Last month I outlined two of the five pension pitfalls people encounter. Here are the final three.

Not Minding Asset Location and Sequence of Withdrawals

Tax management is one of the few variables that we investors can exert any control over, but I’m often surprised at how many investors overlook this valuable lever as they manage their own pre-retirement and in retirement programmes. So in addition to giving due attention to how much you withdraw from your retirement accounts, it’s also important to consider how you draw, in which accounts you’ll hold various types of assets and your withdrawal sequence. By minding asset location, you’ll be able to reduce the tax on your take-home return. Paying attention to withdrawal sequencing can help stretch out the tax-savings benefits that accrue to investments held in company retirement plans and tax-efficient wrappers.

Missing the Mark With Asset Allocation

Thus far, the focus has been mainly on mistakes related to withdrawal strategies, but at the risk of stating the obvious, the composition of your pre-retirement and in retirement portfolio notably, its mix of stocks, bonds, and cash–will also have a huge impact on the sustainability of your nest egg. In the recent bear market, many retirement-aged investors learned the hard way the risks of holding a stock-heavy portfolio.

However, I think the risks of being too conservative are equally concerning right now, particularly when you consider inflation, increasing longevity, and the currently meager interest rates available on so-called safe securities. Retired investors may want to consider an aggressive exchange-traded fund portfolio, or an aggressive in retirement portfolio of mutual funds. Retirement itself can last 30-plus years these days, so your retiree portfolio asset allocations may need to go through several stages over time.

Failing to Prioritise Debt Paydown

I know, I’ve just opined that “safe” investments aren’t as safe as they appear, particularly given the prospect of higher inflation and rising interest rates. Yet, what if I told you there was a risk-free way to pick up 4%, 5%, 6%, or even more on your money, guaranteed? And doing so is as simple as sending extra money each month to the bank that holds your mortgage or loan. Of course, prepaying debt won’t make sense in every situation, but if you plan to stay in your home long term, it’s one of the best ways to reduce fixed costs as you enter retirement, thereby reducing your withdrawal rate. Of course there are often restrictions on prepaying debt so you need to research these first. Seek the advice of an independent financial adviser, but it’s something that is certainly worth considering.

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