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Category: Financial Planning

Warren Buffett Estate Planning Advice: Why You Should Share Your Will With Your Children

“Legacy is not about leaving something for people. It’s about leaving something behind in people.”

This powerful quote from Peter Strobel captures something that most retirees overlook when creating their estate plans.

They draft up that big binder with their will, power of attorney, health care directives, and maybe a living trust. Hopefully, they get everything properly titled, update their beneficiaries, and then throw that binder in some safe. They tell their kids where the key is and call it done.

However, they ignore a crucial reality: someday, their beneficiaries will read those documents. Those beneficiaries may have questions, concerns, or worse, anger about decisions they don’t understand. Warren Buffett has a different approach to estate planning that could be the most important advice you’ll ever hear on this topic.

Warren Buffett’s Revolutionary Estate Planning Approach

The November 2024 annual Thanksgiving letter from Warren to his foundations reveals insights that go far beyond charitable giving. In this letter, Buffett announced another significant gift—converting 1,600 Class A shares, worth $2.4 billion, into Class B shares for distribution to four family foundations. The real wisdom comes from what he learned after his first wife, Suzy, died in 2004.

When Suzy passed away, her estate was valued at roughly $3 billion. The majority of the assets (96%) went to their foundation for tax purposes. She left $10 million to each of their three children—the first large gift any of them had ever received. This decision reflected their belief that “hugely wealthy parents should leave their children enough so they can do anything, but not enough that they can do nothing.”

Buffett will ultimately give 99.5% of his estate to charities and foundations. The remaining 0.5%—still worth $750 million—is going to his children. What makes his approach different? From 2006 to 2024, he had the chance to observe each of his children in action with their inheritance. He watched how they handled large-scale philanthropy and gained insight into their character through their decisions.

Game-Changing Warren Buffett Estate Planning Advice

Here’s the specific Warren Buffett estate planning advice that could transform how you approach your own estate planning:

“I have one further suggestion for all parents, whether they are of modest or staggering wealth. When your children are mature, have them read your will before you sign it. Be sure that each child understands both the logic for your decisions and the responsibilities they will encounter upon your death. If they have any questions or suggestions, listen carefully and adopt those you find sensible.”

Buffett continues: “You don’t want your children asking ‘why’ with respect to testamentary decisions when you are no longer able to respond. Over the years, I have had questions or commentary from all three of my children and have often adopted their suggestions. There is nothing wrong with my having to defend my thoughts. My dad did the same with me.”

The wisdom becomes even clearer when Buffett and his late partner, Charlie Munger, reflect on what they’ve witnessed.

“Over the years, Charlie and I saw many families driven apart after the posthumous dictates of the will left beneficiaries confused and sometimes angry. Jealousies, along with actual or imagined slights during childhood, become magnified, particularly when sons were favored over daughters, either in monetary ways or by positions of importance. Charlie and I also witnessed a few cases where a wealthy parent’s will, that was fully discussed before death, helped the family become closer. What could be more satisfying?”

This approach to discussing wills with adult children represents a fundamental shift from traditional estate planning. Don’t treat your will as a secret document to be revealed after death. Allow it to become a tool for family communication and relationship building while you’re still alive to participate in the conversation.

Why This Estate Planning Family Approach Works

The power of this Warren Buffett estate planning advice lies in its focus on relationships over transactions. Most estate planning focuses on tax efficiency, asset protection, and legal compliance. While these elements matter, they overlook the human element entirely. Your estate plan isn’t just about distributing assets. It’s about preserving family relationships and ensuring your values continue beyond your lifetime.

When you engage in estate planning family discussions before your death, several important things happen. First, you can address questions and concerns while you’re still able to respond. Nothing creates family conflict like unanswered questions about a deceased parent’s intentions. Second, you can learn from your children’s perspectives and potentially improve your estate plan based on their input. Third, you demonstrate respect for your children as adults capable of handling serious family matters.

The transparency also helps prevent the magnification of childhood grievances that Buffett mentions. When adult children don’t understand estate planning decisions, they often interpret them through the lens of old family dynamics. The child who felt less favored growing up might perceive an unequal inheritance as confirmation of their parents’ preferences, even when the real reason was practical considerations, such as different financial needs or circumstances.

Three Challenges With Implementing This Advice

While this Warren Buffett estate planning advice sounds straightforward, implementing it can feel daunting for several reasons. Understanding these challenges helps you prepare for and overcome them.

The Privacy and Transparency Struggle

The first challenge involves your own comfort with transparency. If you’ve never had open conversations about money with your adult children, suddenly announcing a family meeting about your estate plan might feel awkward or concerning. Your children might wonder if you’re facing health issues or if something dramatic has changed in your financial situation.

This privacy concern is often more about your own mental barriers than actual problems. Many parents worry about their children’s reactions to learning about their family’s wealth, or they fear that financial discussions will alter family dynamics. The reality is that your children will eventually learn about your financial situation. The question is whether they learn while you’re alive to provide context and answer questions, or after you’re gone, when confusion and conflict are more likely.

Spendthrift Concerns Within the Family

The second challenge arises when you have concerns about one or more of your children’s ability to handle inheritance responsibly. Maybe one child has struggled with substance abuse, gambling, or simply poor financial decision-making. Perhaps you’re concerned about a child’s spouse who appears to have extravagant tastes or questionable financial judgment.

These concerns are valid and common. Not all family members are equally prepared to handle significant inheritances, and pretending otherwise doesn’t serve anyone’s interests. However, avoiding the conversation entirely often makes these problems worse. When spendthrift children learn about their inheritance after your death, they have no opportunity to demonstrate improved judgment or to understand why certain restrictions were put in place.

Relationship Issues Between Your Children

The third challenge occurs when relationships between your children are strained or broken. Maybe your two adult children haven’t spoken in years due to some unresolved family conflict. The idea of bringing them together for family estate planning meetings might seem impossible or counterproductive.

These relationship issues can make estate planning conversations more complex, but they also make them more necessary. When family relationships are strained, unclear, or seemingly unfair, estate planning decisions can permanently destroy any chance of reconciliation. Addressing these issues proactively, even if it requires separate conversations with different children, helps prevent your estate plan from becoming another source of family conflict.

Five Proactive Solutions for Successful Family Estate Planning Meetings

Recognizing these challenges is the first step toward overcoming them. Here are five specific strategies to make the process of discussing your Will with adult children more manageable and effective.

Prepare for Objections and Questions

The first strategy involves putting yourself in your children’s shoes and anticipating their likely questions or concerns. Think about decisions in your estate plan that might surprise them or seem unfair from their perspective. Maybe you’ve left different amounts to different children based on their financial needs. Or, you’ve chosen one child as executor because of their location or skills.

Instead of waiting for your children to raise these issues, address them proactively during your family estate planning meetings. Explain your reasoning before they have to ask. This approach demonstrates that you understand their perspectives and have thoughtfully considered the impact of your decisions on them. It also prevents them from feeling like they have to challenge you to get explanations.

For example, if you’ve left more money to one child because they have special needs, while another child is financially successful, explain this reasoning up front. Help them understand that your goal is fairness based on need, not favoritism based on preference.

Involve Your Trustee or Power of Attorney

Your second strategy should involve the people you’ve chosen to handle your affairs after your death. Whether it’s one of your adult children, a sibling, or a trusted friend, these individuals will be responsible for implementing your estate plan and dealing with family dynamics after you’re gone.

Having a conversation with your chosen trustee or power of attorney before your family meeting serves several purposes. First, it helps them understand their role and prepares them for potential family conflicts. Second, it gives you another perspective on how to approach difficult conversations. Third, it demonstrates to your other children that you’ve chosen your representatives thoughtfully and with their input.

Ask your trustee how they would handle the conversation if they were in your position. They might have insights about family dynamics that you haven’t considered. They may also suggest ways to present information that reduces the likelihood of conflict.

Share Information Gradually

The third strategy recognizes that you don’t need to share every detail of your financial situation all at once. Estate planning family discussions can start with the structure and reasoning behind your decisions without necessarily revealing specific dollar amounts.

Most estate plans are structured in percentages rather than fixed dollar amounts. This structure allows for changes to your net worth over time. You can explain that you’re dividing your estate equally among your children, or that you’re leaving different percentages based on specific criteria, without necessarily disclosing your current net worth.

This gradual approach allows you to gauge your children’s reactions and comfort level before sharing more sensitive information. It also helps you maintain appropriate boundaries while still achieving the transparency that makes this Warren Buffett estate planning advice so effective.

However, if your estate is substantial enough that the inheritance will significantly impact your children’s lives, they probably should know the approximate magnitude. A child who’s going to inherit $10 million needs different preparation than one who’s going to inherit $100,000.

Implement Lifetime Gifting Strategies

The fourth strategy involves following Buffett’s example of giving with a “warm hand” rather than a “cold one.” Consider making significant gifts to your children during your lifetime, allowing you to observe how they handle the money and responsibility.

This approach serves multiple purposes in family discussions related to your estate planning.

  1. It gives you real data about your children’s financial judgment and decision-making.
  2. It allows you to adjust your estate plan based on what you learn.
  3. It demonstrates your confidence in your children’s ability to handle inheritance responsibly.

One client regularly gifts substantial amounts to her daughters each year. Over time, she’s watched them use the money wisely:

  • Helping their own children
  • Funding education
  • Making thoughtful financial decisions

Based on this track record, she recently doubled her annual gifts because she’s confident they’ll handle larger inheritances well.

If you discover that a child isn’t handling lifetime gifts responsibly, you can address this through education, additional support, or adjustments to your estate plan while you’re still alive to explain your reasoning.

Engage Your Financial Advisor

The fifth strategy involves leveraging your relationship with your financial advisor to facilitate these conversations. This approach works for several reasons:

  1. It provides a neutral third party to guide the discussion.
  2. It demonstrates that your estate planning decisions are based on professional advice rather than personal favoritism.
  3. It gives your children access to ongoing financial guidance.

Your financial advisor can help structure family estate planning meetings in a way that feels less personal and more educational. Instead of having to defend your decisions, your advisor can explain the reasoning behind different strategies. They can also help your children understand the complexities involved in estate planning.

This approach also helps when you need to implement strategies that might seem unfair on the surface. For example, if you’re using trusts for some children but not others based on their different circumstances, your advisor can explain how these decisions serve each child’s best interests rather than reflecting your preferences.

Many financial advisors are experienced in facilitating these family conversations. They can also provide valuable guidance on how to present information effectively. By continuing to work with your children after your death, they provide continuity and ongoing support during what can be a difficult transition period.

Preventing Family Conflicts Inheritance Issues Before They Start

The ultimate goal of implementing this Warren Buffett estate planning advice is to prevent family conflicts and inheritance disputes that can permanently damage relationships. When estate disputes tear families apart, it’s rarely about money itself – it’s about feeling unheard, misunderstood, or unfairly treated.

By engaging in open estate planning family discussions while you’re alive, you address these emotional issues before they can fester into permanent resentments. Your children have the opportunity to ask questions, express concerns, and understand your reasoning. You have the chance to learn from their perspectives and potentially improve your estate plan based on their input.

This process also helps your children prepare emotionally and practically for their inheritance. They understand not just what they’ll receive, but why you made specific decisions and what responsibilities come with their inheritance. This preparation makes the transition after your death smoother and less likely to generate conflict.

The Broader Impact on Your Legacy

Remember that legacy isn’t just about the assets you leave behind. It’s about how you’re remembered and the impact you have on future generations. Families that engage in thoughtful estate planning discussions often find that the process brings them closer together. These talks also create opportunities for meaningful conversations about values, goals, and family history.

When you follow this Warren Buffett estate planning advice, you’re modeling transparency, thoughtfulness, and respect for your children as adults. You’re demonstrating that family relationships matter more than maintaining control or avoiding difficult conversations. These lessons often have more lasting impact than the financial inheritance itself.

The process also creates opportunities to share your values and hopes for how your children will use their inheritance. Instead of leaving them to guess your intentions, you can explain what matters to you and how you hope they’ll carry forward your family’s values and traditions.

Taking Action on This Estate Planning Advice

If this Warren Buffett estate planning advice resonates with you, the question becomes how to get started. The process doesn’t have to be overwhelming or happen all at once. You can begin with small steps that gradually build toward more comprehensive family estate planning meetings.

Start by reviewing your current estate plan and identifying decisions that might benefit from explanation or discussion. Consider which of your children may be most receptive to initial conversations. Think about whether you want to involve professional advisors in the process.

Remember that the goal isn’t to create perfect agreement or eliminate all potential for family conflict. The goal is to:

  1. Ensure that your children understand your reasoning.
  2. Have opportunities to ask questions.
  3. Feel respected as adults capable of handling serious family matters.

For many families, this process reveals that estate planning conversations aren’t as difficult or uncomfortable as anticipated. Often, adult children appreciate being included in these discussions and value the opportunity to understand their parents’ thoughts and plans.

Professional Support for Your Estate Planning Journey

Implementing this Warren Buffett estate planning advice often works best with professional guidance. Financial advisors who specialize in working with families can help

  • Structure these conversations
  • Provide neutral perspectives
  • Help ensure that your estate plan aligns with your family’s needs and goals

If you’re interested in exploring how professional financial planning support could help you implement these strategies, consider starting with a retirement readiness assessment. This process helps

  1. Identify your current situation.
  2. Clarify your goals.
  3. Determine whether professional guidance would be beneficial for your specific circumstances.

The most successful estate planning family discussions happen when parents feel confident about their overall financial plan and estate strategy. Clarity about your own goals and resources better positions you to have productive conversations with your children about their future inheritance and responsibilities.

