Editor’s Note: This story originally appeared on Boldin.
On the Boldin Facebook group, we asked, “What is one insight you gained by going through the process of creating a retirement plan?” It is clear from the responses that creating a plan can create confidence, wealth, security, fewer taxes, an earlier retirement, and much more.
The insights are varied and reflect the fact that there is no one right way to plan or even think about retirement.
Keep reading for 19 insights gained by some smart people who are actively planning their secure future.
1. Planning Is About What’s Important
Kate says, “The biggest insight I got by creating a retirement plan was that it is okay to plan around what matters to me.”
She continued, “Lots of financial advisors, articles, and friends have great ideas for how to plan a retirement, but only some of that advice applies to my situation and what is important to me. And, what is important to me is what is most important.”
Michael said it a different way, “There are many ways to get to the end goal. There are many solutions that make you successful in retirement.”
At Boldin, we couldn’t agree more. You should plan with your goals, resources, priorities, and values. There isn’t a right way, except your own way. (Though we’d add that it should be informed by a strong model and the right support.)
2. Retirement Taxes Are a Big Deal
A lot of people who are already retired or are planning retirement come to the realization that trying to estimate future taxes and making a plan to minimize this expense can go a long way to preserving their assets.
In fact, tax insights were the lessons most mentioned by people.
Here are four specific tax insights from creating a retirement plan.
Taxes become more painful (unless you plan for them)
Scott said, “Taxes, taxes, taxes! Plan ahead, or you will be unpleasantly surprised…”
And, Barbara points out that taxes hurt even more in retirement:
“Taxes are more of a concern because they are going to go up and it hurts much more and is a more ‘front of the mind’ pain when we have to write those big checks to the government versus having them taken out of our paychecks before we even see that money. Once it’s in our hands, it’s more painful to see it leave — especially once we are retired and watch the news more and see what’s happening with our tax dollars!”
Shana added that she is glad to have a plan that “Gives you a forward-looking view of tax liabilities/obstacles and time to make adjustments and strategies before it’s too late.”
Using a Roth allows you to be certain about future tax obligations — you won’t have tax obligations on your Roth accounts.
Roth IRAs are powerful savings vehicles
Kathy emphasized (with all caps and three exclamation points) the power of saving into a Roth. She said, “Failing to plan is planning to fail. Save the max you can and, if younger, take advantage of ROTH!!!”
Mary added, “I wish I had done some Roth in my early days of working!”
You have options for how to save money for retirement — in a Roth or a traditional account.
With a traditional IRA or 401(k), the money you save is deductible and tax-deferred (you don’t have to pay taxes on the income now, but you pay when you withdraw the funds). When you save in a Roth IRA or Roth 401(k), you pay taxes on the amount you deposit, but all growth and future withdrawals are tax-free.
So, the theory is that by saving money in a Roth when you are younger, your money is more likely to appreciate greatly, and you won’t pay taxes on that growth.
Converting money to a Roth IRA is also a good bet
Don’t think it is too late if you are nearing retirement and haven’t saved into a Roth. A Roth conversion is when you take money that you have in a traditional 401(k) or IRA account and move it into a Roth 401(k) or IRA. When you do this, you will need to pay taxes on the money you withdraw. However, any future gains will grow tax-free.
Jun said, “Glad I did ROTH conversions early in my life.”
Converting money to a Roth IRA enables heirs to pay less in taxes
If you are lucky enough to be planning on passing on a financial legacy to heirs, you might consider the benefits of having those funds in a Roth account.
Brian said, “It pays to get money into a Roth, especially for those you’re leaving your estate to.”
Because Roth IRAs grow tax-free, they are particularly good for money that is going to be invested for a long time. This is often the case with funds that will be inherited by heirs. So, in many cases, you can save your beneficiaries tax money by passing on a Roth instead of a traditional account.
