Broker Check

Free Retirement Guide

It's never too soon to start preparing for retirement. But do you know what to look out for? Download our free ebook, "Retire Happy: A Simple Guide to Your Next Big Adventure."



Thank you! Oops!
7 Things Nobody Tells You About Retirement

7 Things Nobody Tells You About Retirement

April 01, 2024

Retirement Choices: Navigating the Transition

For those of you beginning to imagine “retirement” here are a few thing you have probably not thought about.

First of all, let’s talk about “retirement.” For many of us born before 1975, retirement can seem like a very specific goal line to be crossed. Because a lot of us saw our aunts and uncles and grandparents reach the end of their working life and “retire” back in the 1970s and 1980s. Often, those folks had pensions or union benefits that came with specific rules about how and when you could access benefits.

But for most of us looking FORWARD to retirement, it’s a different ball game. I often talk about “retirement” has having multiple aspects. First, there are some choices:

  • When do you stop working at the CAREER job?
  • Do you shift to a HOBBY job (that might pay less but be more fun) after that? Maybe you shift to a volunteer job that doesn’t pay anything. Or live off your savings?
  • When do you want to stop working all together?
  • How is your health? Are you ABLE to do all the things you want to do?
  • When do you access your Social Security income benefits? (If you wait to age 70, you will likely receive more money over the course of your lifetime.) What will you do for living expenses until age 70?
  • When do you start drawing on RETIREMENT money, like IRAs, Roth IRAs and annuities?

Next there is a bit of strategy to consider. The POST WORK world is generally broken into three phases.

  • The Go-Go phase. Younger retirees are healthy and eager to maximize freedom in their daily and weekly schedules. They often take big trips or pursue a life-long dreams.
  • The Slow-Go phase. After a time, folks usually complete their bucket list of Big Trips and maybe they start to feel a few health concerns. So, they still do plenty of stuff, but now a much and usually not as big.
  • The NO- Go phase. The next phase is usually driven by health. When you can’t see as well, or need more visits to the doctor, folks are less likely to travel much. They just feel better staying in familiar surroundings.

It’s hard to predict how you will progress through these phases, but it’s smart to consider your options for each phase early on. That gives you more time to prepare.

Tax Considerations and Healthcare

So with that understanding of some things to expect in retirement, here is a list of things that surprise most folks.

  1. Social Security and Retirement Distributions are Subject to Income Tax. Most of your retirement distributions will probably come from traditional IRA or 401k accounts. All that money is deferred income. You got a tax deduction when you contributed and now you report it as income when you spend it.

    Depending on your income, you will likely pay some tax on Social Security benefits, but never more than 85% of your benefits will count as income.

    Roth IRA and Roth 401k accounts are distributed tax free after age 59.5.

  2. Seniors Often Get Tax Breaks. Taxpayers older than 65 qualify for larger standard deductions. Many states offer tax breaks on all or part of your income. Check out Kiplinger’s State-by-State Tax Guide.

  3. Medicare Does NOT Cover Everything. When you turn 65 you need to sign up for Medicare. Even if you are still working and covered by a work plan, you need to sign up. So, when you go off the work insurance, many people are surprised that Medicare coverage is different from work. In the 6 months leading up to your 65th birthday, you should meet with a Medicare specialist to understand your situation.

    One thing in particular that surprises folks, is that Medicare does NOT offer coverage for long-term healthcare expenses.

  4. Senior Discounts Aren’t Always a Good Deal. You probably already have an AARP card, and you know that you can get some pretty good deals as soon as you turn 50. But it pays to compare. Some “senior rates” are not as good as you expect. Check out these 5 Senior Discounts to Avoid.

  5. You MUST Take Money Out of Your Retirement Accounts. All traditional IRA and 401k accounts are tax-deferred. The deal was that you get a tax deduction when you make a contribution to a tax-qualified account, and you pay income tax when you make a distribution. So, Uncle Sam has a rule that REQUIRES you to take some money from your deferred accounts starting the year you turn 73. For most folks, the first RMD is less than 4% of ALL your tax-qualified accounts. If you want to calculate your RMD, you can use this IRS worksheet.

  6. You Are Likely to Live Longer Than You Think. Many of us remember our older relatives who retired, lived a few years and died. That’s just not true anymore. Most people who make it to age 65 will live longer than they think. Based on the Social Security Administration calculator:

    A female age 65 today can expect to live about 21 more years on average to age 86. Your mileage may vary.

    A male age 65 today can expect to live about 19 more years on average to age 84. Your mileage may vary.

    Couples live longer. According the American Academy of Actuaries and Society of Actuaries, Actuaries Longevity Illustrator, http://www.longevityillustrator.org/, (accessed March, 26, 2024). An average couple both age 65 today are likely to have at least one alive at age 92.

    So, it’s prudent to make a longer plan.

  7. You Are Allowed to Save In Retirement. If you have earned income, you maybe be eligible for a work 401k plan and you can always save earned income to a Roth IRA. This money will come out tax free. For you or for your heirs.

So, there is plenty to think about as you imagine the day when you don’t need to work for money. The sooner you make a plan to systematically prepare, the smoother things will go.

Maybe you could benefit form a visit with an experienced, highly-trained, CERTIFIED FINANCIAL PLANNER™ professional and Behavioral Financial Advisor in West Saint Paul, Minnesota to help better understand your options. I love to meet new people. So, follow this LINK to find a time for us to have a get-acquainted visit.

I am a financial planner who is an advocate for my clients ALL THE TIME – a fiduciary financial planner. I provide guidance based on clients’ best interests, not commissions or sales quotas. I think it’s the best way to serve clients and I am thrilled to work this way all the time.

And yes, I’m still taking on a few great families to be part of my financial planning practice in West Saint Paul, Minnesota and, thanks to Zoom, across the country.

Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.