Working with experienced financial planners also provides your children with ongoing support and guidance after your death. This continuity can be invaluable during what is often a difficult and emotional transition period.

Your Family’s Financial Future Starts With Conversation

Warren Buffett’s approach to estate planning offers a powerful alternative to the traditional “sign the documents and put them in a safe” approach that most families use. By engaging in open, honest conversations about your estate plan while you’re alive, you can prevent family conflicts, strengthen relationships, and ensure that your legacy reflects your values and intentions.

The challenges involved in discussing a will with adult children are real. The right preparation and approach make them manageable. The five strategies outlined here provide a framework for getting started.

Remember that legacy is about more than money. It’s about the impact you have on the people you care about. By following this Warren Buffett estate planning advice, you’re investing in your family’s relationships and future in ways that extend far beyond financial inheritance.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

9 Pieces of Questionable Retirement Planning Financial Advice to Avoid

Retirement should be the golden years of your life, but following the wrong retirement financial advice can turn your dream into a financial nightmare. Every day, well-meaning friends, family members, and even financial professionals share advice that sounds reasonable on the surface but can destroy your financial security.

When it comes to retirement planning financial advice, not all guidance is created equal. You’ve probably heard countless “rules” about how to prepare for retirement. The world of retirement planning financial advice is filled with oversimplified rules that ignore your unique circumstances, goals, and risk tolerance.

As someone planning for retirement, you deserve better than cookie-cutter advice that treats every situation the same. The retirement planning strategies that work for your neighbor might be completely wrong for you. That’s why it’s crucial to understand which pieces of commonly shared advice should be approached with caution—or avoided altogether.

In this article, we’ll examine nine pieces of questionable financial advice for retirement planning that you’ve likely encountered. More importantly, we’ll explain why these suggestions can be problematic and what you should consider instead.

1. “Don’t Pay Off Your Mortgage Early — Invest the Difference!”

This advice sounds mathematically sound on the surface. If your mortgage rate is 4% and you can earn 7% in the stock market, investing seems like the obvious choice. However, this retirement planning financial advice ignores several critical factors that could make it dangerous for your financial security.

The problem with this approach is that it assumes market returns are guaranteed and consistent. In reality, market volatility can devastate your portfolio just when you need the money most. If you’re approaching retirement and the market crashes, you could find yourself with both a mortgage payment and a depleted investment account.

There’s also the psychological benefit of owning your home outright. Having no mortgage payment in retirement provides tremendous peace of mind and reduces your required monthly income. This flexibility can be invaluable if you face unexpected health expenses or market downturns.  I’ve advised clients on paying off the mortgage simply because of the mental win they experience by having no debt in retirement. 

A better approach considers your complete financial picture. If you have substantial retirement savings and can handle market volatility, investing might make sense. However, ignoring the behavioral component of paying off the mortgage might do more harm than good. 

2. “Always Delay Social Security Until 70.”

This piece of retirement planning financial advice has become gospel in many financial circles, but it’s far from universally applicable. While delaying Social Security until age 70 can increase your monthly benefit by up to 32% compared to claiming at full retirement age, this strategy isn’t right for everyone.

Your health status plays a crucial role in this decision. If you have serious health conditions or a family history of shorter lifespans, claiming earlier might provide more total lifetime benefits. The break-even point for delaying benefits typically occurs around age 80-82, so you need to live well beyond that to maximize the advantage.

Financial circumstances also matter significantly. If you need income immediately and don’t have sufficient retirement savings to bridge the gap until 70, claiming earlier makes perfect sense. There’s no point in depleting your retirement accounts to delay Social Security if it leaves you financially stressed.

Market conditions and your other retirement planning strategies should also influence this decision. If you’re still working and earning a high income, delaying Social Security while contributing to retirement accounts might be beneficial. However, if you’re unemployed or underemployed in your 60s, claiming benefits could provide necessary financial stability.

3. “Buy Permanent Life Insurance as a Savings Vehicle.”

This advice often comes from insurance agents who earn substantial commissions on permanent life insurance policies, but it’s rarely the best retirement planning strategy for most people. While permanent life insurance does offer tax-deferred growth and a death benefit, the costs and complexity usually outweigh the benefits.

Permanent life insurance policies come with high fees, including mortality charges, administrative costs, and surrender charges that can persist for many years. These fees significantly reduce your investment returns, especially in the early years of the policy. You might find that the cash value grows much slower than expected due to these ongoing expenses.

The investment options within permanent life insurance policies are typically limited and may underperform compared to what you could achieve with direct investments in mutual funds or ETFs. You’re essentially paying for insurance coverage you might not need while accepting inferior investment performance.

A more effective approach for most people involves buying term life insurance for protection needs and investing the difference in tax-advantaged retirement accounts like 401(k)s and IRAs. This strategy typically provides better investment returns and more flexibility while costing significantly less.

4. “You Don’t Need a Roth…You’ll Be in a Lower Tax Bracket in Retirement.”

This assumption about tax brackets in retirement has become increasingly questionable, making it potentially harmful retirement planning financial advice. Many retirees discover that their tax situation in retirement is more complex than they anticipated, and they may not be in the lower tax bracket they expected.

Required Minimum Distributions (RMDs) from traditional retirement accounts can push retirees into higher tax brackets than they experienced during their working years. When you add Social Security benefits, pension income, and investment gains, your taxable income in retirement might be substantial.

Tax laws are also subject to change, and current historically low tax rates may not persist throughout your retirement. Having tax diversification through both traditional and Roth accounts provides flexibility to manage your tax burden regardless of future tax law changes.

The best retirement planning advice regarding Roth accounts considers your current tax situation, expected future tax situation, and the potential for tax law changes. Many people benefit from having both traditional and Roth retirement accounts, allowing them to optimize their tax strategy based on their circumstances each year in retirement.

5. Chasing Investment Fads

Investment fad-chasing represents one of the most dangerous retirement planning mistakes to avoid. Whether it’s cryptocurrency, meme stocks, or the latest “hot” sector, chasing performance can devastate retirement portfolios, especially for those approaching or in retirement.

The problem with chasing fads is timing. By the time an investment becomes popular enough for mainstream attention, early investors have often already captured most of the gains. Late investors frequently buy at or near peak prices, setting themselves up for significant losses when the fad inevitably cools.

Sequence of returns risk makes this particularly dangerous for retirees. If you chase a fad that crashes early in your retirement, you might never recover the losses because you’re simultaneously withdrawing money for living expenses. This double hit of poor returns and withdrawals can permanently damage your portfolio’s ability to support your retirement.

Successful retirement planning strategies focus on diversification, consistent contributions, and staying the course through market cycles. Rather than chasing the latest trend, build a balanced portfolio aligned with your risk tolerance and time horizon.

6. “Just Self-Fund Long-Term Care. Insurance is a Ripoff.”

This advice might seem logical if you have substantial assets, but it ignores the potentially catastrophic costs of long-term care. The median annual cost for a private nursing home room exceeds $127,750, while home health services average $77,792 annually. These costs can quickly deplete even substantial retirement savings.

Medicare provides only limited long-term care coverage, typically up to 100 days in a skilled nursing facility under specific conditions. Most long-term care needs don’t qualify for Medicare coverage, leaving you responsible for the full cost.

Self-funding long-term care also assumes you’ll have family members available and willing to provide care. This assumption may not hold true, especially as families become more geographically dispersed and adult children face their own career and family obligations.

Long-term care insurance isn’t perfect, but it can provide valuable protection against catastrophic care costs. Hybrid life insurance policies with long-term care riders offer another option, providing benefits whether you need care or not. The key is evaluating your specific situation rather than dismissing insurance entirely.

7. “Annuities Are Bad,” AND “Annuities Are the Be-All End-All.”

Both extreme positions on annuities represent poor financial advice for retirement planning. Like most financial products, annuities have both advantages and disadvantages that make them appropriate for some situations but not others.

The “annuities are bad” crowd often focuses on high fees, limited liquidity, and complex contract terms. These are legitimate concerns, especially with variable annuities that can carry annual fees exceeding 3%. However, this perspective ignores situations where guaranteed income might be valuable.

Conversely, the “annuities solve everything” approach oversells their benefits while downplaying significant drawbacks. Some financial professionals push annuities because of high commissions rather than client suitability.

The reality is that annuities can provide valuable guaranteed income for retirees who prioritize security over growth potential. Simple immediate annuities or deferred income annuities can be appropriate for a portion of retirement assets, especially for people without pensions who want guaranteed income beyond Social Security.

8. “Follow the 4% Rule and You’ll Be Fine.”

The 4% withdrawal rule has become one of the most widely cited pieces of retirement planning financial advice, but treating it as gospel can be dangerous. This rule suggests you can safely withdraw 4% of your portfolio value in the first year of retirement, then adjust that amount for inflation each subsequent year.

The 4% rule assumes a specific portfolio allocation (50% in stocks and 50% in bonds) and doesn’t account for personalized risk tolerance and asset allocation strategy.

The rule also assumes constant spending throughout retirement, which doesn’t reflect reality for most retirees. Spending typically decreases in later retirement years, except for potential healthcare costs. A more flexible approach might allow for higher withdrawals in early retirement when you’re more active.

Dynamic withdrawal strategies offer better alternatives to the rigid 4% rule. These approaches adjust withdrawal rates based on portfolio performance, market conditions, and remaining life expectancy. While more complex, they can provide better outcomes in various market scenarios.

9. “Convert All of Your IRA to Roth!”

This advice has gained popularity as Roth accounts have become mainstream, but converting your entire traditional IRA to Roth can be a costly mistake. Large conversions can push you into higher tax brackets, resulting in unnecessary tax payments.

The tax impact of massive Roth conversions can be severe. If you convert $500,000 in a single year, you might jump from the 22% tax bracket to 37%, paying far more in taxes than necessary. This defeats the purpose of tax-efficient retirement planning strategies.

Market timing also affects conversion decisions. Converting when your account values are depressed due to market downturns can be smart, but converting at market peaks means paying taxes on inflated values that might subsequently decline.

A better approach involves strategic partial conversions spread over multiple years. Convert amounts that keep you within your current tax bracket or fill up lower tax brackets. This strategy provides tax diversification while minimizing the immediate tax impact.

Why These Common Retirement Planning Strategies Can Backfire

Understanding why certain retirement planning strategies can backfire helps you make better decisions about your financial future. The common thread among problematic advice is the assumption that one-size-fits-all solutions work for everyone’s unique situation.

The best retirement planning advice recognizes that your situation is unique and requires personalized strategies rather than universal rules. Effective retirement planning considers your health, family situation, risk tolerance, and financial goals.

Professional guidance becomes valuable when navigating these complex decisions. A qualified retirement financial advisor can help you evaluate trade-offs and develop strategies tailored to your circumstances. They can also help you avoid the retirement planning mistakes to avoid that we’ve discussed.

Conclusion

Retirement planning is too important to rely on oversimplified rules or one-size-fits-all advice. The nine pieces of questionable retirement planning financial advice we’ve examined all share a common flaw: they ignore individual circumstances in favor of universal solutions.

Your retirement planning strategies should reflect your unique situation, goals, and risk tolerance. What works for your friends, family members, or coworkers might not be appropriate for you. Take time to understand the reasoning behind any advice you receive, and don’t hesitate to seek second opinions on major financial decisions.

Remember that the best retirement planning advice considers multiple factors and provides flexibility to adapt as circumstances change. By avoiding these common pitfalls and focusing on personalized strategies, you’ll be better positioned to achieve your retirement goals and maintain financial security throughout your golden years.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help in your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel. This is for general education purposes only and should not be considered as tax, legal, or investment advice.


6 Smart Retirement Strategies When You’ve Oversaved

If you’re like most high achievers I work with, you probably spend way too much time comparing yourself to others. Maybe you’re scrolling through social media, seeing someone’s luxury vacation photos, or reading anonymous posts about retirement savings that make you question whether you’ve done enough. But what if I told you that many successful people face the opposite problem—they’ve actually saved too much for retirement?

The Gap and the Gain

This reminds me of a powerful concept I discovered in Dan Sullivan’s book “The Gap and the Gain.” Most of us live in “the gap.” We’re constantly measuring where we are against where we want to be in the future. We’re always chasing the next milestone, the next savings target, the next achievement. But there’s another way to think about your progress: measuring backwards from where you started.

When I think about my own business journey, I can either

  • Focus on how far we still need to go to reach our future goals
  • Celebrate many of the achievements that seemed impossible when we started in February 2021

The same principle applies to your retirement planning. Instead of worrying about whether you have “enough,” consider how far you’ve come from your starting point.

Many successful professionals find themselves overfunding their retirement accounts without realizing it. You’ve been disciplined savers for decades, making sacrifices and staying focused on your goals. The challenge with overfunding isn’t having too much money. It’s knowing how to optimize it for maximum impact during your lifetime and beyond.

What Does It Mean to Be Overfunded for Retirement?

Being overfunded for retirement means your financial plan shows you have significantly more resources than you need to maintain your desired lifestyle throughout retirement. In technical terms, this typically means having a Monte Carlo simulation success rate of 90% or higher.

What Is A Monte Carlo Simulation?

A Monte Carlo simulation runs 1,000 different hypothetical scenarios with varying market returns to stress-test your retirement plan. If you’re at 90%, that means in 900 out of 1,000 scenarios, you never need to make lifestyle adjustments. The remaining 100 scenarios represent extreme market conditions. For example, the “lost decade” from 2000 to 2010, when U.S. stocks were negative due to the dot-com crash and Great Recession.