3. High Retirement Income Increases Medicare Premiums
When you turn 73, you must take Required Minimum Distributions (RMDs) from your tax-deferred accounts. These withdrawals are counted as income and may 1) move you into a higher tax bracket and 2) trigger higher costs for Medicare – what you pay is determined by certain income thresholds.
Greg expressed frustrations with these costs, saying that he gained insight into, “How RMDs will increase my yearly Medicare premiums by thousands. I feel I am paying for the same benefit at least twice with no end in sight.”
And, it is true. The very highest earners will pay over $5,000 more for Medicare than the lowest earners.
NOTE: It may be possible for you to avoid these surcharges and save thousands each year if you pay attention to the income thresholds and lower your income when possible.
Learn more about Medicare surcharges (IRMAA).
4. Lifestyle Choices Can Be Challenging
Retirement insights are not always about money. Mike said, “I learned that I will have many ‘negotiations’ with family members about where to live, how to spend money, and allocate the free time that will become available from not working 50+ hours a week as I have for the past 33 years.”
When you are working, you have less choice about how and with whom to spend your time. In retirement, you gain total freedom, and that freedom can almost feel problematic. The most successful and perhaps happiest retirees have a retirement plan for their money — and their time.
5. Learning What You Don’t Know
Aristotle is credited with the thought, “The more you know, the more you realize you don’t know.”
His wisdom is true for financial and retirement planning — the more you know about financial planning, the more you realize you don’t know about financial planning.
As Candace cited with her insight, “Creating a retirement plan and educating myself along the way made me realize how much I have to learn! It’s an ongoing process…”
In fact, planning is like an onion; you can keep peeling back layers and going deeper to increase your wealth and security.
The Boldin Retirement Planner is actually devised to help you achieve increasingly complex layers of wealth and security.
6. Saving Is Easy, Planning Is Hard
This is the retirement planning insight gained by Jon: “Putting money into a retirement fund is relatively straightforward, but planning when and how to take it out in retirement, without heavy taxation, is much more complicated.”
Brian added, “De-accumulation gets complicated before it gets simple.” (De-accumulation refers to withdrawing your savings and assets.)
These insights are true. It is kind of like when you see a stressed-out parent with a toddler in full meltdown mode. You feel bad for mommy or daddy. However, if you have kids and have survived the teenage years, you almost want to tell the young parents that the tantrums are easy compared to the years to come — things just get more complicated as kids get older.
It is the same thing with retirement. You might think that saving takes great sacrifice, but turning those savings into adequate income that lasts as long as you do — no matter how that turns out to be — while keeping pace with inflation and unforeseen events, and … and … and … is complicated.
7. It’s Complicated
“I often feel like there are so many moving parts to everything, my brain just ends up getting scrambled!” said Laura.
Indeed, creating a retirement plan involves twisting and turning an array of interrelated levers and knobs. One financial move has a cascading impact on a variety of other factors — good or bad.
The beauty of using online tools is that you get to control what is important to you and your financial plans. And, gaining mastery of the various financial levers can give you a deep sense of confidence, clarity, and security about your money.
8. Pension Holders Are Lucky
Laura said, “I have discovered that I am nearly envious of my friends who have only a pension and Social Security. They don’t have to figure out how to preserve retirement funds. Figuring out how to invest and withdraw retirement assets is a huge responsibility and consumes a lot of time with a steep learning curve and fear of blowing it.”
Laura is right. The pension system has a lot of merit to it. And, the system of retirement savings accounts is deeply flawed — not everyone has access to savings plans, many people don’t participate even when they have access, and, yes, even if you did save, it is incredibly complicated to turn assets into income.
These complications are one of the reasons why people turn to lifetime annuities. A lifetime annuity is like a pension you buy yourself. It may not be the most flexible or efficient place to put your money, but it takes the guesswork out of turning savings into income.
9. An Online Platform Can Give You Real Answers and Confidence
This is an insight that came up in a few different guises.
