28 May 2020
Julie Virta
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Straight From Vanguard Retirees: 6 Retirement-Planning Tips
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In my last post, Thecoulda, shoulda, woulda behind every retirement story, I asked forcomments. Who better than soon-to-be retirees and recent retirees to sharelessons learned about preparing for retirement, right? (Exactly right.)

The record-setting number ofcomments we received was amazing, but the comments themselves are what trulyblew me away.

In this post, I provide anoverview of what you had to say about what you “coulda, shoulda, woulda” donedifferently to prepare for retirement. But first, I want to thank you forsharing your stories with the community. And I want to congratulate you onretirement.

Getting an insider’s perspectiveis helpful to me as a financial advisor because everyone’s picture ofretirement “success” is different. But seeing how thoughtful and resilientreal-life investors are—moving forward after making missteps, making the bestof any circumstance, and reflecting on their own journeys for the benefit ofothers—is invaluable to me as a future retiree.

Your perceptive comments inspiredme, and I want them to inspire others. Here’s a look at some of your lessonslearned:

1. Beware of taxes 

If you have to pay a lot of taxesin retirement, you must’ve saved well (a keen observation from Jane K.). Butthat doesn’t mean you shouldn’t be shrewd about lessening your tax burden (oreven avoiding a portion of the burden altogether).

Consider the impact ofrequired minimum distributions (RMDs) on your taxes. 

Our RMD raised our tax bracketand (considerably) increased our Medicare premium each month. It has been anexpensive lesson. -JerryR R.

In two years I will begin RMDs,which will show up as taxable income each year, bumping up our tax rate andmaking us look a lot richer than we really are. -Mike N.

Avoid RMDs by owning Rothassets. (And, if possible, don’t convert all of your traditional assets at thesame time.) 

My wife and I didn’t convert to aRoth, so now that we’re retired, we pay a huge amount in federal income taxes.-Joseph M.

Roll over your 401(k) to aVanguard IRA®, then convert to a Roth. I think it’s best to do the conversionover a number of years to keep your taxes manageable. -Kathy S.

I wish that I would have startedconverting some of my 401(k) into Roth IRAs on an annual basis beginning when Iretired at age 57 (and when I was in a lower tax bracket than I am now as aresult of taking RMDs). -Ron E.

Think about being charitablyinclined to reduce your taxable income. 

Since the IRS made the qualifiedcharitable distribution permanent last year, I use this method to help me meetmy tithe. It’s tax-free and counts toward my RMD. It also reduces the taxablepart of my Social Security. -Phil S.

I want to donate the remainder ofmy IRA fund…I am very excited that I can give to charity for the next fewyears. -J R.

2. Prepare for the softerside of retirement 

The hallmark of retirement may bethe absence of regular paychecks, but that may not be the only loss you noticewhen you stop working. It’s important to prepare for the nonfinancial aspectsof retirement too.

Make sure you have a lifeoutside of work. 

Think A LOT about what to do withyour time postretirement. I spent too much time thinking about the money partof it, so that when I finally got there, I was taken aback by not knowing whatelse I would do. I needed more nonfinancial planning. -Maria K.

Don’t just assume you’ll enjoyrelaxing after working for many years. Your job was a large part of youridentity and you need to have a plan to fill that in with something else!-Rhonda S.

I was in a highly visibleprofessional position for many, many years. When it abruptly ended, I was at aloss with what to do. So please plan for the day when you are no longer needed.-Jim B.

Here’s what I have learned. Thereare four important focuses to have a joy-filled retirement: They are physical,mental, spiritual, and financial. -Rick W.

In addition to saving and beingfinancially prepared to leave your job, you need to make sure you havesomething to retire to. -Brandon S.

3. Know where you standon the debt debate, and plan accordingly 

For many, retirement represents acertain degree of freedom—freedom from work, freedom from debt, and freedom toenjoy the fruits of your labor. But for others, being debt-free is amisappropriation of assets that could be otherwise invested.