Using Monte Carlo simulation results, many retirees and pre-retirees discover they have more capacity than expected. What’s particularly telling is looking at the median trial—scenario number 500—which shows your likely portfolio value at the end of your life. For overfunded retirees, this number is often two to three times their starting portfolio value, even after decades of spending on travel, gifts, and lifestyle expenses.

Here’s what this means in practical terms. If you have $2 million today, and your median ending portfolio value is $4-6 million, you’re leaving substantial wealth on the table during your lifetime. That money could be used to

  • Make memories with loved ones
  • Support family members
  • Make charitable impacts while you’re alive to see them

The reality is that $2 million today doesn’t feel as wealthy as it once did. Inflation has changed the purchasing power dramatically. In many parts of the country, a million dollars barely covers a starter home. But when your financial plan shows you’ll likely end with significantly more than you started with, despite living well, you have options that most retirees don’t.

Strategy 1: Retire Earlier Than You Initially Planned

The most obvious benefit of overfunding is the ability to retire earlier than you originally planned. I recently worked with a client in their 50s who assumed they needed to work until 62 to maximize their pension and start Social Security early. After running their numbers, we discovered they could retire today if they wanted to.

Now, I’m not suggesting you should retire just because you can financially. Retirement creates a lot of free time and mental space that needs to be filled with purpose. When you’re on the treadmill of working life, it’s difficult to step back and really think about what you want to do in your next chapter. Who do you want to spend time with? Where do you want to live? What kind of impact do you want to make?

But knowing you have the financial freedom to retire early opens up possibilities you might not have considered. Maybe you’ve always wanted to start that business venture, write a book, or serve on a nonprofit board. Perhaps you want to pursue a “second act” that’s more about passion than paycheck. When you’re focused on retirement planning over 50, overfunding becomes a real possibility that can fund these dreams.

Early retirement also allows you to gradually dial back your work commitments rather than stopping abruptly. You might

  • Reduce your hours
  • Take on consulting projects
  • Redirect the money you were saving for retirement toward other goals

The key is having a plan for what you’re retiring to, not just what you’re retiring from.

Strategy 2: Spend More Intentionally Without Guilt

You’ve earned the right to spend without guilt. After decades of disciplined saving and careful budgeting, it’s time to upgrade your experiences and lifestyle in meaningful ways.

This might mean flying first class instead of coach, especially on longer trips where comfort makes a real difference. Or staying longer at destinations—turning a week-long vacation into a month-long adventure. Many of my clients discover they can book nicer accommodations, take their entire family on trips, and create experiences they’ll remember forever.

The concept of “giving with a warm hand versus a cold one” also applies to experiences. Instead of just leaving money to your children and grandchildren, create memories together while you’re alive to enjoy them. Things like

  • Taking your family to Europe
  • Renting a house for everyone at the beach
  • Funding educational trips for grandchildren

These experiences often mean more than a future inheritance.

Intentional spending also includes services that free up your time for more important activities. Maybe you hire a housekeeper, landscaping service, or personal assistant. If you love golf but hate yard work, paying someone else to maintain your lawn gives you more time on the course. These services aren’t luxuries when they allow you to focus on what truly matters to you.

The psychological shift from “I can’t afford that” to “Is this worth it to me?” is profound. When your financial plan shows you have more than enough, spending decisions become about value and priorities rather than affordability.

Strategy 3: Take More Investment Risk for Greater Returns

What I’m about to say may seem counterintuitive. Having excess retirement funds actually gives you the capacity to take on more investment risk if you choose. When your Monte Carlo simulation shows you’ll be fine, even in market downturns lasting five or six years, you can potentially earn higher long-term returns.

Higher returns over 10, 15, or 20 years can significantly increase your ability to make an impact during your lifetime and leave a larger legacy. More money means more options for family gifts, charitable giving, and lifestyle enhancement.

This doesn’t mean being reckless with your investments. It means understanding that you have the financial capacity to weather market volatility because your spending needs are well-covered even in worst-case scenarios. You can potentially allocate more to growth investments and less to conservative bonds or cash.

The key is matching your risk capacity (what you can afford to lose) with your risk tolerance (what you’re comfortable losing). Being overfunded gives you more flexibility in this equation.

Strategy 4: Take Less Investment Risk and Sleep Better

On the flip side, being overfunded also gives you the option to reduce investment risk significantly. If you’ve been riding the market roller coaster for 30 years and you’re tired of the volatility, you’ve earned the right to step off.

This is the “if you’ve won the game, stop playing” approach. You can

  • Dial back your stock allocation
  • Increase bonds and cash
  • Focus on preserving what you’ve built rather than growing it aggressively

Sure, your returns might be lower. However, they’ll be more predictable, and you’ll still have more than enough to fund your lifestyle.

Many clients find this approach appealing as they get deeper into retirement. The peace of mind that comes from knowing your portfolio won’t drop 30% in a market crash can be worth more than the potential for higher returns.

Additionally, if you have guaranteed income from pensions or Social Security covering your basic expenses, you have even more flexibility with your investment portfolio.

Strategy 5: Gift More During Your Lifetime

The ability to make a meaningful impact on your family while you’re alive to see it is where overfunded retirement really shines. For 2025, you can gift up to $19,000 per year per recipient without filing any gift tax forms. For married couples, that’s $38,000 per recipient, and if you have multiple children and grandchildren, the numbers add up quickly.

But lifetime gifting isn’t just about the money—it’s about the conversations and lessons that come with it. When you give your adult children or grandchildren money, use it as an opportunity to teach them the financial principles that got you to where you are today. Explain

  1. Why you’re gifting the funds
  2. What you hope they’ll do with the money
  3. How you built the wealth you’re now sharing

These conversations help you understand what kind of stewards your beneficiaries will be with larger inheritances. If you gift money for a down payment but they spend it on luxury items instead, that tells you something important about their financial maturity and decision-making.

Charitable Giving

Charitable giving is another powerful option. If you’re over 70½, you can make qualified charitable distributions directly from your IRA up to $107,000 annually (in 2025) without paying taxes on the withdrawal. This is particularly valuable if you don’t need your required minimum distributions for living expenses but are forced to take them anyway.

Donor-Advised Funds

Donor-advised funds offer another flexible approach. You can bunch several years of charitable gifts into one tax year to

  1. Exceed the standard deduction threshold
  2. Get the immediate tax benefit
  3. Distribute the funds to charities over time

Strategy 6: Leave a Multi-Generational Impact

Some people prefer not to make their children’s lives “too easy” during their lifetime. It’s the belief that a healthy dose of struggle builds character. If this describes your philosophy, being overfunded gives you the opportunity to impact multiple generations with the wealth you’ve created.

Think about the power of compound growth over decades. A $2 million portfolio that grows to $8-10 million by the time you’re 90 could

  • Fund college educations for great-grandchildren not yet born
  • Start family businesses
  • Create charitable foundations that operate in perpetuity

If this is your plan, you need to be extremely thoughtful about the structure.

  1. How will the money be distributed?
  2. At what ages can beneficiaries access funds?
  3. What are the funds intended for?
  4. Should assets be held in trust with professional management?

More importantly, you need to have conversations with your family about how you built this wealth and what it represents. Share the story of your sacrifices, discipline, and decision-making. Help them understand that this money isn’t just a windfall—it’s the result of decades of intentional choices.

I think about my great-grandfather, who built a rice mill business in China and Burma. His multi-generational impact allowed my father to attend prestigious schools in India and eventually immigrate to the United States. That legacy shaped our entire family’s trajectory across multiple generations.

However, be aware of the tax implications of leaving large retirement accounts to the next generation. With the 10-year distribution rule for inherited IRAs, your beneficiaries may face substantial tax bills if they’re successful in their own careers. Strategic Roth conversions during your lifetime can help minimize this tax burden and preserve more wealth for your family.

Making the Most of Your Overfunded Retirement

If you find yourself being someone who has saved diligently and has more than enough for retirement, you have options that most people don’t. The key is shifting from a scarcity mindset to one of abundance and intentionality.

Remember the Gap and the Gain concept. Instead of constantly measuring yourself against others or future goals, take time to appreciate how far you’ve come. You’ve achieved something remarkable through decades of discipline and smart decisions.

You may choose to

  • Retire early
  • Spend more intentionally
  • Adjust your investment risk
  • Increase your gifting
  • Plan for multi-generational impact

The most important thing is making conscious choices about your wealth rather than letting it accumulate by default.

Your financial plan isn’t a one-time event. It’s an ongoing process that should evolve as your circumstances and priorities change. What feels right in your first year of retirement might be different after five or ten years of experiencing financial security.

The goal isn’t just to have enough money for retirement. The goal is to use your resources in ways that align with your values and create the kind of impact you want to make during your lifetime and beyond. When you’re overfunding retirement, you have the luxury of choice. Make sure you’re making those choices intentionally.

Ready to discover if you’re overfunded for retirement? A comprehensive financial plan can help you understand your true capacity and explore strategies to optimize your wealth for maximum impact during your lifetime.

How We Can Help

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to

  1. Maximize your retirement spending
  2. Minimize your lifetime tax bill
  3. Worry less about money

You can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal or investment advice.




Sequence of Returns Risk: 7 Strategies to Protect Your Retirement

Recently, I talked about the 4% rule and how it’s historically conservative, with average withdrawal rates potentially as high as 7% annually. But here’s the kicker: averages hide the risk of when bad returns happen.

This is what we call sequence of returns risk. Imagine retiring at the end of 2007 with $2 million saved. You’re ready for the good life, ready to enjoy retirement. Then the market drops 51%. Suddenly, that $140,000 withdrawal doesn’t look very safe anymore. 

In today’s article, we’ll highlight some major market downturns over the last few decades and discuss seven real strategies to help you protect against this dreaded sequence of returns risk. 

What is Sequence of Returns Risk? 

Sequence of returns risk is the danger that the timing of withdrawals from your retirement account could negatively impact your portfolio’s overall rate of return. This risk becomes particularly significant when you begin withdrawing funds from your investment portfolio in retirement. 

The sequence of returns in the first few years of retirement can determine whether your savings last a lifetime. Unlike pre-retirement years, when you’re accumulating assets, the sequence of returns matters significantly once you start withdrawing money. 

For example, two retirees with identical portfolios and withdrawal rates can have dramatically different outcomes based solely on when they retire. If you retire just before a market downturn, your portfolio may never recover, even if the market eventually rebounds. 

Historical Market Downturns: A Look at Bear Markets 

To understand the real impact of sequence of returns risk, let’s examine some significant market downturns that could have affected retirees. 

The Dot-Com Bubble (2000-2002) 

This period was particularly painful because there were actually two separate bear markets in a three year span: 

  • In March 2000, there was a total drawdown of 36% over 18 months 
  • After a brief rally from January 2002 through October 2002, prices dropped another 33% 

This means you had two 30+ percent drops in basically a three-year period. This is why this time is often called “the lost decade.” The markets were flying in the 90s because of the dot-com boom. Anything with a dot-com at the end of its name was soaring in price, and people were feeling euphoric. 

I guarantee some folks tried to retire around 2000 after seeing their 401(k) grow to $2 million. They were feeling confident until they experienced a 36% drop at the beginning of 2000 and then another 33% drop in 2002. 

The Great Recession (2008-2009) 

From October 2007 through November 2008, prices dropped 51%. Then, after a brief rally at the end of 2008, from January 2009 through March 2009 (ultimately hitting bottom on March 9, 2009), prices dropped another 27%. 

I’ve talked to people who retired around this time. Thankfully, many stayed retired, which was great. But I also know people who were planning to retire in 2008, 2009, or 2010 who couldn’t. They wanted to retire but weren’t able to, whether because of fear or their portfolios dropping significantly.  

COVID-19 Sell-Off (2020)

Who would have predicted a pandemic at the beginning of 2020 and the markets dropping 30% over just five weeks? For me, this was the most dramatic sell-off because of its speed.

I remember talking to a friend who worked at Google whose coworker’s wife was a doctor. At the beginning of the pandemic, she knew what was happening and moved their 401(k) to cash.

They were right for a period—the 30% drop happened. But the crazy part was that we hit bottom on March 23, 2020, and the markets fully recovered all those losses by May, only 2 months later. The S&P 500 ended that year up 18% after being down 30% in March. 

This illustrates why I caution people against trying to time the market. You can’t predict these things, which is why you shouldn’t get too high in the highs or too low in the lows. 

The Triple Bear Market (2022) 

The 2022 downturn was different from anything I’d experienced in my career. I call it the “triple bear market” because it affected stocks, bonds, and cash: 

  • Stocks were down 25% over about nine months 
  • Bonds were down 15% due to aggressive interest rate hikes 
  • Cash was essentially returning a negative yield because interest rates on cash lagged behind inflation 

This triple threat created a challenging environment for retirees, as all three major asset classes were negatively impacted simultaneously. 

7 Strategies to Protect Against Sequence of Returns Risk

Retiring into these markets is largely uncontrollable. What you can control is having a plan for your portfolio management and withdrawal strategy to protect against sequence of returns risk. Here are seven effective approaches: 

1. Implement Guardrails (Dynamic Withdrawals) 

One of my favorite strategies is the concept of guardrails or dynamic withdrawals. Instead of sticking to a fixed percentage rate like the 4% rule, you adjust your withdrawals based on portfolio performance. 

