Ready For Retirement
Ready For Retirement
The 3 Worst Retirement Mistakes I See All the Time
Think your tax bill disappears in retirement? Think again. It may drop for a few quiet years, until RMDs, Social Security taxation, and Medicare IRMAA kick in. That “low-tax retirement” dream can close fast.
Learn the retirement tax arc and how targeted Roth conversions during low-income years can cut lifetime taxes by six figures, reduce future RMDs, and give you more control over when you realize income.
In this episode, you'll learn to tackle the silent retirement killer: underspending. Fear of running out is real, and it often steals your best years. See how a living financial plan with projections, guardrails, and ongoing adjustments turns anxiety into informed choices. That way, you can say yes to travel, family, and experiences without second-guessing every swipe.
It's important that you remember to reframe your portfolio design for withdrawals. Growth still matters to beat inflation, but it needs partners. A practical three-bucket strategy blends long-term growth, stable reserves for downturns, and steady ballast to limit sequence-of-returns risk while protecting purchasing power.
This episode shows a practical path you can use now to align your tax planning, retirement spending, and investment strategy with the life you actually want.
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Advisory services are offered through Root Financial Partners, LLC, an SEC-registered investment adviser. This content is intended for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. Viewing this content does not create an advisory relationship. We do not provide tax preparation or legal services. Always consult an investment, tax or legal professional regarding your specific situation.
The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.
Comments reflect the views of individual users and do not necessarily represent the views of Root Financial. They are not verified, may not be accurate, and should not be considered testimonials or endorsements
Participation in the Retirement Planning Academy or Early Retirement Academy does not create an advisory relationship with Root Financial. These programs are educational in nature and are not a substitute for personalized financial advice. Advisory services are offered only under a written agreement with Root Financial.
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In my work as a financial advisor, I've worked with hundreds of retirees, and there are three common mistakes I see over and over and over again. So in today's video, I'm going to share with you what those three mistakes are, quantify for you how much this might be costing you, and then show you better ways to approach this so that you can make the most of your retirement years. So if you're nearing or in your retirement years already, avoiding these mistakes can help to save you money, stress, and even a tremendous amount of regret. So let's jump right in. The first mistake I see people make is ignoring the impact of taxes in their retirement years. So many people assume that they retire, their income goes down, what they need to live on goes down. So taxes just magically go down with it. Now the problem is for the first few years of retirement, this belief is confirmed. They do drop into a lower tax bracket, but let me actually show you what that looks like. Because if all you're focused on is the first two years and what things look like there, you might be neglecting a potential tax bomb that's waiting for you if you don't take the correct steps today. So let's take a look at Lori real quick. Lori is 61 years old today. Lori's a sample client to illustrate this purpose. She has about a million dollars in her portfolio and she's looking to retire in a few years. If we jump right to her tax strategy here, I want to start by understanding what is Lori expected to pay in taxes if there's no tax strategy that's executed upon. What it's going to show you is a common trap that people fall into when they retire. So if I go right to this page here, Lori's tax strategies and take a look at the details of what's the expected amount that she's going to pay in taxes, I can see her total taxable income today. So her taxable income today is her actual gross income minus any deductions that she has. Then what we can see is what's the total federal tax liability that she's expected to have each year. So in her working years, you can see that that's the number right here about 25,000 or so of federal taxes paid. And then that number drops next to nothing. Why is that? Well, it's because she has a good amount in her brokerage account. She's living on Social Security on top of that. So when she retires, there's not a lot of tax liability that she has. So this lures people into thinking that wow, I'm retired. I don't have to worry about taxes as much. And then what happens is this there's a few years of very low and even nothing in taxes. And then what happens is that number jumps up and it starts to creep back up a little bit and then required a minimum distribution start. You can see that her federal tax liability jumps right back to where it was in our working years and even starts to grow beyond that. So what can you do here? Well, number one, the first thing that you can do is recognize that your tax bill in retirement is not guaranteed to be lower than your tax bill in your working years. There's a lot of potential tax traps. Now, part of this is some normal and basic things, things like your federal income tax liability or state income tax liability. But then there's other components that aren't