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Tag: retirement planning strategies

Retirement Planning Opportunities If You’re in the Top 20% of Savers (Ages 55–70)

If you’ve ever Googled “retirement savings by age,” you’ve probably seen those benchmark numbers that either made you panic or feel like you’re crushing it. But here’s the thing – both reactions might be completely wrong.

Understanding retirement savings by age is something many people get hung up on, but the reality is that these average numbers rarely tell the complete story. Today, we’ll dive into real data from major financial institutions and explain why, if you’re reading this, you’re probably already in the top tier of savers.  And if you’re in that top tier, we’ll discuss specific planning opportunities to help you optimize your retirement. 

What the Average Retirement Savings Data Really Shows

Let’s start by looking at what the major studies actually reveal about retirement account balances across different age groups.

401k Balance by Age: Fidelity’s Latest Numbers

Fidelity releases quarterly benchmarking studies that track average retirement account balances by age. Their data shows that for people in their peak earning years (55-70), the average 401(k) balance hovers around $250,000.

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But here’s the problem with this data: it only includes accounts held at Fidelity. It completely excludes external accounts, creating a major blind spot. There are no taxable brokerage accounts, no HSAs, and no retirement accounts held at other institutions, such as Vanguard or Schwab. This means Fidelity’s numbers aren’t really representative of the entire U.S. retirement landscape – especially not for people who are serious about their financial planning.

The Federal Reserve’s Complete Picture

The Federal Reserve’s Survey of Consumer Finances, conducted every few years, gives us the closest thing to a national financial scoreboard. The 2022 data reveals some eye-opening statistics.

For households in the 55-64 age range:

  • About 8% have retirement account balances between $500,000 and $1 million
  • Roughly 9% have over $1 million in retirement accounts
  • This means approximately 17% of U.S. households in this age group have retirement savings exceeding $500,000

If you’re reading this article and have accumulated at least $500,000 in retirement accounts by your late 50s or early 60s, you’re already in the top 20% nationally. Many readers are likely in that top 10% tier with over a million dollars saved.

The Fed’s survey includes a broad sample of American households – from lower wealth to middle class to high net worth families. Many of the households surveyed may have very little, if any, assets in 401(k)s or IRAs, which skews the averages significantly lower.

Empower’s More Complete Data Set

Empower’s data provides both average and median retirement account balances, which matters because averages can be skewed by ultra-high savers with multiple seven-figure accounts.

For people in their 50s and 60s, Empower shows:

  • Average retirement account balance: roughly $1 million
  • Median balance: about 50% of that average

What makes Empower’s data more valuable is that it doesn’t just include accounts held directly with them. It also incorporates retirement accounts imported through their personal dashboard tool. If someone has accounts at Fidelity, Vanguard, or other institutions, those balances get aggregated into the study, making it more representative of people who actively manage their finances across multiple platforms.

However, even Empower’s data has limitations – it still doesn’t include other retirement assets like taxable brokerage accounts, business investments, or real estate.

Why You’re Probably Not Average

Here’s the reality: if you’re actively researching retirement savings by age and reading detailed financial content, you’re already demonstrating behavior that puts you in a completely different category than the “average” American saver.

The average retirement savings by age data includes everyone, including people who have never opened a 401(k), those who cash out their retirement accounts when changing jobs, and households that prioritize other financial goals over retirement savings.

But you’re different. You’re likely someone who:

  • Has built substantial retirement account balances
  • Maintains accounts across multiple institutions
  • Has diversified beyond just retirement accounts into taxable investments
  • Owns real estate or business assets not captured in these studies

Someone might have $400,000 in a 401(k), but another $1-2 million in taxable brokerage accounts or $3 million in real estate investments. If you’re only comparing retirement accounts, you’re missing half the picture.

This is the key point: if you’re consuming this type of content, you’re probably already in that top 20% of households. You’ve likely saved at least $500,000, and many readers have accumulated seven figures or even multiple seven figures for retirement. You’re playing a completely different retirement game than the average American.

Essential Retirement Planning Strategies for Top-Tier Savers

When you’re in the top tier of savers, your biggest risk isn’t running out of money – it’s retirement planning inefficiency. Here are the critical strategies you need to consider:

Tax Planning: Your Biggest Opportunity

Taxes can actually be one of your biggest expenses in retirement – often ranking as the number one, two, or three largest annual expenses for retirees.

Large pre-tax account balances mean large future required minimum distributions (RMDs). These large RMDs can potentially push you into higher income tax brackets, trigger higher taxes on Social Security income, increase capital gains rates, and activate other hidden taxes. These tax hits compound over time.

If you retire early, you may have lower income years before RMDs kick in at age 73 or 75. This window represents one of the best tax planning opportunities of your lifetime–what’s called the “Roth conversion window.”

Maximizing Roth Conversion Strategies in Early Retirement

During your early retirement years, before RMDs begin, you have the opportunity to strategically convert pre-tax retirement funds to Roth accounts. This means paying taxes now at potentially lower rates to minimize the impact of those ballooning RMDs later.

Roth conversion strategies can also help you:

  • Minimize IRMAA surcharges (hidden taxes on Medicare premiums based on income)
  • Make Social Security income more tax-efficient
  • Create tax-free legacy assets for your heirs

Once this conversion window closes, it shuts for good, making this timing critical for long-term tax efficiency.