Financial knowledge is empowering
Rebecca said that creating a retirement plan showed her, “That it isn’t hard to understand how our money works. And, we can either actually plan out our retirement ourselves or we can better prepare ourselves before we speak to any financial advisor. Financial knowledge is so important, and I really appreciate feeling that I know what is going on.”
Advisors don’t always have understandable answers to your specific questions
Barbara benefited from creating a retirement plan by being able to get any and all questions answered. She found that advisors didn’t always appreciate or didn’t seem to want to answer her queries. She said, “When talking to ‘professionals’ they can’t clearly answer some of my questions, and I feel they think I am trouble when I ask things like ‘But if this happens, what about that…’ and so on.”
She continued, “The professionals either don’t seem to be able to work me through the cause and effect of things, either, because they only walk down the straight path of their business plan or just haven’t gone off their pre-scripted, paved roads.”
Can finally feel comfortable talking with an advisor
By creating a retirement plan, Laura gained the confidence to talk with her advisor. “I’ve learned that as much as I feel I am floundering, unprepared, and clueless after years of trial and error, research and discussion, trying to figure everything out, at least I am now familiar with it all.”
She continued, “I can now actually have a better conversation when I speak to an advisor, bank officer, or an insurance or mortgage agent. I can challenge strategies and ask about alternatives. And, whether in person, on the phone, or remotely, many have expressed shock that I understand their explanations and ask semi-intelligent questions or point out conflicts and possible workarounds.”
An advisor can offer reassurances
For many people, building their own retirement plan is empowering — but having a professional review it can bring added clarity and peace of mind.
If that sounds like you, consider working with a fee-only fiduciary advisor. Fee-only means your advisor is compensated directly by you — not by selling products — helping ensure their guidance stays aligned with your best interests.
10. Run Scenarios for Confidence in Your Plans
John said, “The system helped me put everything in one place and allowed me to adjust growth and inflation percentages. Doing so, I gained confidence in my retirement plans.”
Yes! Getting organized and running different scenarios are great ways to gain confidence that you are on the right track to the secure future you want.
11. Teach My Grandchildren to Save
Kelli gained insights to benefit her grandchildren. She said, “I learned to tell my grandchildren the value of saving.”
The more you save when you are young, the easier retirement will be and the earlier you can do it all because of the power of compounding returns (assuming you invest what you save). Hopefully, Kelli can share some powerful examples with her grandchildren. Here is one:
Let’s say there is a set of triplets: Jane, Jill, and Justine.
- Jane starts saving when she is 25 and saves $1,000 a month until she is 35.
- Jill holds off and saves $1,000 a month from age 35–45.
- Justine waits even longer. But, she also saves $1,000 from age 45–55.
Jane, Jill, and Justine all saved $120,000 over a 10-year period, and all will earn a 7% return until they turn 65. But that is where the similarities end. Their ending balances will be dramatically different.
- Jane ends up with a whopping $1,444,969, all because her money could compound over the longest period of time.
- Jill has $734,407
- Justine, because her money compounded for the least amount of time, ends up with only $373,407
12. Plan Early and Regularly
When you create a retirement plan, you are also bound to discover some shoulda, coulda, wouldas.
Michelle said, “I discovered that I ought to be saving more.”
Frank wished he had saved into a Roth account earlier. He said, “Wish I had just paid the taxes when I earned the money. I had always believed I would be in a lower tax bracket when I retired. Then I learned about RMDs.”
Shana had an observation, “I have seen many people ‘retire’ and, because they are 62, immediately take Social Security and blindly go into retirement without knowing important things. Many realized that in all reality they couldn’t afford to retire and had to return to the workforce or live a lower budget lifestyle than they expected.
“And, even worse, they later realized the tax consequences of their uneducated decision to retire. The importance of having a look-ahead view and a drawdown retirement plan in place before retirement cannot be overemphasized.”
Bill suggests that “The biggest lesson was that waiting to age 60 to see a financial planner was dumb. We should have started in our 40s with checkpoints every 5 years.”
