MY RETIREMENT PLAN
A quote from a retirement money expert: “”We’ve learned that people make many mistakes, and particularly, sadly, less educated and poorer people tend to make worse mistakes.” I was on a site today that allows comments and I was shocked how many commenters got Social Security facts wrong. Its no wonder, Social Security is a “government” program. By law it has to be confusing. Your spouse will NOT get your benefits that you waited until 70 to get. The spousal program has a different formula and your spouse can receive NO MORE THAN the greater of your benefits at FRA or earlier, or his/her own benefits.
Again? Retirement again? Yes. Because it is the SECOND most important thing you will ever do. Don’t confuse “retirement” with when you will apply for Social Security. Even if you are still working at Full Retirement Age (FRA) you can apply for benefits. I retired three years before taking Social Security (and then went back to work for a while). What is your retirement plan? Choose one:
MY KIDS WILL SUPPORT ME.
Do they know this? Why not have your neighbor or your doctor support you? This isn’t really a “plan” is it!!! (Yet, some do exactly this.)
THE GOVERNMENT WILL SUPPORT ME.
Sure, you’ll probably get some support, like Social Security, Medicare, and SNAP, but when the government runs into problems and shuts down … it no longer feels like a good plan. Plus, Medicare is not free! Hospitalization is included (if you have 40 work credits), but Part B costs about $200 per month. Then there’s Part D which costs between $10 and $100 per month (lots of variables). And don’t forget Supplemental Insurance because Medicare only pays for 80% of costs (no maximum OOP). Supplemental can cost up to $400 per month (lots of variables) at age 65. The Advantage scam sounds “too good to be true” and IS for roughly half of those on it (so do your research). By the way, most people on the Advantage plans fail to use $$hundreds$$ in contract benefits. After all that there’s not much left of your Social Security benefit. You’ll be eating rice and beans. It also isn’t really a “plan.”
OK, I GUESS I’LL SAVE A LITTLE.
More than half of current retirees have below $125,000 saved. It doesn’t work well. It will be gone with a few months of nursing home care. If you get back home you will be faced with abject poverty; can’t pay property taxes, home insurance, or keep the car. What will $125,000 buy in today’s economy anyway? This is a poor plan.
I AM GOING TO SAVE A BUNCH.
If you save up $250,000 you will have more than 80% of retirees. But you can’t count on living very long on that. For most retirees planning to live off of savings, they will blow through that amount in 12 – 14 years. If you retire at 65, you should be praying that the good Lord will take you home before you reach 80. But half of those who reach age 65 will still be alive by age 85. What will support you then? Congratulations, you did “something” worthwhile.
I AM GOING TO PUT AWAY THE MAXIMUM STARTING BEFORE AGE 40.
The minimum you need for your savings to meet half of your annual needs is $500,000. The annual growth on $500k is about $25,000 (at 5%). That, plus your Social Security, plus your pension gives you an income of $60 – $90k per year. Nice plan!
HEIRS?
Have you considered what you will leave to your heirs? There are horrible mistakes to make with IRAs and a lot of folk commit them.
Designate Beneficiaries.
First, and very important … designate beneficiaries for every retirement account you own. Not doing so is a horrible mistake. Why? Because it becomes a probate issue (can you say expensive and time consuming?) Why would you work hard to build this fund, but just pay lawyers?
“Should I Designate My Estate as Beneficiary?”
Second, and very important … DO NOT designate your estate as the IRA beneficiary. Of course, you can if you want, but the money will go to lawyers and taxes, and not your heirs. Setting your estate as beneficiary of IRA/401 (k)/SIMPLE/etc. is a horrible mistake.
Review.
Circumstances change. People die, divorces happen, you may have fallen out of favor with a niece, etc. Amazingly, lots of beneficiaries listed with IRAs are either deceased or people’s EXs. You want your ex to get your IRA when you die? A deceased person cannot inherit your IRA. Not annually reviewing your beneficiaries for EVERY retirement account could be a horrible mistake.
Keep Good Records.
Make a list of every retirement account including the names and addresses of those you have listed as beneficiaries. If they can’t be found within a set amount of time they won’t receive what you want for them to have. I have one relative whose phone number and address changes often (at least once a year) and I lost track long ago. Could he be found? Heaven knows!
ROTH.
Start NOW at 59 ½ (this is for those who have saved at least $500,000 in a traditional IRA): transfer what you can into a ROTH account. The point of tax-deferment is to pay LOWER taxes. If you have too much in your IRA you will end up paying HIGHER taxes. It is likely a mistake to put more than $500k in tax-deferred accounts. A better option is to invest some in ROTH IRA accounts to begin with.
Consolidate.
You don’t need six separate 401(k), SIMPLE, SEP, and Standard IRA accounts. Reduce paperwork and risk by combining them into one. (It is legal.) Double check every place you worked to see if you have one from there. Not only does this simplify keeping track of them and saves you time, it also helps you avoid distribution mistakes. The government knows about every account (even if you don’t). When you turn 73 you MUST begin taking Required Minimum Distributions (RMD) from your tax-deferred accounts, so you better know the TOTAL invested in tax-deferred accounts. If you don’t take the appropriate RMD you will be hit with a huge tax bill for the distributions you did not take. People usually only make this mistake once, but it can be thousands of dollars in extra taxes.
When to Take RMD.
Finally, RMDs should be taken EARLY in the year. Don’t wait until December. If there is a mix-up you’ll miss the deadline. (The following is crazy stupid, yet allowed, sometimes you can take your first RMD after December 31. You’ll end up taking two RMDs in one year and you’ll likely pay much more in taxes.)
Copyright 2025 Donald Whelpley
[PLEASE NOTE that Don is always open to discussing the thoughts and opinions he shares here and welcomes comments as shared in the comment section. He doesn’t use other social media platforms and won’t see whatever you’d like to share with him if you post it elsewhere.
ALSO, Don is always open to offer his thoughts on various topics. If you have a specific request, you can let him know in a comment; he reads – and replies to – them all. ~ Sherry]
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My posts about retirement are geared for lower middle-income readers. Most that you read online are geared for upper middle-income and above.
You’d think lower income folk would be more careful because they don’t have much flexibility. NOPE! I just talked with someone who is retired poor and he is blowing a hundred a month on un-necessaries. Get a part-time job or cut expenses.
I consider us in that category. Much of your advice is too late for us but I avidly read and appreciate it just the same, AND do find some things can still use! Very much appreciated, Don!
Thanks, owly.
Even saving a dollar is better than none.
Also, I wish Social Security made some logical sense. They count 40 years of income, divided by 40 to get your base amount. Then only pay 80% of the first ~$9,000, then 32% of the next ~$x,xxx, then 16% of the next. They take that figure and divide by 12 to get your monthly amount, but throw away any pennies (including 99 cents). You earn a month of income but get paid sometime in the middle of the next month. If you die before midnight on the last day of the month they won’t pay for that month. Just try to run a business that way and see what kind of trouble you’d be in.