You can spend hours on the treadmill and hold fast to a diet of flaxseed, tofu, and vividly coloured vegetables. But being physically fit, like so many worthwhile goals in life, revolves as much around avoiding the obvious mistakes, such as curling up on the couch with three hours of reality TV and a bowl of ice cream every night, as it does on taking the right proactive steps.

So it goes with investing, especially during retirement.

If you can avoid the key pitfalls, you’re more than halfway there. This is the first of a two-part series about five common pension traps.

1. Not having a sustainable withdrawal rate

Those who came of age in the Depression era of the 1930s and 1940s are notorious for living well below their means. But financial planners confide that many of today’s crop of new retirees are doing just the opposite, spending well more than their nest eggs can support. Conventional financial-planning wisdom holds that a 4% annual withdrawal rate, coupled with an annual inflation adjustment, is sustainable for most retirees. Yet some retirees are pulling double that amount or more from their portfolios. When you factor in increasing longevity rates it’s easy to see how the maths behind such lofty withdrawals can get very ugly, very fast.

Ideally, investors should consider their in-retirement withdrawal rates well before they’re retired, while they still have time to adjust their lifestyles and kick up their savings rates. The 4%-plus-inflation-adjustment rule is a good, one-size-fits-all starting point, but you need to stress test your own portfolio, consider taxes, and ensure your asset-class return expectations are realistic.]\

2. Not being realistic about income needs during retirement

In a related vein, retirees who are stress-testing their projected withdrawal rates might not be taking a realistic view about how much they need for their lifestyle. You often read about all the money you’ll save when you’re no longer working; on dry-cleaning, commuting, lunches out, and not having to save so much for retirement anymore. Given that cavalcade of savings, it’s not surprising that so many retirees fall back on the conventional wisdom that they’ll only need to replace 80% of their income during their working years when they actually retire.

In reality, that 80% rule is at best a rule of thumb; some retirees actually spend more than they did while they were working, while others spend much less.  Think healthcare costs.

Paul McLardie is a partner at Total Wealth Management. Contact him at