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When planning for the future, people often get caught up in short-term news rather than focusing on the long-term strategy, even though retirement planning can stretch across decades.
And that’s just one of several mistakes those saving for or living in retirement are making, according to Nick Nefouse, global head of retirement solutions and head of LifePath at BlackRock.
“If I think about retirement planning, it is almost always a long horizon,” Nefouse said in a recent episode of Decoding Retirement (see video above or listen below). “And what we do is we get inundated with short-term news. And if you think about short-term news versus planning for retirement, they’re two very different things.”
Consider that a person in their 20s will spend about 45 years saving for retirement. Then, upon reaching 65, they can expect to live another 20 to 30 years on average. Combined, this represents a significant time frame for financial planning. Even someone who is 55 still has about a decade before retiring.
“The reason why time horizon is so important is the longer that you’re in the markets, the better the probability you’re going to be successful,” he said. “But if we have this short horizon view of what’s going to happen next year or next quarter, it tends not to bode very well for long-term investing.”
Nefouse also suggested that individuals often make mistakes regarding risk. “We tend to think of risk myopically just as market risk,” he said.
Instead, risk should be viewed as a lifecycle concept, encompassing market risk, inflation risk, longevity risk, human capital risk (job loss), and sequencing risk (bad market returns). What’s more, individuals need to consider that risk evolves over one’s lifetime.
At BlackRock, a model they espouse is something called GPS — grow, protect, spend.
“When you’re young, it’s just about maximizing growth,” he said. “And this is where you want to have the highest equity waiting in your portfolios. Really lean into growth equities. This is in your 20s, 30s, even into your 40s. From about mid-40s up until you’re in retirement we really want to start adding in more protection. This is when you want to start thinking about diversifying a portfolio into things like inflation protection or into fixed income.”
Read more: Retirement planning: A step-by-step guide
When you retire with a lump sum at 62, 65, or 67, there’s little guidance on how to systematically draw down assets, and many avoid even thinking about “decumulation,” Nefouse said. As a result, retirees tend to fixate on their account balance, reluctant to spend it. They’ll use capital gains and income but resist dipping into the principal itself.
“This is another big misconception,” Nefouse said. “A lot of people don’t want to spend down principal in retirement.”
To be fair, the fear of spending down principal is partly due to uncertainty about longevity.
“When you look at the behavioral research, it’s not illogical that people don’t want to spend their principal,” Nefouse said.
However, the point of saving is to spend the money in retirement so you can live like you spent during your working years. “You need to spend your principal,” he said.
(Jeff Chevrier/Icon Sportswire via Getty Images) ·Icon Sportswire via Getty Images
To help individuals estimate how much they can spend in retirement, BlackRock offers a publicly available LifePath spending tool on its website, which calculates one’s spending potential based on their age and savings.
One way to address the principal misconception and others is to consider small decisions with major impact.
Using auto-enrollment, qualified defaults (like target-date funds), and auto-escalation features in 401(k) plans can significantly improve retirement savings, Nefouse said.
Qualified default investments, like target date funds, provide a structured approach to investing. These funds are designed to be more growth-oriented when an investor is younger and gradually becomes more conservative as retirement nears.
“Importantly though, it’s not sitting in cash,” Nefouse said. “You’re actually in a growth asset for a much longer period of time.” This, he said, helps maximize long-term returns while managing risk appropriately over time.
Many workers face a dizzying array of retirement savings options, from health savings accounts (HSAs) to traditional and Roth 401(k) plans. With so many choices, how do you decide where to contribute — and how much?
“This gets tricky,” Nefouse said, noting that the decision depends on personal preferences, income level, and tax considerations. But the most important step? “Just start saving somewhere.”
When choosing between a Roth 401(k) and a traditional 401(k), it comes down to taxes.
“We can debate [over] the Roth, which … grows tax-free and comes out tax-free, versus the traditional, which comes out of your earnings pre-tax, then grows tax-free, and then you’re taxed,” he said. But the right choice depends on factors like “current income and expected future tax rates.”
One option to consider is an HSA. “I would tell people not to overlook the HSAs,” Nefouse said.
Read more: 4 ways to save on taxes in retirement
What makes HSAs so powerful is their triple tax advantage: contributions are pre-tax, the money grows tax-free, and provided it’s used for qualified medical expenses, it can be withdrawn tax-free — even in retirement.
“If you can stand to not spend from your HSA, this is triple tax-free,” he said.
A particularly smart strategy is to “prioritize accounts that offer employer matches,” Nefouse added. “What I tell people to do is hit the 401(k), the traditional 401(k), because that tends to be where the match comes in.”
The same goes for HSAs if an employer contributes. “If your company is going to give you money for being involved in those, go into those.”
Then, once those bases are covered, where to save next becomes a “higher-class problem,” he said, meaning a good problem to have as you build wealth.
Nefouse also discussed how the traditional idea of retirement as a single moment — one day you’re working, the next day you’re not — is changing.
Many people are opting for “partial retirements” or “encore careers” rather than stopping work entirely. They might reduce their hours, shift into a different role, or even explore a new industry altogether.
“We refer to this phase as the retirement window,” Nefouse said.
Unlike airline pilots, who typically retire on their 65th birthday, most Americans don’t follow a strict retirement date. Instead, between the ages of 55 and 70, they gradually transition out of full-time work, he said.
While many people say they want to work longer, the reality is different, and many people don’t work past age 65.
Health issues — whether their own or a spouse’s — can force an earlier exit. Job loss in the late 50s or early 60s is another risk, as “it’s very hard to get reemployed at the same rates,” Nefouse said.
So what’s the actionable advice? “Start planning early,” Nefouse said. That means building multiple sources of income, understanding Social Security, and considering retirement income guarantees.
Social Security plays a crucial role in this transition. “The longer you defer, the more money the Social Security Department is going to give you,” he said.
While benefits start at 62, waiting until 70 results in significantly larger payments. “Think about it as a sliding scale — you get the least amount of money from the government at 62, and the most at 70,” Nefouse said.
Each Tuesday, retirement expert and financial educator Robert Powell gives you the tools to plan for your future on Decoding Retirement. You can find more episodes on our video hub or watch on your preferred streaming service.