so basic or aren't so expected. Things like taxes on Social Security based upon your provisional income, things like Irma surcharges or Medicare taxes that you'll pay if you're not careful about how much income you're realizing year after year. So let's go right back to Lori's plan and see what she could do. It's a relatively simple thing that she could do to dramatically reduce the amount of taxes she needs to pay in retirement. So if we go back here, what I want to see is how much is she expected to pay in federal taxes? If she doesn't do anything, this is just a reflection of what we just looked at. She's paying about 25,000 or so in taxes today. She retires and she's in a 0% tax bracket. That feels really good. But before too long, required distributions kick back in and she's right back where she started, and that number even begins growing again. So what can she do? Well, what she can do is take advantage of these years right here. Take advantage of lower income years to say, how can we start to shift some of the money that's in pre-tax accounts and shift that via Roth conversions into Roth accounts? So, for example, if all I did was says, what if every year that Lori was underneath the 12% marginal tax bracket? What if she converted just enough from her IRA into her Roth IRA to pay taxes at a 12% rate on the top marginal dollar? Well, if she did that, what you can see here is right off the bat, that's going to result in over 145,000 fewer dollars being paid in federal income taxes. If we look before, this is what her taxes look like in terms of amounts paid year by year. Now, this is what that looks like. So, yes, she's prepaying some of those in some ways, but she's prepaying at a 12% rate as opposed to paying at a 22 or 24% or even higher rate in the future. So this is a relatively straightforward tax strategy, but so many people fail to appreciate it, and they fail to appreciate it because those first few years of retirement, they might be in a much lower tax bracket. And what they're not realizing is if you're not looking long term, you could be stuck when you do turn 73 or you do turn 75, stuck with a much higher tax bill. And at that point, it might be too late. So this is the first mistake I see people make. Sometimes it's related to Roth conversions, sometimes it's related to other tax strategy. But when you fail to appreciate the impact of taxes, you might overpay a dramatic amount in taxes than you otherwise would have if you had the right tax strategy. The second mistake I see people make in their retirement years is spending too little. Now, this is ironic because anytime we survey retirees, anytime we look for feedback, people's greatest fear is spending too much and running out of money. Now that makes sense. There's no coming back for that. If in your late 80s or 90s you run out of money, you're in a very difficult spot. So it's natural that that would be our greatest fear. But the greatest and most common thing we actually see is people who have more money than they've ever had at any point in their lives still living as if they're going to run out. And what that leads to, practically speaking, isn't just a safe financial plan. What that leads to is a less than ideal retirement. Because practically speaking, what that means is you're saying no to vacations, you're saying no to lifestyle, you're saying no to things you could be doing with your money that would enhance your overall retirement experience because you are stuck in the scarcity in this fear-based mindset. Now, that scarcity and that fear-based mindset, totally normal, totally common. But if we don't take steps to move out of that, all the saving we've done, all the investing we've done, all the planning we've done in some ways is for not. Maybe you don't run out of money, but you never really live. So what's the risk of that? The risk of that is you're not able to actually do with your money the things it was intended for. How do you get around that? Well, that's why we plan. That's why we create a financial plan. This is why we do what we do at Root Financial. And by the way, you saw that projection software we use for the tax stuff. If you want access to that, if you want to use that to run your own retirement strategies, you can get that. The link is in the notes below, the Retirement Planning Academy. But this is why you put a financial plan in place. This is why you model and you project and you run numbers on what might the future look like because we don't know. We don't know for certain, but if all we're doing is going into retirement with a scarcity-based mindset, it's going to lead us to naturally just spending less than we otherwise should have. We spend less, we spend low numbers, we don't actually use our portfolio. And sure we don't run out of money, but we never get around to living lives. So a big mistake I see is people don't plan for what their portfolio can do for them, for what their financial resources can do for them. And because of that, their retirement suffer because they don't get around to doing the things they wanted to do in retirement. And then finally, the third mistake I see over and over again in retirement is people pursuing the wrong investment strategy. Why do they pursue the wrong investment strategy? Well, there's this sense that this is what succeeded in getting me here. People had success in investing in certain types of things or taking a certain approach to get to retirement, and they think that by default, that just means it's the right approach throughout retirement. Well, the things that got you here are not the things that are going to get you there. The