Optimizing Your Retirement Withdrawal Strategies

When you have substantial assets across multiple account types–taxable accounts, tax-deferred accounts, and tax-free accounts–the order you withdraw money matters enormously for the longevity of your retirement plan.

The classic approach follows this sequence:

  1. Taxable accounts first
  2. Tax-deferred accounts second
  3. Tax-free accounts last

This default strategy makes sense for many people, but it’s not always optimal. Sometimes it makes more sense to tap Roth accounts first and let tax-deferred accounts continue compounding. Other times, a multi-pronged approach works best–taking baseline distributions from taxable accounts while filling remaining income needs from tax-deferred accounts, even before RMDs begin.

The key insight: retirement withdrawal strategies shouldn’t follow a one-size-fits-all approach. Each year brings a new tax situation that needs to be evaluated and optimized based on your specific circumstances.

Investment Strategy: Risk Capacity vs. Risk Tolerance

Most retirees and many financial advisors focus solely on risk tolerance–how aggressive you feel comfortable being emotionally. But for higher net worth households, we need to discuss something different: risk capacity.

Understanding the Difference

Risk tolerance is emotional and psychological. It’s about how you feel when the market drops 20%. Do you panic? Can you sleep well at night? Can you stay disciplined?

Risk capacity is different – it’s not about feelings, it’s about what your plan can mathematically survive. Can you afford to take on risk in retirement?

Here’s the counterintuitive part: a retiree with a smaller portfolio may actually have less risk capacity than someone with a larger balance.

A Real-World Example

Consider a retiree with $500,000 who needs $30,000 annually (6% withdrawal rate). If the market drops 25%, their portfolio becomes $375,000, but they still need that $30,000. Now their withdrawal rate jumps to 8% – entering the danger zone where retirement plans can fail due to the sequence of returns risk.

Compare this to someone with $2 million who needs $80,000 annually (4% withdrawal rate). If their portfolio drops 25% to $1.5 million, their withdrawal rate only increases to 5.3%. They have margin for error. They can reduce withdrawals, skip inflation adjustments, rebalance, or even take advantage of the downturn.

This is risk capacity: how much volatility can your plan absorb before forcing you to make bad financial decisions?

Where You Hold Investments Matters

Asset location is different from asset allocation. Asset allocation is what you’re invested in. It’s your mix of stocks, bonds, real estate, and cash. Asset location is where you hold those investments.

When you have substantial balances across taxable, tax-deferred, and tax-free accounts, where you locate specific investments can significantly impact your after-tax returns.

The Tax Drag Problem

Taxable accounts face ongoing tax drag. Investments may pay quarterly dividends, generate interest income, or distribute capital gains even when you’re not selling anything. When you’re in higher tax brackets, this drag becomes significant and represents one of the most overlooked ways wealth gets eroded–not from market performance, but from unnecessary taxes.

If your taxable account holds high-yield bonds, REITs, and high-turnover funds, you might pay substantial taxes annually even if you’re not spending that income. Meanwhile, your IRA and Roth accounts might be better locations for these less tax-efficient investments.

The goal of asset location is simple: ensure your taxable accounts aren’t dragging down your net after-tax returns. You don’t just need good performance. You need good after-tax performance. It’s not about what you earn; it’s about what you keep.

Legacy Planning for High-Net-Worth Families

If you’re in the top tier of savers, there’s a good chance you won’t spend down all your assets, even if your goal is to “die with zero.” This means you’re optimizing not just for lifetime income, but also for legacy–specifically, tax-efficient legacy.

This becomes especially important if your heirs are high earners themselves: doctors, entrepreneurs, attorneys, or other professionals. What you leave behind matters significantly.

Leaving a pre-tax IRA or 401 (k) to high-income beneficiaries creates a different tax impact than leaving a Roth account or a taxable brokerage account. The most effective planning involves being strategic about which assets to spend aggressively during your lifetime versus which to preserve for beneficiaries.

The Real Takeaway for Top-Tier Savers

If you’ve built substantial wealth and find yourself in the top 20% of U.S. households, your retirement plan is no longer about chasing returns or worrying about having “enough” money. Instead, your focus should shift to:

  • Maximizing retirement plan efficiency
  • Controlling the timing and tax impact of distributions
  • Minimizing lifetime taxes through strategic planning
  • Managing Medicare thresholds and IRMAA surcharges
  • Optimizing Social Security income timing and taxation
  • Taking advantage of Roth conversion windows
  • Planning for tax-efficient legacy transfer

Once you’ve done the hard part–saving and investing to reach financial independence–the game becomes about keeping more of what you’ve built. The strategies that got you to this point aren’t necessarily the same ones that will optimize your wealth throughout retirement.

The Bottom Line

Stop comparing yourself to average retirement savings by age. If you’re actively planning and have accumulated substantial assets, you’re already playing in a different league. Your focus should be on advanced strategies that maximize the efficiency of the wealth you’ve built, not on whether you’re “keeping up” with benchmarks that don’t reflect your reality.

Remember, retirement planning for high-net-worth individuals isn’t about accumulating more. It’s about optimizing what you have for the best possible outcomes throughout your retirement years and beyond.

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 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.

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