Guardrails, made famous by Guyton and Klinger, establish decision rules for when to make adjustments to your withdrawal rate. There are four primary decision rules: 

  1. Portfolio Management Rule: Pull funds from overweight asset classes. If stocks are up, trim stocks to get back to your target allocation. If stocks are down and bonds are up, trim from bonds.
  2. Inflation Rule: Give yourself an inflation raise every year, similar to the traditional 4% rule.
  3. Capital Preservation Rule (Portfolio Rescue Rule): If your withdrawal rate increases by 20% because your portfolio value decreased, cut your spending by 10%. 
  4. Prosperity Rule: If your withdrawal rate decreases by 20% because your portfolio value increased, give yourself a 10% raise. 

By implementing these four rules, you can potentially increase your starting withdrawal percentage by 20-25% while maintaining the same or better probability of success compared to the traditional 4% rule. 

This strategy works best for those with flexibility in their spending. If you break down your expenses and find that 50% is discretionary, you could be a great candidate for guardrails because you have the capacity to cut spending during market downturns. 

2. Create a Bucket Strategy 

The bucketing concept involves having a dedicated pool of assets you tap into for withdrawals. This might include: 

  • Cash reserves 
  • CDs 
  • Short-term bonds 
  • Individual bonds like short-term treasuries 
  • Short-term bond funds or ETFs 
  • Intermediate-term bond funds 

There’s no scientific formula for how much to keep in these buckets. Some advisors recommend 1-2 years of expenses based on the average duration of bear markets. Others suggest up to 5 years of expenses, considering that the Great Recession took about five years to fully recover from the bottom in 2009. 

The right amount depends on your risk tolerance. Someone with higher risk tolerance might be comfortable with just 1-2 years in cash or cash equivalents. Someone more concerned about market volatility might prefer 5 years in a CD ladder or individual bond ladder. 

For our clients, we use a combination of money market funds, individual bonds, short-term bond ETFs, and intermediate-term bond ETFs. This typically provides liquidity for 2-5 years of expenses, depending on risk tolerance and other income sources. 

3. Categorize Your Spending (Needs, Wants, Wishes) 

Breaking your spending into three distinct categories—needs, wants, and wishes—helps identify what you can potentially cut during market downturns. 

This approach helps determine: 

  • How much of your spending is truly discretionary
  • Whether you have the flexibility to cut spending by 10% if needed 
  • How much to allocate to your bucketing strategy 

For example, I recently worked with a couple planning to retire in their 50s with a 7% initial withdrawal rate until they begin Social Security. By analyzing their spending, we determined they had enough discretionary expenses to implement guardrails successfully. 

4. Consider Partial Annuitization 

Annuitization involves turning some of your assets into a lifetime income stream. While annuities can be a controversial topic, they have a place in retirement income planning when used appropriately. 

The benefit of partial annuitization is that it puts less pressure on your volatile assets (stocks and bonds). This allows those investments to potentially grow at a higher rate because you’re withdrawing less from them while maximizing income from the annuity. 

I’ve said this before: you will not out-withdraw an annuity in your lifetime. I recently had a client with TIAA who received an annuitization schedule showing a payout rate close to 8% annually. Few advisors would recommend withdrawing 8% from a portfolio due to sequence of returns risk. 

To determine if annuitization makes sense for you: 

  1. Identify your essential spending needs. 
  2. Compare those needs to guaranteed income sources like Social Security or pensions. 
  3. If there’s a gap, consider annuitizing enough assets to fill that gap.

5. Earn Additional Income 

Similar to annuitization, earning part-time income early in retirement can significantly reduce sequence of returns risk. This strategy can be implemented reactively to a market downturn—if we enter a bear market, you could work part-time and reduce your portfolio withdrawals. 

This works best if you: 

  • Enjoyed aspects of your career
  • Are willing to work a couple of days a week 
  • Would consider consulting or a completely different field 

I’m working with a couple who initially planned to retire several years from now, but after seeing friends get sick or pass away, they want to retire sooner. The wife has a side hustle, and they’re considering renting out an ADU (additional dwelling unit) on their property through Airbnb. These two income sources could potentially allow them to retire 4-5 years earlier than planned. 

6. Adjust Your Social Security Strategy 

You may have plans to delay Social Security as long as possible to maximize lifetime benefits. However, if you’re experiencing a significant market downturn early in retirement, starting Social Security earlier than planned could reduce pressure on your portfolio. 

While this might reduce your lifetime Social Security income, it could be worth considering if it helps preserve your portfolio during a critical period. What’s helpful is that if you start Social Security before your full retirement age, you have a one-time option to stop it at your full retirement age and then delay until 70 (or as long as you want) to receive delayed credits. 

7. Implement an Asset Allocation Glide Path 

Different phases of retirement have different income needs and sources. Your investment strategy should be dynamic, not set-it-and-forget-it. 

Early in retirement, during what I call the “bridge period” (from retirement until you start Social Security), you may have no guaranteed income and might be less risk-tolerant. During this phase, you might have more in your cash bucket—perhaps that five years in cash, cash equivalents, or short-term bonds. 

Once you start Social Security, you’ll have guaranteed income covering your fixed expenses. At this point, you can potentially take on more risk because your withdrawal rate might drop significantly—from 5% to 1%, for example. This increased risk capacity could allow for a more growth-oriented portfolio allocation. 

Preparing for the Next Downturn

I don’t know when the next market downturn will be—I don’t have a crystal ball. If I did, I probably wouldn’t be working at all! But the most important thing is to have a plan in place before the next downturn occurs.

Right now, markets are looking pretty good. This is the perfect time to set your plan. We may be heading into a recession, the Fed may be too late with cutting rates, unemployment might tick up with tariffs and uncertainty—I don’t know. But set up your plan before the next downturn so you can implement it unemotionally rather than reactively. 

Be proactive instead of reactive. What are you doing to reduce your sequence of returns risk? If you’re approaching retirement or already retired, now is the time to review your strategy and ensure you’re protected against this significant risk to your retirement security. 

Remember, sequence of returns risk can devastate your retirement savings if you don’t have a protection strategy in place. The strategies outlined above—guardrails, bucketing, spending categorization, partial annuitization, part-time income, Social Security timing, and dynamic asset allocation—provide a framework for building that protection. 

By implementing these approaches before market volatility strikes, you’ll be better positioned to enjoy a secure retirement regardless of what the markets do in those crucial early years. 

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal or investment advice.

Is the 4% Rule for Retirement Still Valid in 2025?

If you’ve nerded out on retirement planning, you’ve probably heard of the 4% rule. It’s a seemingly simple guideline. Retire with a million dollars, withdraw $40,000 in your first year, adjust for inflation each year after, and you’re set for 30 years. But is this rule-of-thumb still relevant in 2025? Interestingly, Bill Bengen, the ‘father of the 4% rule’ back in the 1990s, recently released a new book called “Richer Retirement” where he suggests the 4% rule might actually be too conservative.

In this blog post, we’ll explore

  • The background of the 4% rule
  • Examine Bengen’s recent updates
  • Discuss some downsides of following this rule too rigidly
  • Provide practical approaches for your own retirement income planning.

Let’s dive in!

What is the 4 Percent Rule in Retirement?

The 4 percent rule was developed by Bill Bengen in the 1990s as a worst-case scenario approach to retirement withdrawals. Essentially, Bengen wanted to determine a safe withdrawal rate that would allow a retiree’s portfolio to last at least 30 years, even in the most challenging market conditions.

Through his research, Bengen back-tested various withdrawal rates using historical market data going back to 1926. What he discovered was fascinating. While many retirees could have started with much higher withdrawal rates, those who retired in the fall of 1968 (right before two bear markets and a period of high inflation in the 1970s and 1980s) needed to be more conservative.

The 4 percent rule works like this: In your first year of retirement, you withdraw 4% of your total portfolio. For example, if you have $1 million saved, your first-year withdrawal would be $40,000. In subsequent years, you adjust that amount for inflation. If inflation runs at 3% after your first year, you’d add $1,200 to your withdrawal, taking out $41,200 in year two, and so on throughout retirement.

This approach was designed as a worst-case scenario. In Bengen’s research, a portfolio with this withdrawal strategy would have lasted at least 30 years, even for those unfortunate 1968 retirees who faced particularly challenging economic conditions.

How the 4 Percent Rule Has Evolved: Bengen’s New Research

In his new book “Richer Retirement,” Bill Bengen has updated his research with some interesting findings. One key change is that he expanded the asset classes in his analysis.

The original 4% rule study used a simple portfolio allocation:

  • 50% in S&P 500 (large-cap US stocks)
  • 50% in intermediate treasury bonds (either 5-year or 10-year)

In his updated research, Bengen added several additional asset classes:

  • Mid-cap stocks
  • Small-cap stocks
  • Micro-cap stocks
  • International stocks
  • Additional bond types

The results? That same 1968 retiree could have actually started with a 4.7% withdrawal rate and still had their portfolio last beyond 30 years. 

Even more interesting, in recent interviews promoting his book, Bengen has suggested that withdrawal rates of 5.25% or even 5.5% could be reasonable starting points for today’s retirees. That’s a substantial increase from the original 4% guideline.

Why the 4 Percent Rule Has Limitations

While the 4 percent rule provides a helpful benchmark, there are several important limitations to consider before applying it to your own retirement planning:

It Ignores Other Income Sources

The 4 percent rule assumes your investment portfolio is your only source of retirement income. In reality, most retirees have multiple income streams, with Social Security being the most common.

For example, if you retire at 60 but delay Social Security until 70, you might need to rely more heavily on your portfolio during that 10-year “bridge period.” Your withdrawal rate might be higher initially (perhaps 6-7%). Once Social Security kicks in, your portfolio withdrawals could drop significantly.

Let’s say you need $100,000 annually and have $1.5 million saved. That’s a 6.67% withdrawal rate—well above the 4% guideline. However, if Social Security later provides $50,000 annually, you’d only need to withdraw $50,000 from your portfolio. Your withdrawal rate drops to just 3.33% (assuming your portfolio hasn’t depleted).

It Doesn’t Account for Tax Efficiency

The 4 percent rule assumes all your retirement assets are in tax-deferred accounts like 401(k)s or traditional IRAs. While this is common, many retirees today have a mix of account types:

  • Tax-deferred accounts (401(k)s, traditional IRAs)
  • Tax-free accounts (Roth IRAs, HSAs)
  • Taxable brokerage accounts

By strategically withdrawing from different account types based on tax considerations, you can potentially increase your effective withdrawal rate well above 4% while maintaining the same after-tax income.

It’s Based on Retirement Spending Phases

The 4 percent rule assumes consistent spending throughout retirement, adjusted only for inflation. However, retirement spending typically follows three distinct phases:

  1. Go-Go Years: The early, active phase of retirement with higher discretionary spending on travel, hobbies, and bucket-list experiences.
  2. Slow-Go Years: The middle phase where activity levels and spending naturally decrease.
  3. No-Go Years: The later phase with limited mobility where spending on discretionary items decreases significantly.

A Morningstar study found that retirees’ spending typically lags inflation by about 1% per year. This means your spending power might naturally decrease over time. This pattern could allow for higher initial withdrawal rates that gradually decrease.

It Uses a Conservative Asset Allocation

The original 4% rule was based on a 50/50 stock/bond allocation, which Bengen considered the minimum acceptable stock percentage. In his research, portfolios with 75% stocks and 25% bonds often supported initial withdrawal rates of 5%, 6%, or even higher.

Your risk tolerance and capacity should guide your asset allocation. If you’re comfortable with more equity exposure (60/40 or 75/25), you might safely support a higher withdrawal rate.

It’s Based on Worst-Case Scenarios

Perhaps most importantly, the 4 percent rule is based on the worst retirement timing in modern history. The average safe withdrawal rate across all the historical periods Bengen studied was actually 7%—not 4%.

This means most retirees following the 4% rule not only preserved their principal but significantly increased their wealth throughout retirement. While having a backup plan for worst-case scenarios is prudent, planning your entire retirement around the worst possible outcome might lead to unnecessary sacrifice during your go-go years.

Practical Approaches to Retirement Income Planning

So how should you approach retirement income planning given these insights? Here are some practical strategies:

Use the 4.7% Rule as a Benchmark, Not a Rule

The updated 4.7% guideline should be viewed as a starting point, not a rigid rule. Compare your planned initial withdrawal rate to this benchmark. If you’re significantly higher (like 10%), that might be a red flag. But if you’re at 5.5-6% with Social Security starting in a few years, you’re likely on solid ground.

Optimize Your Tax Efficiency

Consider the timing of your distributions from different account types. For example, the period between retirement and age 75 (when Required Minimum Distributions begin) presents a potential “Roth conversion window” where you might be in lower tax brackets.

Strategically converting some tax-deferred assets to Roth during these years can potentially reduce your lifetime tax bill and enhance your legacy if that’s important to you.

Balance Risk Tolerance with Risk Capacity

Determine both how much risk you need to take (risk capacity) and how much risk you’re comfortable taking (risk tolerance). If your retirement is well-funded, you might not need to take on as much market risk, even if that means a slightly lower withdrawal rate.

Consider your different “buckets” of money and their time horizons:

  • Near-term spending money (more conservative allocation)
  • Mid-term money (moderate allocation)
  • Long-term/legacy money (more aggressive allocation)

Just be careful about overloading bonds in taxable accounts, as this can create tax drag on your returns.

Consider a Guardrails Approach

The “guardrails” strategy, developed by Guyton and Klinger, offers more flexibility than the static 4% rule. It allows for a higher initial withdrawal rate (perhaps 5-5.5%) with rules for when to reduce spending if your portfolio performs poorly or increase spending if it performs well.

This approach can be particularly valuable if you’re retiring early with a longer time horizon. It can also help if you’re borderline funded but don’t want to sacrifice your go-go years.

