We all make investment mistakes. It’s how most of us learn. And that’s OK, at least when we’re young. That’s when we can recover from losses.

But it’s a whole different deal when we get older, when we are approaching retirement or in it. Make a major mistake then and the odds are you’ll never recover— your lifetime income will be lower, perhaps painfully lower. Here’s my list of the five most common errors people make.

Being overinvested in personal real E=estate.

This is a nearly universal error. We really love our homes and the majority of homeowners have more equity in their homes than they have in retirement accounts or taxable personal savings. But our homes aren’t income-producing assets. They are income-consuming assets. Even if your mortgage is paid off, you’ve got taxes, insurance, utilities and service bills to pay. Plus repair bills.

As a consequence, many retirees must devote all the income from their retirement accounts and taxable savings to the cost of supporting their home. That doesn’t leave much for everything else.

The best way to deal with this is to reevaluate your shelter needs as you approach retirement. Think “right-sizing,” not down-sizing.

Failing to appreciate the importance of social security benefits.

Most of the people in the waiting room at the local Social Security office are hoping to get benefits yesterday, whatever their age. That’s just the way it is. So the whole idea of deferring benefits is pretty foreign to those who work in Social Security offices. In fact, a brief deferral of benefits can easily be worth as much as, or more, than you contribute to a 401(k) account in a year.

According to the Social Security website, the average retirement benefit check earlier this year was $1,230 a month or $14,760 a year. A year of deferral from your full retirement age will cost $14,760 in benefits. But it will gain a benefit increase of 8 percent or $1,180. To have that much income from your retirement accounts at a 4 percent withdrawal rate, you’d need to add $29,500. For most workers, that’s the same as many years of 401(k) contributions. And it’s nearly five years of the $6,500 maximum annual IRA contribution allowed for workers age 50 and older. Social Security is a big, big deal.

Failing to appreciate the power of personal spending decisions.

Used car dealers like to say that they make their money when they buy a car, not when they sell it. That’s because they can control how much they spend on a car by bargaining or by not buying it. They don’t really control the amount for which they can sell the same car.
            Retirees are in the same position. They can control what they spend with much greater certainty than they can control the return on their investments or the amount of their income. So there is a big reward for knowing what, and why, you spend. In addition, every $100 not spent means $118 of pre-tax investment income that doesn’t have to be earned— assuming the retiree is in the 15 percent tax bracket.

Worrying more about taxes than return of investment.

Retirees develop tax phobia and seem to feel that any tax is a terrible injustice. This year many retirees who actually pay no taxes lost money in tax-free bond funds because they were chasing tax-free yields. Others will lose money on private investments sold as tax shelter. And most tax shelters are just that, only not the way they were supposed to be. You’ll never have to pay taxes on lost money, but that really isn’t the idea.

So focus on return of investment first. Then do some homework on what the tax ramifications are. Can’t do the homework? Then arrange a consultation with a CPA.

Believing that someone has a formula for superior returns that works.

This is the equivalent of being an adult who still believes in the Tooth Fairy, yet it is quite clear that millions of older people still believe in the Tooth Fairy. The reality is that no one has found a way to beat the market forever, but many are extravagantly paid to try. Indeed, they are so well paid that even if they could beat the market, fees would absorb any gains. That’s the documented record of the mutual fund industry. It’s also the documented record of the hedge fund industry.

For better or worse, the reality is that we can beat about 70 percent of all managers in any area of investment by investing in a low-cost index.