Distributions (RMDs). We’ve helped our York financial planning clients use that window for Roth conversions, capital gains harvesting, and strategic withdrawals that can save thousands over a lifetime.
How to avoid it: Don’t wait until retirement to think about taxes. Look at your tax return, build some tax planning projections, and create a withdrawal plan that’s tax-savvy, not tax-reactive. A good financial planner or wealth advisor can help.
Mistake #5: Not Understanding Pennsylvania’s Unique Retirement & Inheritance Tax Rules
Here’s a fun fact that surprises a lot of people: Pennsylvania is a VERY retiree-friendly state. It doesn’t tax retirement income, like pensions or IRA withdrawals. That’s a win for retirees in York. But the flip side? The commonwealth of Pennsylvania does impose an inheritance tax, even for your own children.
PA’s inheritance tax is 4.5% for lineal heirs (your kids), 12% for siblings, and 15% for others. Without good estate planning, your legacy could take a bigger hit than you expect.
We help many clients think through how to thoughtfully structure their estate to benefit their heirs tax-efficiently and to keep their financials out of the public eye by avoiding the probate process when possible.
How to avoid it: Coordinate your estate plan and your tax plan. Use tools like Roth IRAs, trusts, gifting strategies, or even life insurance in the right way to reduce the impact on your heirs.
Thinking About Retirement Planning and Wondering What Your Next 30 Years Might Look Like? Let's Talk!
If any of these hit home, or if you just want a transparent look at your financial picture with a financial advisor in York, let's talk!
We work with individuals and families throughout the Susquehanna Valley to help make sense of retirement, investing, taxes, and legacy planning. Get in touch to learn more and kick things off with a conversation.