Develop a Long-Term Care Plan

Long-term care costs can derail even the best retirement income plan. About 70% of retirees will need some form of care in their later years. Without a specific plan for these costs, many retirees underspend throughout retirement out of fear.

Strategies you may consider include:

  • Insurance
  • Self-funding
  • A combination approach

Having a dedicated strategy for potential care needs is essential. It can also give you more confidence to spend and enjoy your early retirement years.

Is the 4% Rule Dead?

So, is the 4 percent rule outdated retirement planning advice? Not exactly. It remains a useful benchmark. The better question might be:

Should we make it the 7% rule, given that was the average experience across all historical periods?

The answer depends on your personal circumstances. Starting with a higher withdrawal rate early in retirement (perhaps 6-7%) and then reducing it once Social Security begins could be a reasonable approach for many retirees.

Remember that no one can predict the future. The key is having a disciplined, unemotional, and repeatable process for managing your retirement income—not just at the beginning of retirement, but throughout your retirement journey.

Final Thoughts

Retirement planning isn’t one-size-fits-all. While the 4% rule retirement strategy provides a helpful starting point, your personal retirement income plan should consider your unique circumstances, including:

  • The timing of different income sources
  • Tax efficiency across various account types
  • Your spending patterns and priorities
  • Your risk tolerance and capacity
  • Your legacy goals
  • Your long-term care strategy

By taking a more nuanced approach to retirement income planning, you can potentially enjoy a richer retirement without sacrificing long-term security.

Remember, the goal isn’t to die with the biggest possible portfolio—it’s to use your resources to live your best life while ensuring you don’t outlive your money. With thoughtful planning and regular reassessment, you can strike that balance and enjoy the retirement you’ve worked so hard to achieve.

This is for general education purposes only and should not be considered as tax, legal or investment advice. At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

Bear Market Preparation: 14 Retirement Planning Moves to Protect Your Wealth

The markets have recovered all of the losses from “Liberation Day,” AND SOME, so far in 2025.  Many investors have stopped worrying about tariffs, and are now looking at a high likelihood of the Fed cutting interest rates at their next meeting in September.

However, it’s crucial to begin preparing for the next bear market or recession before they actually happen. You’d rather be in proactive mode, rather than reactive mode!  In this article, I’ll discuss 14 retirement planning moves to help you prepare for the next bear market because it’s not a question of if, but when.

What Is a Bear Market?

Before diving into preparation strategies, let’s clarify what a bear market actually means. A bear market is defined by a decline of 20% or more in one of the major stock indexes over at least two months. A correction, on the other hand, is a 10% decline from previous highs.

Since 1964, the S&P 500 has experienced 27 corrections. In eight of those 27 instances (about 30%), the correction led to a bear market. Typically, bear markets last about 10 months on average, though some have lasted significantly longer.

Some notable bear markets include:

  • The Great Depression (1929-1932): The Dow dropped 86%
  • The Global Financial Crisis (2008): The S&P 500 declined by about 56%
  • The Dot-com Bubble (2001-2002): The S&P 500 fell about 50%, while the NASDAQ dropped almost 78%
  • The COVID-19 Pandemic (2020): The S&P 500 declined about 34% but fully recovered two months later
  • The Triple Bear Market (2022):  Stocks, bonds and cash were all in bear market territory as of June of 2022.  It lasted about 9 months, but the inflation effects are still lingering. 

Bear markets are part of the economic cycle. We experience booms and busts, expansions and contractions, peaks and troughs. With current concerns about tariffs, geopolitical conflicts, inflation, and interest rates, there’s significant uncertainty in the markets.

Now, let’s explore 14 strategies to prepare for the next bear market.

1. Prepare Your Mindset

Bear market preparation begins with your mindset. Bear markets are a normal part of investing. You didn’t accumulate seven figures by being scared of investing. You took on risk to achieve your desired returns.

The challenge is that as you get closer to retirement, volatility becomes more concerning because you’re transitioning from accumulation to needing to live on your portfolio. This is completely normal.

Remember that bear markets happen on average about every five years. Even when you retire, you’ll need to keep some money invested in the stock market to keep pace with inflation. If you have a 30-year retirement horizon, you can expect to live through approximately six bear markets during retirement.

2. Prepare Your Investment Portfolio

One of the most critical aspects of preparing for a bear market is having a properly structured investment portfolio. It’s easier to think about this during periods of volatility, but it’s even more important to implement when things are going well.

Think back to 2023 and 2024, when the S&P 500 delivered back-to-back returns exceeding 20%. After Trump won the election in late 2024, there was almost a euphoria in the markets with expectations of reduced regulations, tax cuts, and increased domestic manufacturing. This “Trump bump” created a situation where things were running hot—a common occurrence toward the end of a boom cycle.

Instead of riding that wave based on emotion, a disciplined, unemotional, repeatable process of rebalancing can prevent you from becoming overexposed to risk. This means:

  • Having specific targets for each asset class
  • Trimming winners and taking gains off the table
  • Buying underweight positions that might be underperforming

You can’t magically implement this in the middle of a bear market. You need to enter each year with a defined investment policy statement and strategy for each account—your taxable brokerage account, traditional IRA, 401(k), and Roth accounts.

For example, if your S&P 500 allocation increases significantly due to strong performance, consider reallocating some of those gains to areas that may have underperformed, such as fixed income or cash. This disciplined approach helps prevent emotional decisions when markets turn, which typically happens quickly.

3. Build Your War Chest

Investing in a down market requires having cash available. Building up your “war chest” is crucial for both protection and opportunity.

If we enter a bear market, there’s a decent chance we’re already in a recession or heading into one. The market is a leading indicator, typically declining before economic data confirms a recession. Having cash on hand helps if you lose your job or face reduced income during economic downturns.

But if you’re fortunate enough to keep your job during a bear market, cash becomes king for finding buying opportunities. As Warren Buffett famously said, “Be fearful when others are greedy and be greedy when others are fearful.”

Consider this eye-opening statistic: 56% of the best days in the S&P 500 occur during bear markets. Another 32% happen in the first two months of a bull market. That means 88% of the best market days happen when most people aren’t feeling optimistic about investing.

This war chest could be:

  • Cash within your investment portfolio
  • Cash alternatives in your investment portfolio
  • Increased contributions to retirement accounts during downturns
  • Front-loading contributions to take advantage of buying opportunities

It won’t feel natural to add money when markets are down. Imagine being told to add more money to your portfolio during the pandemic, when it had already dropped 30-40%. Most people want to take money out, not put more in. But that’s precisely when the greatest opportunities arise.

4. Plan Your Retirement Cash Flow Sources

Having a plan for where your retirement cash flows will come from is essential during market volatility. Let’s use a simple example:

If you have a $1 million portfolio with a 60/40 split ($600,000 in equities and $400,000 in fixed income), and you need $40,000 annually (a 4% withdrawal rate), you effectively have 10 years of income in fixed income without touching your stock portfolio.

Given that bear markets typically last about 10 months, with the longest in our lifetime being around five years, having 10 years of income in fixed income should provide significant peace of mind.

Additionally, if your portfolio generates income through interest and dividends—let’s say 2.5% overall—and your withdrawal rate is 4%, you only need to rely on capital sales for about 1.5% of your portfolio. That’s manageable even during market downturns.

During strong markets, like 2024, you can generate income by trimming gains from equities. When markets turn, as in early 2025, you can draw from fixed income or cash alternatives while waiting for stocks to recover.

5. Optimize Your Social Security Strategy

Social security planning is a critical component of retirement in a bear market. The timing of when to claim Social Security can significantly impact your retirement income floor.

If you delay Social Security until full retirement age or age 70, you’ll have a higher benefit base that will also receive cost-of-living adjustments. This creates a higher guaranteed income floor in retirement, which provides peace of mind during market volatility.

For example, if 60% of your cash flow needs come from fixed income sources like Social Security, you won’t need to rely as heavily on your investment portfolio during volatile periods.

If you’ve already retired and planned to delay Social Security until 70, but then face a bear market or recession, you have options. You could elect to start benefits earlier and then:

  1. Continue them indefinitely, or
  2. Stop them at full retirement age and then preserve delayed retirement credits until age 70

This flexibility allows you to adapt your strategy based on market conditions while still maintaining long-term income security.

6. Consider Part-Time Work

While not everyone’s favorite suggestion, considering part-time work during market downturns can be a valuable option. The goal in retirement is for work to be optional, not mandatory. However, even if you don’t mathematically need to work to preserve your portfolio, it might provide peace of mind.

Instead of drawing down your portfolio during a bear market or recession, finding fulfilling part-time work or a side hustle can reduce your withdrawal rate and put less pressure on your investments while they recover.

7. Evaluate Roth Conversion Opportunities

Roth conversions during market downturns present an interesting opportunity. When converting from pre-tax to Roth accounts, you pay taxes on the converted amount. If market values are down, you can convert the same number of shares at a lower tax cost.

If you believe in the long-term prospects of your investments, converting when valuations are down allows the eventual recovery to happen in the tax-free Roth environment rather than in your tax-deferred accounts.

The challenge is timing—you want to convert at the right moment. If you convert and the market continues to decline, you’ve paid taxes on a higher value. Typically, Roth conversions are best done toward the end of the year when you have a clearer picture of your annual income and tax situation.

8. Consider Gifting Securities at a Discount

Similar to Roth conversions, gifting stock or securities during market downturns can be advantageous if you regularly gift to family members or irrevocable trusts. Instead of gifting securities at higher values, you can gift them when values are down, allowing for a lower gift amount.

The eventual appreciation will be on the recipient’s balance sheet rather than yours. The value of this strategy depends on how much you’re gifting and the long-term outlook for the investments.

9. Implement Tax Loss Harvesting

Tax loss harvesting is a powerful strategy during market downturns. This involves selling investments at a loss in a taxable brokerage account (not retirement accounts like IRAs or 401(k)s) to realize the loss for tax purposes.

These realized losses can offset capital gains in the current year or be carried forward to offset gains in future years. If you have no capital gains, you can deduct up to $3,000 against ordinary income annually.

The key is to replace the sold security with something similar immediately but not “substantially identical” to maintain your market exposure. For example:

  • You can’t sell Apple and buy Apple back (that’s substantially identical)
  • You could sell Apple and buy Microsoft (not substantially identical)
  • For funds, you might switch from a Fidelity S&P 500 fund to a Vanguard Large Cap stock fund (also not substantially identical).

The “wash sale rule” prevents you from claiming the loss if you buy the same or substantially identical security within 30 days before or after the sale.

During the 2022 bear market, our clients built up significant tax-loss “war chests” that they’re still using to offset gains or reduce ordinary income.

10. Create Guaranteed Income with Fixed Annuities

Leveraging annuities to create guaranteed income can provide significant psychological benefits during market volatility. Social Security is essentially an annuity, but additional guaranteed income sources can enhance your retirement security.

The higher your guaranteed income floor, the more peace of mind you’ll have when markets are volatile. If guaranteed sources cover 60-70% of your income needs, short-term market fluctuations become less concerning.

For example, one client recently activated an annuity income stream with a 7.6% payout rate—significantly higher than what would be prudent to withdraw from an investment portfolio. This guaranteed income, combined with Social Security, covers about 70% of her cash flow needs, providing tremendous peace of mind during market volatility.

11. Leverage Cash Value Life Insurance

If you already have cash value life insurance, it can serve as a valuable resource during market downturns. It takes years or decades to build significant cash value, but once established, it can be a stable asset during volatility.

Unlike stocks or bonds, cash value in traditional life insurance policies typically doesn’t decrease in value during market downturns. You can access this cash through withdrawals, partial surrenders, or policy loans while waiting for markets to recover.

During the March 2020 market bottom, some investors used policy loans from their life insurance to invest in the market at discounted prices, capitalizing on the opportunity while maintaining their existing investments. Or if retired, they used that cash value as income instead of tapping into their stock allocations.

12. Consider Home Equity Options

Your home equity can serve as a last line of defense during severe market downturns. Options include:

  • Home Equity Line of Credit (HELOC): Opening a HELOC before things get bad provides access to a cash reserve that you don’t have to use unless necessary. While there are interest costs if you tap into it, having $100,000-$200,000 available can provide significant peace of mind.
  • Reverse Mortgage (if over 62): This can create a cash bucket similar to a HELOC without requiring monthly payments.

Home equity is often an underutilized asset class. Creating liquidity within your home equity can provide additional security if stock and bond markets experience severe downturns.

13. Trim Concentrated Stock Positions

Market downturns can present good opportunities to reduce concentrated stock positions. Many clients have significant concentrations in individual stocks, often from employer stock plans. These positions can be difficult to sell for two reasons:

  1. Behavioral attachment: The stock helped build their wealth, and they’re emotionally connected to it.
  2. Tax consequences: Selling may trigger significant capital gains taxes.

During market volatility, stock prices decline, making the tax consequences less painful. A position that might have generated $100,000 in taxes during a bull market might only generate $50,000 in taxes after a decline.

For example, a client with 45% of their portfolio in Microsoft stock is using the recent volatility to reduce their concentration to 30% with minimal capital gains due to the market decline.

If you have concentrated positions (generally defined as over 5% exposure to a single stock), market downturns can be an opportune time to rebalance toward a more diversified allocation with a lower tax bill.

14. Do Nothing

Sometimes, the best strategy during market volatility is to do nothing. Acting on emotion or making rash decisions during volatile periods can significantly damage your long-term plan.

If you’re uncomfortable with the 13 strategies mentioned above, it might be better to simply wait it out rather than make emotional decisions—unless you completely lack a financial planning strategy to begin with. In that case, consulting with a professional advisor would be beneficial.