These regrets highlight the need to create a long-term plan for your wealth and security as early as possible. (Though it is never too late to get started, as the tip about teaching grandchildren to save shows, early planning does pay off.)
Learn about the importance of a quarterly retirement check-in.
13. Don’t Leave Planning to Your Spouse
Kelli learned another hard lesson. “I learned that not being involved in finances (my husband does it and did for all our marriage) is stupid. Everyone should know the status of numbers.”
It is not pleasant to think about, but the reality is that one spouse is going to outlive the other. And the surviving spouse is going to have to take over the financial plans. Furthermore, if only one spouse is doing the planning, the needs and wants of the other may not be accounted for.
14. It’s Hard to Trust the Numbers
Chris said, “My insight is that no matter what the numbers show, I mentally struggle to trust the numbers.”
Chris is not alone. A lot of people struggle with making the leap into retirement. After all, your entire way of living — earning a paycheck, saving money — gets turned upside down, and you are faced with spending what you have spent a lifetime accumulating.
If you are feeling like you are ready to retire, but can’t quite quit, you could be suffering from “one-more-year-ism.” This syndrome — delaying retirement for one more year — is common.
15. Adopt a Bucket Approach
David said, “I learned about the bucket approach – taking money from different sources at different times. This will allow me to maintain my lifestyle and be tax-efficient.”
A bucket approach can be a great way to take some appropriate investment risks with one “bucket” of your money and keep other “buckets” in more conservative investments.
16. Never Wanting to Retire
Jordana learned, “I never even want to retire, and that is what’s safest and healthiest for me anyway.”
This can be very true. If you enjoy your work, then sticking with it is a great “retirement” plan. Working keeps you mentally, physically, intellectually, and socially engaged. And, in the best of circumstances, it also gives you meaning and purpose.
Retired or not, aging well usually means that you can get the social interaction, sense of purpose, and stimulation that work provides.
Working longer may even lead to a longer and happier life.
17. Planning Enforces Priorities and Trade-Offs
Tom said, “I don’t know if I’d call it ‘gained’ insight, but the planning process reinforces the need to have priorities and continually revisit those priorities.”
Kenneth made a very specific self-aware trade-off. He conveyed that he learned, “Mostly that early retirement isn’t happening for me — at least not before age 55. It would be more stressful trying to juggle things than just working two more years.”
It is true that most people have limited retirement resources and can’t do everything. And, without a plan, you are apt to do whatever presents itself. By planning, you can decide what your priorities are and make sure that you organize around achieving or experiencing what is important to you.
18. Need to Think Through Long-Term Care
David realized that long-term care can be an expensive bomb in the best-laid plans. He said, “The main area that I want to really go deeper in planning is long-term care. Long-term care is a big wild card for me.”
Luckily, you have options for how you deal with this potential expense.
19. Unforeseen Possibilities
People tend to be worried about being able to retire. No one wants to jump in too soon and face the prospect of running out of money or not being able to afford healthcare.
However, creating a retirement plan often gives people the insight that retirement is entirely possible:
Henry said, “The insight I got was that I might be able to retire early.”
Rebecca discovered her early retirement date, “That retirement earlier than expected, maybe in our late 50s, is entirely possible.”
Kathleen discovered that “I am in good shape for retirement.”
J.C. echoed that sentiment and said, “I gained comfort in knowing that we are in fine shape.”
James found that he can “Feel really good about my retirement decisions.”
Lemuel declared that he had “Clarity, confidence, and optimism toward a financially secured retirement.”
Jolene found that they were ready for retirement: “We discovered that my husband and I could retire early — with or without passive income — and that we could reduce taxes in the coming years through conversions.”
Jun was able to say that, “Enough is enough.”
Mimi proclaimed, “I’m doing better than I thought.”
Sarah was delighted to learn, “That we can cut back on our business at the end of the year and semi-retire. We are going to cut back to about 1/3 our income and be fine. I’m so excited!”
And, the list goes on.