approach in retirement needs to shift from your approach leading up to retirement. That doesn't mean that the assets you own, the specific investments you own need to change wholesale pre-retirement to post-retirement. There's probably a good portion of them that might still be the right things to own. But the strategy that you take and the mindset that you take needs to change. Now, high level, here's the three things you need to think about when it comes to your investments. Number one, you need to have that growth engine. Too often people get too concerned about market downturns in retirement and it leads them to being far too conservative. They put money in things that isn't going to grow, and they think that that's going to protect them. Well, keep this in mind. If you have a 30-year retirement and inflation averages just 3% per year, then your expenses throughout retirement are going to increase by about 150%. Meaning if it costs you$100,000 today to live, that same exact lifestyle will cost closer to$250,000 by the end of your retirement. And that's not because you're enhancing your lifestyle, it's just to maintain your lifestyle as the value of the dollar continues to decline, even with a relatively modest inflation rate of 3%. If inflation's higher, all that is going to be even exaggerated. So what can you do? Well, number one, you need to ensure you have investments that are growing for you. And just because you have three or four great high-tech growth investments that have done really well over the last 10 years, doesn't mean that's the right thing for you going forward. So how do you build this growth engine that's going to outpace inflation to ensure you can keep up, your purchasing power can keep up over time? You need to have the right amount in your growth engine. So that's bucket number one. Bucket number two is you need some stable reserves. Long term, this growth engine, if we use the SP 500 as a proxy or as a benchmark, it's going by about 10% per year. If you could get 10% per year long term from that growth bucket, that's a very strong return. But there's never a consistent schedule on which that 10% return happens. Meaning you're not getting 10% this year and 10% next year and 10% the following year. You might get 30% this year, but then lose 30% the following year. So those returns are sporadic. And while that's fine in your working years because you just keep putting money into your 401k, you keep putting money into investments, that's not a good formula for success if that's how you're pulling money out, or if that's fully how you're invested in your retirement years. Because when the market's down 30, 40% and you're taking 5% or so to live on, that's not the right way to make your money last throughout retirement. So that's why, in addition to the growth engine, you need some stable reserves. You need money that you can live on. Think of it almost like the emergency fund for your portfolio, so that if and when there's a prolonged downturn in the growth engine, you have reserves that you can draw from. These aren't going to be the investments that grow a whole lot over time, but it's the thing that allows you to continue meeting your income needs without having to withdraw the principal, without having to sell your growth engine when those investments are down. Then third, the third bucket or sleeve that you might want to own is more of that ballast, more of that type of investment that's not necessarily there for stable reserves, it's not there for the growth engine, but it helps to balance everything out. And this is one of those investment categories that's there on an if needed basis. If needed, meaning if you're not as comfortable with having too much money or a big portion of your money in the growth engine, which turns out to be in most cases the stock market, you might need to have something else, helps to balance that a little bit. So this is more of a piece where it's a know thyself. How do you do when markets are volatile, when markets are up and down? And how do you combine these three pieces to design the right portfolio for you in your retirement years? That may look similar to what your portfolio looked like in your working years, or it may look completely different. But a mistake I see over and over and over again is people who look at their returns over the last five to 10 years and say this portfolio worked then, it must work over the next 20 to 30 years. That is a surefire way to put your retirement at unnecessary risk, to subject yourself to the risk of having to go back to work or having to depend upon someone else if your investments aren't doing what they need to do. So these are the three mistakes I see far too often. Number one, ignoring taxes. Number two, not spending enough. And number three, investing the same way in your retirement years as you do leading up to your retirement years. If you address these three things, if you create a plan for these three things, your odds are you're gonna have a much more successful retirement outcome than you would if you didn't do any of these. Now, if you're looking at this and you're saying, where do I start with all this? Start by reaching out to a financial advisor. If you don't know where to go, root financial. This is exactly what we do. You can see our website in the link below. We help people all day, every day with things just like that. So if you're looking for guidance and you're looking for help, reach out to an advisor. If that's root, great. If it's someone else, great. But make sure that you have a plan in place to avoid these mistakes so that you can live the best possible retirement.