Doing nothing is certainly better than abandoning a well-diversified, thoughtful investment strategy due to short-term market movements.

Final Thoughts on Bear Market Preparation

I don’t want to dismiss anyone’s emotions during volatile markets. Transitioning from working to retirement is already emotionally charged, with concerns about aging, health, and this next chapter of life. Market volatility adds another layer of stress.

However, having a trusted partner to lean on during these times can make all the difference. Someone who can coach you to stick to a long-term, disciplined strategy can help you navigate market turbulence with confidence.

Remember, bear markets are not a function of if, but when. With proper bear market preparation, you can not only protect your retirement savings but also potentially capitalize on opportunities that arise during market downturns.

As market volatility continues to make headlines, there’s no better time than now to evaluate which of these bear market preparation strategies align with your retirement goals and take decisive action to protect the financial future you’ve worked so hard to build.

This is for general education purposes only and should not be considered as tax, legal or investment advice. At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.




6 Retirement Planning Strategies for When You’re Feeling Behind

Are you feeling a little bit behind regarding your retirement plans? Well, you are not alone. In fact, over 57% of Americans today are feeling behind relative to their goals for retirement. In this blog post, we’re going to talk about six retirement planning strategies that may improve your potential outcomes for a successful retirement.

Retirement Planning: Why 57% of Americans Feel Behind

I’m sure each participant in this study has their own story.  However, the fact is that we live in a world of comparing ourselves to others, unfortunately.  Therefore, regardless of how well you’ve saved and invested up to this point, it’s completely normal to feel “behind.”  With that said, some of you truly are behind. Whether you were focused on

  • Building your careers or businesses
  • Raising children (which are VERY expensive)
  • Paying for private school or college
  • Caring for aging parents

There are countless reasons as to why you might be behind. 

However, implementing effective retirement planning strategies can significantly improve your financial outlook, even if you’re starting late. The transition from active income to passive income can be scary for many people. Additionally, it’s the fear of spending down the portfolio and worrying about uncertain events down the road that leads to serious anxiety as you approach quitting your day job.

At the same time, many folks tend to sacrifice those early years of retirement, what I like to call the “Go-Go Years.” This period of time is when you’re healthy and physically able to do the things you may want to do – traveling the world or spending precious time with your grandkids, whatever that might be.

I believe there must be a healthy dose of cautious optimism to implement a successful retirement plan. 

Let’s dive into six strategies that can help improve your retirement outcomes, give you greater peace of mind, and provide greater confidence as you approach this next chapter.

Strategy 1: Increase Savings Rate and Maximize Contributions

Let’s start with the low-hanging fruit.  Saving more is something primarily in our control, and certainly can move the needle if you have a few years left until you plan to retire.  Catch-up contributions are powerful retirement savings strategies for those over 50 who need to accelerate their nest egg growth. If you’re over 50, there are catch-up retirement plan contributions available for 401(k) plans as well as individual retirement accounts. Once you hit 55, there’s also a catch-up for Health Savings Accounts (HSAs).

401(k) Contribution Limits

If you’re over 50, you can contribute $31,000 into a 401(k) plan for employee contributions in 2025 (this includes the $7,500 catch-up for ages 50+). That’s important to note because I’ve seen people make this mistake before. They say, “I’m putting in $20,000 and my employer matches me $11,000, so I’m maxing my 401(k).”

That’s actually not true. The $31,000 is only related to employee contributions. Employer contributions are on top of that.

The total contribution limit in 2025 for ALL sources (employee, employer, and voluntary after-tax) is $77,500 for 2025.  This includes the $7,500 age 50+ catch-up contribution.

This applies to 401(k)s, 403(b)s, Thrift Savings Plans if you’re in the federal government, and 457 plans if you have one available.

Super Catch-Up Contributions

Thanks to the Secure Act 2.0, there’s now a “super catch-up contribution” available. Instead of the $7,500 extra that you can put into these plans, you can put in $11,250 if you’ve turned 60, 61, 62, or 63 in 2025 and beyond. That’s an additional $3,750 on top of the regular catch-up.

IRA Catch-Up Contributions

An Individual Retirement Account has a maximum contribution of $7,000 per year, whether it’s a Traditional or Roth account. If you put $3,500 into a traditional IRA, you can only put $3,500 into a Roth IRA.

If you’re over 50, you get an extra $1,000 catch-up, bringing your total to $8,000.

There are income thresholds you need to consider if you are looking to contribute to a Roth IRA or make a tax-deductible contribution into a Traditional IRA.  So, make sure to consult with your tax professional and financial advisor to confirm these limits.

Mega After-Tax Contributions

Many employers today are adopting what’s called the Mega After-tax Roth Contribution in their 401(k) plans. This allows for additional contributions beyond the employee and employer amounts, up to the total limit of $77,500 (for folks over 50).

Example:

If you’re putting in the max employee contribution of $31,000 and your employer matches $10,000, you’re at $41,000. You could potentially put up to an additional $36,500 into the 401(k) plan on an after-tax basis. 

The key factor, however, is making sure that after-tax contribution can be converted to Roth immediately!  This can often be done within the 401 (k) or to your Roth IRA.  Additionally, your plan administrators will calculate the exact amount allowed to the after-tax side, and this will be spelled out in your benefits details. 

This essentially allows a highly compensated employee to contribute tens of thousands of dollars into the Roth portion of their assets without worrying about the income phaseouts associated with Roth IRA contributions. 

HSA Contributions

HSAs are my favorite investment account for retirement because you get the trifecta tax benefit:

  • Pre-tax contributions (fully deductible regardless of income)
  • Tax-free growth
  • Tax-free distributions (as long as they’re used for qualified medical expenses)

Once you turn 55, you get an extra $1,000 catch-up. In 2025, for individual plans, you can contribute $4,300 plus $1,000, totaling $5,300. For family plans, it’s $8,550 plus $1,000, totaling $9,550.

Unlike a Flexible Spending Account (FSA), these accounts do not need to be emptied on an annual basis.  Therefore, if you can pay medical costs out of pocket for the year, it’s wise to allow the triple tax benefits to work in your favor until you fire your boss and retire.  This will serve as a nice tax-free income during retirement, or even perhaps serve as a self-funding mechanism for long-term care costs. 

Just make sure you spend these accounts during your lifetime, as any amounts left to children will be a tax bomb for them!

Strategy 2: Working Longer to Improve Retirement Outcomes

Working longer probably makes more of an impact than any of these other strategies in the long term. Delaying retirement by just one, two, or three years can significantly improve your financial outlook.

This doesn’t have to be in your current job. Maybe you’re a physician, working an intense tech job, or in a physically demanding blue-collar position that you can’t continue much longer. You could retire from your current role but transition to something else, perhaps even part-time.

Having one or both spouses doing something part-time to earn extra income can help bridge the gap years—the period between when you retire and when you start taking guaranteed income sources like Social Security or pension income. Those gap years can be stressful if you have no income coming in and are relying entirely on your portfolio, especially during times of market volatility.

The extra income allows you to delay portfolio withdrawals or reduce them, maximizing your Social Security benefits and allowing your tax-deferred and tax-free savings to continue growing.

Strategy 3: Review Your Spending Assumptions and Retirement Budget

Many people assume they’ll need their current spending level, adjusted for inflation, throughout their entire retirement. But retirement spending typically occurs in three distinct phases:

  1. The Go-Go Years: When you’re active and traveling
  2. The Slow-Go Years: When you start to slow down
  3. The No-Go Years: When mobility becomes more limited

In the go-go years, your spending may even go up compared to your working years.  After all, every day is Saturday. But these years probably won’t last forever. Therefore, it likely doesn’t make sense to assume that level of spending forever.

There is an argument that healthcare costs might be lower at the beginning of retirement, while discretionary expenses are higher. Then, over time, discretionary spending decreases while healthcare costs rise, particularly for long-term care. If you have unexpected healthcare costs later in retirement, you want to be prepared to maintain your independence and dignity without relying on family members.

This is where long-term care insurance can be valuable. It eliminates the potential risk of needing to spend down your portfolio for care, which could impact your spouse’s financial security, especially considering women typically outlive men.

Studies have shown that retirees lag inflation by about 1% a year over time. If general inflation is 2%, your experienced inflation might only be 1% because many of your expenses are fixed. Your mortgage might be paid off, or your property taxes might be homesteaded and not increase at the full rate of inflation.  The inflation assumption might be one of the most critical variables when you are mapping out your spending needs and the viability of retirement success.

Strategy 4: Finding the Right Asset Allocation for Retirement Investing

Adjusting your retirement investing approach as you age is crucial for balancing growth potential with risk management. One of the things you can control is your long-term asset allocation. The higher exposure you have to equities (stocks), the higher long-term rate of return you should expect, though it’s not guaranteed.

One of the biggest mistakes I see retirees make is getting too conservative too early in retirement. They reach 60 or 65 and think, “I’m done accumulating, now I’m transitioning to the distribution phase. I was 70% in the stock market, I’m going to go down to 20% or 25%.”

That’s a no-no, especially if you’re borderline in terms of being funded or not well-funded. The higher expected rate of return you have in your portfolio, the more likely you are to achieve your long-term goals.

However, there’s a fine line. If you go 100% in stocks and retire into a market downturn, that’s not good either, because you’ll have to sell stocks at the wrong time.

Bill Bengen’s 4% rule assumed an asset allocation of 50% equities (S&P 500) and 50% in government bonds (10-year Treasury). However, he suggested that as the minimum equity exposure, but actually leaned toward 75% in equities if you have the risk tolerance.

If you’re a bit behind for retirement, you don’t have the capacity to get ultra-conservative. Going too conservative brings other risks into play:

  • Interest rate risk
  • Inflation risk
  • Longevity risk.

Consider a bucketing strategy where you align your asset allocation with different accounts:

  • More conservative investments in your taxable accounts that you’ll tap first
  • Moderate risk in your tax-deferred accounts
  • More aggressive investments in your Roth accounts that you’ll access later

Strategy 5: Consider Relocating for Financial Benefits

Considering relocation could be a strategy to boost your chances of success. This retirement planning strategy can be particularly effective if you’re moving from a high-cost-of-living area to a lower-cost one.

For example, suppose you’re selling a house in New York worth $1.2 million and moving to Florida or Tennessee. In that case, you might be able to buy a comparable or better home for $700,000, leaving you with $400,000 to invest (after accounting for closing costs and taxes).

This cost-of-living arbitrage can significantly improve your retirement outlook. However, it’s essential to consider more than just the financial aspects:

  • Where are your adult children and grandkids?
  • Where is your circle of friends?
  • What about healthcare facilities and doctors?
  • Is the infrastructure (roads, schools, hospitals) adequate?

Before making a permanent move, consider renting for six months or a year to make sure the location is right for you.

Strategy 6: Utilize Home Equity

Don’t be afraid to use your home equity in retirement. I often see folks whose largest asset is their paid-off home, worth $750,000, $1 million, or more. They don’t want to sell it because they like it and want to age in place there.

However, if that home equity is added to their financial legacy upon passing, and it impacts their standard of living during retirement, they may have missed out on valuable experiences, opportunities to gift to their children, travel, or access to better healthcare.

One way to tap into home equity without selling is through a reverse mortgage, available once you turn 62. This gives you access to your home equity as an emergency fund, line of credit, or even income payments for life. It will reduce the equity you leave behind, but you can age in place and won’t have to pay back the loan during your lifetime.

Home equity can also be a great source for funding long-term care if you can’t buy insurance due to pre-existing conditions. Using home equity for this purpose can free up your retirement assets for lifestyle expenses rather than reserving them for potential care needs or financial legacy goals.

Additional Retirement Planning Strategies to Consider

Maximize Social Security Benefits

If you’re feeling a bit underfunded, maximizing your Social Security benefit can do wonders. Delaying until 70 (the latest retirement age) or at least until full retirement age gives you a higher baseline that adjusts with inflation long-term.

Consider Life Annuities

A life annuity that continues paying for as long as you live can provide peace of mind, especially if you’re concerned about market downturns affecting your portfolio.

Rethink Roth Conversions

Roth conversions may not be right for you if you’re behind on retirement savings. They require front-loading taxes early on, which could impact your breakeven long-term, especially with an underfunded plan. You can’t convert your way to a successful retirement.

Implement Tax-Efficient Withdrawal Planning

Which accounts you tap first matters. The traditional approach is taxable first, then tax-deferred, then tax-free. But you might consider a combination approach to maximize certain tax brackets, or even prioritize spending down tax-free assets if you plan to leave tax-deferred accounts to heirs in lower tax brackets or to charity.

Stress Test Your Plan

Use Monte Carlo simulations to test different scenarios, including bear markets at the beginning of retirement and different inflation rates. Be flexible and fluid with your plan, making adjustments as needed.

Consider using “guardrails,” where you start with a certain withdrawal rate and adjust spending accordingly if markets perform poorly or better than expected.

Financial Planning for Retirement: Getting Professional Help

Retirement planning requires a comprehensive approach that considers savings, investments, and potential lifestyle changes. With these six retirement planning strategies, you can improve your retirement outlook even if you’re feeling behind right now.

If you’re unsure whether you’re on track and don’t want to figure it all out yourself, consider working with a financial planner. At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal or investment advice.

6 Reasons to Take Advantage of a Roth Conversion

While I recently outlined reasons to steer clear of a Roth conversion, today I’m flipping the coin to explore when it can be a smart, strategic move for your financial future.

Why Consider a Roth Conversion During Market Downturns

A Roth conversion can be particularly beneficial during market downturns. When the market is down, you’re essentially exchanging a number of shares based on the dollar amount you want to convert from your tax-deferred account (whether it’s an IRA or a 401k) into a Roth.

You’ll have to pay taxes now in exchange for tax-free growth, which is the advantage Roth accounts offer. When markets are down, you can convert more shares with the same dollar amount.

For example, if you were looking to convert $50,000 worth of Vanguard’s Total Index (VTI) back in 2022 (the last bear market), you’d be able to convert an additional 25% worth of shares because the market was down roughly 25% that year. Just a thought, given we had some rough patches this April with the tariff concerns. We could continue to see more volatility in the months ahead.

While we can’t control market volatility, we can control smart tax planning. Let’s jump into the top six reasons you may consider a Roth Conversion in your financial planning strategy.

1. For Accumulators: Backdoor Roth IRA Strategy

The first reason is actually for people who are pre-retirement, or what I call “accumulators.” There are income thresholds for single and married filing jointly to directly contribute to a Roth IRA. If you fall into that category, the Roth conversion or backdoor Roth IRA strategy comes into play.

Essentially, you’ll make a non-deductible contribution into an IRA and then convert those assets into a Roth IRA. There are some tax traps you might fall into (the aggregation rule), so consult with your tax planner or financial planner before making this move. This strategy is available for IRAs, and sometimes, for 401ks as well. Contribution limits are much higher for 401ks than IRAs. If you have this option within a 401k, this could really boost your retirement savings.

2. Tax-Free Growth Long-Term

Reasons 2 through 6 are for individuals nearing retirement who have accumulated substantial savings in tax-deferred IRAs or 401ks.

The second reason is for long-term tax-free growth. If you believe tax rates probably aren’t going down and are more likely to go up or stay the same, then tax-free growth and compounding interest are much more powerful than tax-deferred growth. This could be for legislative reasons, or even simply projecting out your lifetime tax brackets. We know now that the One Big Beautiful Bill Act has made the current brackets permanent. Still, that doesn’t mean YOUR tax bracket might rise over time based on changes in your income or assets.

3. Eliminate or Reduce Required Minimum Distributions

A Roth conversion can eliminate or reduce your required minimum distributions. Required Minimum Distributions (RMDs) are mandatory withdrawals from traditional retirement accounts (IRAs, 401ks, 403bs, TSPs, 457bs, etc.) that the IRS requires once you reach a certain age. The beginning age is currently 73 if you were born before 1960, or 75 if you were born in 1960 or later. RMDs could potentially push your income into higher tax brackets later in retirement when spending actually might go down. Furthermore, if you don’t need all that income, it forces you to realize it anyway to avoid the 25% penalty for a missed RMD.

4. Save Money on Medicare Premiums

Many people don’t realize that when you sign up for Medicare, you might find yourself paying MORE for Medicare Part B and D. Part A is free, and everyone has the same base premium for B and D. However, the more money you make in retirement, the chances of triggering an “IRMAA” surcharge goes up.

IRMAA stands for Income-Related Monthly Adjustment Amount. There are 5 different premium tiers, and each tier increases your IRMAA surcharge. You can also look at it like an excise tax. The more you’ve saved in tax-deferred vehicles (401ks and IRAs), the higher those RMDs might be. More income from RMDs means your Medicare premiums may go up.

5. Reduce the “Surviving Spouse’s Tax Penalty”

The likelihood that a married couple passes away in the same year is very low. Most of the time, women outlive men, or one spouse outlives the other by many years. This is especially relevant if there is a significant age gap between spouses.

Filing jointly is much more tax-advantaged for most people. The surviving spouse will have to switch to filing single, typically the year following the initial spouse’s passing. This could result in pushing the surviving spouse into a much higher tax bracket than when they could file jointly.

Taking this into consideration to ensure you’re not placing your surviving spouse in an unfair or unfavorable tax situation upon your passing is a compelling reason to convert assets from traditional to Roth.

6. Address Changes from the SECURE Act

With the SECURE Act going into effect at the end of 2019, we’re seeing the largest acceleration of taxes on retirement assets that we’ve ever experienced. Essentially, the stretch IRA is eliminated for most non-spousal beneficiaries. With the stretch IRA, beneficiaries could “stretch” their IRA withdrawals over THEIR life expectancy. However, the SECURE Act now requires most beneficiaries to liquidate the entire retirement account by the end of the 10th year. This could result in pushing your heirs into an unfavorable tax bracket, especially if they are successful in their own right. We hear all the time that our clients’ children are making more than they ever made! Couple this with large IRAs or 401ks as an inheritance in their peak earning years, and you can see the potential tax trap this brings about. We call it “The Death Tax Trap of 401ks.”

This acceleration of taxes is a big reason to convert from tax-deferred accounts to tax-free accounts. When Roth accounts pass to the next generation, the beneficiaries can enjoy tax-free distributions of the assets instead of tax-deferred distributions.

Understanding the Roth IRA Conversion Process

The concept of a Roth Conversion is essentially to pay the tax now as opposed to deferring those taxes in an IRA or 401k. If you follow the appropriate 5-year rules, everything that grows and compounds in that account, along with the withdrawals, should be tax-free in retirement.

Compare that to a traditional IRA or traditional 401k. These plans give you a tax deduction upfront, but all of that compounding interest and distributions in the back end are taxed as ordinary income in retirement.

Many of my clients over 55 have accumulated the majority of their retirement assets in tax-deferred vehicles, such as 401(k)s and/or IRAs. They may be concerned about the future direction of taxes, particularly given the funding levels of Medicare, Medicaid, and Social Security.

The general concept is: does it make sense to pay taxes now at a potentially lower rate and enjoy tax-free compounding as opposed to tax-deferred compounding going forward?

The Tax Trap of Traditional 401(k)s and IRAs

The impact of Required Minimum Distributions are oftentimes one of the biggest tax traps of 401ks and IRAs. Because our clients were diligent savers during their working years, they accumulated substantial assets in 401(k) plans and IRAs. When they turn 73 or 75, they’re forced to take out a certain percentage of those retirement accounts each year.

As your life expectancy shortens, the amount you’re required to take out increases. You start out at a little under 4%, and by the time you get to 90, you’ll be taking out north of 8% of your retirement account, whether you need it or not.

Think about what that can do to your taxable income, Medicare premiums, and ultimately, how those assets are passed on to the next generation. This tax trap is what we’re trying to solve well before clients hit that magic age.

Planning for Longevity in Retirement

More and more people are living longer, often into their 90s. The life expectancy of a 62-year-old female includes a 30% chance of living until 96. When planning with clients over 55 or 60, we may be looking at a retirement of 30 years or more, even longer than their working years.

You must consider this in light of the high inflation we have experienced these past few years. The cost of goods going up over that retirement period on a potentially fixed income is worrisome for many clients. That’s what we try to plan for and mitigate inflation risk coupled with longevity risk.

The Retirement Red Zone

I call the period ten years before you retire and the ten years after you retire the “Retirement Red Zone.” Decisions are magnified, and mistakes are magnified if you make the wrong move.

From an investment perspective, that’s important, especially during volatile times. Certainly, from a tax perspective, which also contributes to the long-term rate of return on your portfolio. This is something I aim to help my clients with as they prepare.

Strategic Planning for Retirement Success

While nobody can predict the future of taxes, you can take the known variables and project out your estimated lifetime tax rates. You will find that throughout retirement, there could be some opportunistic times when your income goes way down. If you’re making strategic moves during that time frame, such as Roth conversions, that planning can help position your retirement assets for better long-term growth and tax efficiency.

Remember, the planning doesn’t stop after retirement, it just changes. Whether you are on the brink of retirement or you’ve been retired for several years, having good guidance at every stage of the process is crucial for achieving financial peace and security in retirement.

Take a deeper dive into this topic by listening to Episode 10 of The Planning for Retirement Podcast. This is for general education purposes only and should not be considered as tax, legal or investment advice. At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

7 Reasons Not to Do a Roth Conversion

I’ve never met anyone who wants to overpay the IRS. As a result, one of the number one topics we discuss with clients is how to reduce their lifetime tax bill. More specifically, whether or not they should consider a Roth Conversion with some of their IRA dollars.

Before we talk about the seven reasons that might cause you to delay, reduce, or reconsider doing a Roth conversion, let’s look at some big news brewing in Washington related to taxes on Social Security.

Social Security has a complicated formula to determine how much of your benefit will be included in your taxable income. On the low end, your entire benefit could be tax-free (0% included in taxable income). On the high end, up to 85% of your Social Security benefit could be taxable.

Senior Citizens Tax Elimination Act

Congressman Thomas Massey from Kentucky, along with 29 Republican co-sponsors, has introduced the Senior Citizens Tax Elimination Act. To provide some context, prior to 1986, Social Security benefits weren’t taxable at all. In 1986, Social Security implemented revisions and created the provisional income formula that determines how much of your benefit is included in taxable income.

Massey’s bill would essentially repeal the inclusion of Social Security benefits in taxable income altogether. This would also include tier one railroad benefits (pensions from working at the railroad). The bill was first introduced last year, but now it’s legitimate. It’s in the House and seems to have a decent chance of passing.

However, there are costs associated with implementing this bill. According to the Committee for Responsible Government, this is estimated to cost taxpayers about $1.8 trillion over the next decade. When we couple this with Social Security’s projected insolvency date of around 2033-2034, it raises questions about funding.

Currently, 80% of Social Security benefits are funded by payroll taxes from current workers. The Social Security trust fund supplements the remaining 20%. If benefits become tax-free, this could accelerate the insolvency date.

So, how will they pay for this bill? My crystal ball says taxes will increase in some way to fund the deficits projected for Social Security and Medicare.

Why is this relevant to our Roth conversion discussion? Because, while we know what taxes look like today, it’s virtually impossible to be 100% certain about future tax rates.

What is a Roth Conversion?

A Roth conversion involves moving or converting funds from a tax-deferred vehicle (like a traditional IRA, 401(k), 403(b), or TSP plan) into a tax-free vehicle. In exchange for doing this, you elect to pay the taxes now.

Why would you do this? At one point, you believed deferring taxes was the way to go, or maybe you didn’t have access to a Roth account. This is pretty common—15-20 years ago, many employers didn’t offer Roth 401(k) plans. But now you have the ability to convert some of those assets to Roth.

The benefit of a Roth account is tax-free growth going forward, as opposed to tax-deferred growth. But there are situations where converting might not be the best strategy.

1. You’re in a Higher Tax Bracket Today Than You Will Be in the Future

The first reason to reconsider a Roth conversion is if you’re currently in a higher tax bracket than you expect to be in the future. There are several scenarios where this might happen:

When you retire, your W-2 income or self-employment income disappears. Your only income might be capital gain distributions, dividends, interest, a small pension, or IRA distributions. If your tax bracket will drop substantially in retirement, it might make sense to wait until you enter what we call the “Roth conversion window.” This window is after retirement, but before you start taking Required Minimum Distributions (RMDs) and/or Social Security.

Your income might be temporarily high due to things like

  • Selling a business, stock, or rental property
  • Receiving a large bonus
  • Inheriting money

Doing a Roth conversion during these high-income years could push you into an unnecessarily higher tax bracket.

You might believe taxes will decrease in the future due to legislative changes, making it beneficial to wait for potential tax cuts before converting.

In short, if you expect your income bracket to drop at some point, it might be worth evaluating conversions at that time instead of now.

2. You’re Leaving a High-Income Tax State for a Low or No-Income Tax State

According to the Tax Foundation, state income taxes significantly influence net migration in the U.S. The top third of states with positive net migration have an average state income tax of about 3.5%. The bottom third average nearly double that at 6.7%.

I don’t believe you should move to a state in retirement solely because of taxes. However, if you’re planning to move from a high-tax state like New Jersey, New York, or California to a low or no-income tax state, you might consider waiting to do Roth conversions until after your move.

You could potentially benefit from both a lower federal bracket at retirement and little to no state income tax, maximizing your tax savings on the conversion.

It will be interesting to see how migration patterns evolve as companies bring employees back to in-person work. For retirees with the flexibility to move anywhere, taxes will likely remain an important consideration.

3. Your Heirs Are in Lower Tax Brackets

The SECURE Act, passed at the end of 2019, eliminated the “stretch IRA” for most beneficiaries. Previously, individuals who inherited an IRA could stretch distributions over their life expectancy. Now, most non-spouse beneficiaries must liquidate the account within 10 years.

This applies to both traditional IRAs and Roth accounts. The key difference is that Roth account distributions during those 10 years are tax-free to beneficiaries, while traditional IRA distributions are fully taxable.

If your beneficiaries are in a very low tax bracket, while you are in a higher tax bracket, there could be an argument for not converting. For example, if you’re in the 24% or 32% bracket due to Social Security, a pension, and investment income, while your children are in the 10% or 12% bracket, it might make more sense to leave those assets to your heirs and let them pay taxes at their lower rate.

The challenge with this approach is that it requires knowing exactly when you’ll pass away and what tax bracket your children will be in at that time. Your 25-year-old child who’s currently in graduate school with no income might eventually have high earning potential or start a successful business, putting them in a higher tax bracket than you.

Additionally, even if your beneficiaries are in a relatively low tax bracket, inheriting a large IRA could push them into a higher bracket during the 10-year distribution period. For example, if your IRA is worth $2 million, your beneficiaries would need to distribute about $200,000 annually over 10 years, potentially pushing them into a much higher tax bracket regardless of their current income.

You should also consider the distribution of your assets between taxable, tax-deferred, and tax-free accounts when making this decision.

4. Hidden Taxes Could Reduce the Benefit of Converting

Any Roth conversion will increase your taxable income in the year you do the conversion, even though it doesn’t put cash in your bank account. This can trigger various “hidden taxes” based on calculations like modified adjusted gross income (MAGI), taxable income, or provisional income.

Here are some examples:

IRMAA Surcharge: The Income-Related Monthly Adjustment Amount applies once you’re Medicare eligible. While Medicare Part A is free, Part B has a premium (about $185 for 2025). Part D depends on your chosen drug plan. If your income exceeds certain thresholds, you’ll pay additional surcharges for both Part B and Part D. These surcharges can range from $1,000 to over $6,000 per year per person.

ACA Premium Tax Credits: If you retire before 65 and use the Affordable Care Act for health insurance, you might be eligible for premium tax credits based on your modified adjusted gross income. Roth conversions could reduce these credits.

Net Investment Income Tax: If your MAGI exceeds $250,000 (married filing jointly) or $200,000 (single), there’s an additional 3.8% tax on investment income like dividends, interest, and rental income.

Capital Gains Taxes: If you’re married filing jointly and your taxable income is below $96,700 for 2025, you don’t pay any tax on long-term capital gains. A Roth conversion could push you above this threshold.

Social Security Taxation: As mentioned earlier, between 0% and 85% of your Social Security benefits could be taxable depending on your provisional income. Roth conversions can increase this percentage.

While these hidden taxes aren’t necessarily reasons to avoid Roth conversions entirely, they should factor into your decision about timing and amount.

5. You’re Planning to Donate to Charity During Your Lifetime or at Death

Traditional IRAs are some of the best accounts to donate to charity. If you convert all your tax-deferred assets to Roth, you lose this potential tax benefit.

One powerful strategy is the Qualified Charitable Distribution (QCD). Once you turn 70½, you can donate up to $107,000 (in 2025) directly from your IRA to charity without recognizing an taxable income. What makes this even more powerful is that once you begin taking Required Minimum Distributions (RMDs), you can reduce your RMD dollar-for-dollar up to that cap.

For example, if your RMD is $50,000 and you typically donate $30,000 to charity, you could do a $30,000 QCD directly from your IRA. This would reduce your RMD to $20,000, essentially making that $30,000 completely tax-exempt—even better than a tax deduction.

Similarly, if you’re planning to leave money to charity at death, your traditional IRA is a great asset to use. While your non-spousal beneficiaries (typically children or nieces/nephews) will have to pay taxes as they withdraw from the inherited IRA over the 10-year period, charities don’t pay any taxes on these distributions.

This doesn’t mean you shouldn’t convert at all, but you might consider not converting as much or as aggressively if charitable giving is part of your plan.

6. You’re Planning to Self-Fund for Long-Term Care Costs

Long-term care is one of the most significant risks retirees face today. The uncertainty lies in whether you’ll need care, and if so, for how long—six months or ten years? The costs can be substantial, often exceeding six figures annually.

Some people buy long-term care insurance, while others plan to use their own assets. If you’re in the latter group, there’s an interesting tax angle to consider. While IRA distributions are taxable, there’s a deduction if your medical costs exceed 7.5% of your adjusted gross income. These expenses can be added to your itemized deductions.

If you need long-term care later in life, it’s almost certain your expenses will exceed that 7.5% threshold, given the high costs involved. If you have an IRA you can tap into to pay for care, you might be able to deduct some of those distributions because of the medical expense deduction.

While this deduction may not offset the entire tax on the distribution, it can be significant enough to argue against converting all of your IRA to Roth.

7. You Don’t Have the Cash to Pay the Taxes

The traditional approach to paying for Roth conversion taxes is to use cash on hand from a savings or checking account, or to increase withholding from sources like Social Security or a pension to offset the additional taxes.

If these aren’t options—if you don’t have the cash or need your income from other sources—you may have to use funds from your IRA to pay the tax. If you’re younger than 59½, this isn’t advisable because you’ll face a 10% early withdrawal penalty.

Even if you’re over 59½, using money from your IRA to pay the taxes leaves less money invested that could otherwise grow tax-deferred. This may not be ideal depending on your time horizon and the breakeven point of the Roth conversion.

Your plan should strongly favor Roth conversions for it to make sense to pay the tax out of the IRA. While there are cases where this works (I have a client for whom we’re doing exactly this), if you don’t have the cash and the case for Roth conversion isn’t compelling, you might want to pause or avoid the conversion altogether.

Final Thoughts on Roth Conversion Decisions

Understanding when a Roth conversion makes sense requires careful analysis of your current situation, future expectations, and overall financial goals. While Roth conversions can be powerful tools for retirement planning, they aren’t right for everyone in every situation.

Remember that tax laws and personal circumstances change over time, so regularly reviewing your retirement and tax planning strategy is essential for long-term success.

If you’re approaching retirement and wondering if you should do a Roth Conversion, check out Episode 66 of The Planning for Retirement Podcast. Consider working with a financial advisor who specializes in retirement income planning. They can help you analyze your specific situation and develop a claiming strategy that aligns with your overall financial goals.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal or investment advice.




9 Reasons to Consider Delaying Social Security Benefits

You’ve probably heard financial experts advising people to claim Social Security as early as possible. They say things like:

  • “You don’t know how long you’ll live.”
  • “Take it now while you’re young and healthy.”
  • “Social Security might go bankrupt.”

But what if I told you that for high-net-worth retirees, claiming early could cost you several hundred thousand dollars in lost income and negatively impact your investment portfolio over time?

In this article, we’re going to dive into nine compelling reasons why you might consider delaying your Social Security benefits as long as possible. This advice is particularly relevant for individuals over 50 who have accumulated at least a million dollars in retirement savings.

The Current Economic Context

Before we dive into our main topic, it’s important to note some significant economic developments that could impact retirement planning. As of July 2025, all three major credit rating agencies have downgraded US credit from AAA to AA. This downgrade stems from rising national debt (currently at $36 trillion), large annual deficits, and higher borrowing costs for the government.

For retirees, this has several implications:

  1. Bond yields have increased, offering higher interest income on new issues
  2. Existing bonds may have decreased in value
  3. There’s increased volatility in fixed-income investments

These factors make your Social Security claiming strategy even more critical as part of your overall retirement plan.

Social Security Basics: What You Need to Know

Before discussing claiming strategies, let’s review some Social Security fundamentals:

  • Eligibility: You need 40 credits (typically achieved by working for 10 years) to qualify
  • Primary Insurance Amount (PIA): The benefit you’ll receive at full retirement age
  • Full Retirement Age: For most people born after 1960, this is age 67
  • Early Claiming: You can claim as early as 62, but with a reduction of up to 35% from your PIA
  • Delayed Claiming: For each year you delay beyond full retirement age (up to age 70), your benefit increases by 8%

In 2025, the average monthly Social Security benefit is about $1,840 across all recipients, with retirees receiving slightly more at around $1,900 per month. However, if you’ve had above-average earnings throughout your career, your benefits could be significantly higher.

The maximum possible monthly benefit at full retirement age is over $4,000. If claimed early at 62, the maximum is about $2,800, while delaying until 70 could provide up to $5,100 per month. For a married couple with two high earners, this could mean a combined monthly benefit of $8,000 to $10,000, a substantial fixed income stream.

Nine Reasons to Consider Delaying Social Security

1. You or Your Spouse Are Still Working

If you or your spouse continues working, whether part-time or full-time, this income might cover your basic necessities. You can supplement this with portfolio withdrawals if needed.

Additionally, if you claim Social Security while still working before reaching full retirement age, you’ll be subject to the retirement earnings test. This means Social Security will reduce your benefits if your wages exceed certain thresholds. While these reductions aren’t permanent (you’ll receive adjustments later), delaying benefits while working can simplify your financial situation.

2. Higher Guaranteed Monthly Benefit

This is perhaps the most obvious reason to delay. By waiting until age 70 instead of claiming at 62, you can increase your monthly benefit by approximately 77% (avoiding the 35% reduction at 62 and gaining 24% from delayed retirement credits between 67 and 70).

Example

If your primary benefit amount at 67 is $3,000, claiming it at 62 would reduce it to approximately $1,950, while waiting until 70 would increase it to approximately $3,720 per month. That’s a difference of $1,770 per month or $21,240 per year!

Of course, by delaying, you will be forgoing benefits for several years. The break-even point—where the cumulative benefits from delaying surpass what you would have received by claiming earlier—typically occurs around age 83. If you live beyond this age, delaying will have provided greater lifetime benefits.

3. Longevity Insurance

Social Security functions similarly to an annuity, providing guaranteed income for life. This “longevity insurance” becomes increasingly valuable the longer you live.

According to Social Security’s actuarial tables, a 60-year-old male today has a life expectancy of 80.4 years, while a female has a life expectancy of 83.5 years. However, many high-net-worth individuals have access to better healthcare and tend to live longer than these averages.

By delaying Social Security, you’re essentially purchasing a larger “annuity” that increases with inflation each year through cost-of-living adjustments (COLAs). Unlike private annuities, which may not include inflation protection, Social Security benefits are adjusted annually to keep pace with the Consumer Price Index.

4. Spousal and Survivor Benefits

For married couples, delaying benefits can significantly impact the financial security of both spouses.

While spousal benefits (up to 50% of the primary earner’s benefit at full retirement age) cannot be increased by delaying beyond full retirement age, survivor benefits can be. If the higher-earning spouse delays claiming until 70 and then passes away, the surviving spouse can step up to that higher benefit amount.

Example

Let’s say that Jack’s benefit at full retirement age is $4,000 per month, and Jill’s is $2,500. Jack decides to delay receiving benefits until age 70, which increases his benefit to $5,000 per month. When Jack passes away, Jill will receive $5,000 instead of $4,000. This provides significant additional income protection for the surviving spouse.

5. Tax Efficiency

Social Security benefits may be partially taxable depending on your “combined income” (adjusted gross income + tax-exempt income + half of your Social Security benefits):

For single filers:

  • Below $25,000: 0% taxable
  • $25,000-$34,000: Up to 50% taxable
  • Above $34,000: Up to 85% taxable

For married filing jointly:

  • Below $32,000: 0% taxable
  • $32,000-$44,000: Up to 50% taxable
  • Above $44,000: Up to 85% taxable

By delaying Social Security and strategically managing your income during the “Roth conversion window” (the period between retirement and Required Minimum Distribution age), you might be able to convert traditional IRA assets to Roth while keeping your tax bracket lower. Then, when you start Social Security at 70, a smaller portion (or potentially none) of your benefits might be subject to taxation.

6. Maximizing Legacy

While claiming early and investing those benefits might seem like a good strategy for maximizing your legacy, delaying can actually be more effective if you live a long life.

Yes, delaying Social Security means higher portfolio withdrawals in the short term. However, once you start receiving the higher benefit amount, your lifetime withdrawal rate decreases. Over a 15-25 year retirement, this can result in greater portfolio preservation and a larger inheritance for your heirs.

In one case study, a client with a $1 million portfolio who delayed claiming Social Security saw their portfolio initially dip but then recover significantly. By year 22 (around age 84), their portfolio value exceeded what it would have been had they claimed early, ultimately leaving a larger legacy.

7. Peace of Mind

The simple psychological benefit of having a higher guaranteed income stream shouldn’t be underestimated. Many retirees sleep better knowing they have a substantial, inflation-protected income source that isn’t dependent on market performance.

This peace of mind factor is why many people work longer than financially necessary—they want to maximize their guaranteed income in retirement.

8. Health Savings Account (HSA) Eligibility

This is a more technical consideration, but essential for those with HSAs. Once you enroll in Medicare at 65, you can no longer contribute to an HSA, even if you’re still working and covered by a qualified employer plan.

When you begin collecting Social Security after 65, you’re automatically enrolled in Medicare. If you plan to work past 65 and want to continue contributing to an HSA, delaying Social Security is necessary.

9. Flexibility

Deciding to delay Social Security doesn’t lock you in permanently. If you initially plan to delay until 70 but retire into a market downturn, you can start benefits earlier than planned to reduce pressure on your investment portfolio.

This flexibility allows you to adjust your strategy according to changing market conditions, health developments, or other life circumstances.

Real-World Impact: A Case Study

Let’s look at a real example of how different claiming strategies affect lifetime benefits. For a couple we’ll call Jack and Jill, we analyzed three scenarios:

  • Both claiming at 62
  • Both claiming at full retirement age (67)
  • Both claiming at 70

Assuming Jack lives to 85 and Jill to 90, with a 2% annual cost-of-living adjustment:

  • Claiming at 70: $2.3 million in lifetime benefits
  • Claiming at 62: $1.8 million in lifetime benefits

That’s a $500,000 difference in favor of delaying!

Making Your Decision

Every Social Security claiming decision is unique. There’s no one-size-fits-all approach, and hundreds of different claiming scenarios exist based on your specific circumstances.

Don’t let emotions or pessimistic assumptions about the system drive your decision. While concerns about Social Security’s future are valid, making claiming decisions based on fear rather than analysis could cost you hundreds of thousands of dollars.

Your Social Security strategy should be coordinated with other aspects of your retirement plan, including:

  • Your investment portfolio strategy
  • Tax planning
  • Healthcare costs
  • Spousal considerations
  • Legacy goals

For high-net-worth individuals, the decision is particularly nuanced. While you may not “need” Social Security to survive, optimizing this benefit can significantly enhance your retirement security and legacy planning.

Next Steps

If you’re approaching retirement and wondering if you should delay Social Security, check out Episode 79 of The Planning for Retirement Podcast.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal or investment advice.

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