Pay debt off before youretire… 

I can’t imagine retirement withdebt, and it’s the reason I worked so hard to avoid it. -Robert B.

At 77, I am still working to tryand pay off a mortgage. Don’t let it happen to you. -Lloyd M.

If you refinance your mortgage,don’t take money out or extend the time frame—just reduce the overall interestexpense. I’m recently retired and still have a few debts. I’m working throughthem, but ideally, they would all have been paid off by now. -Craig M.

I still talk to people who are intheir 60s who believe they are saving money by carrying a mortgage! I wasmortgage-free at 40, and now I’m 62 and retired and sleep great at night withNO debt! -Blair S.

…or don’t. 

I am so happy I chose to investextra cash…rather than paying off my mortgage. My funds have done MUCH better.-Bob M.

Monthly bills are a drag inretirement, but if your mortgage rate is lower than your investment return,consider keeping your money out of the house, keeping the tax deduction, andavoiding [the need for] a home equity loan in an emergency. -Jim M.

4. Delay SocialSecurity—it’s worth it 

When it comes to claiming SocialSecurity benefits, time really is money. In fact, some of you “bought” yourselfsome time by drawing down from your retirement savings to pay for daily livingexpenses.

Your start date can impactyour bottom line. 

It’s hard for investment returnsto beat the 8% per-year increase in [tax-efficient] benefits that results fromdelaying payments. -David H.

My do-over would be to delaySocial Security until age 70. That would have resulted in several benefits: alarger Social Security payment, lower RMDs at 70 ½, and a larger SocialSecurity payment upon my death for my spouse. -Jim V.

I made the mistake of taking mySocial Security at age 62, not realizing how much more I would get every monthif I waited until I was [at least] 66. Whenever people tell me that they’reretiring, I urge them to find out the intricacies of Social Security benefitsbefore deciding when to take them! -Judith A.

What I SHOULD have done was todraw down my 401(k) in lieu of Social Security. Taxes on the Social Securityincome at age 70 would have been [applied on up to] 85% of the benefit, whilenow my RMDs are taxed [as ordinary income]. -Erich H.

5. Prepare for theunexpected 

Life happens while you’re makingplans, and retirement is no exception.

Make good choices—financiallyand otherwise. 

I would have reined in myspending and increased my savings while I was married and we were ahigh-earning couple. After divorce and a job loss, I realized with much regretthat good earnings may not continue long-term. -Lori D.

Staying healthy and making smartpersonal choices is critical, as any adverse event can easily wipe out all ofyour savings. -Adam N.

Issues that come up inretirement: parents who run out of health and money and adult children who havelife-changing events and need financial help. These can seriously deplete yourown savings, so save way more than you think you will need. It’s easy to say,“Just don’t help family members out,” but that is not realistic. -Books R.

6. Think long-term (andhelp younger investors do the same) 

Vanguard’s mantra is to thinklong-term, and it seems like you share our passion for keeping the future atthe forefront.

Knowledge is power. Pass iton. 

Make sure you leave the nextgeneration better off than you, and arm them with knowledge. -Karl H.

Find a good mentor to help you—anactual person whom you trust. Be patient and stick with the plan. There are noshortcuts to wisdom. -Greg N.

My father was my savings mentor. Hetaught me everything I know about saving. I’m trying to pass his knowledge onto my boys. -Gary S.

Advice to younger savers: Keepyour eye on the (long-term) prize. 

Live below your means. Who careswhat your friends have? You don’t know how they sleep at night. -Paula M.

My wealthy uncle told me threewise words about investing: “Do it now.” Waiting is deadly. -Harlan G.

There is so much that’s out ofour control (housing appreciation, market returns, etc.). But our savings rateand where/how we invest our earnings is entirely within our control! -KatrinaB.

You can do it. Don’t forget tohelp others along the way. No one will care about your money more than you.-Alan W.

Don’t dwell on your “coulda,shoulda, wouldas.” 

Life is too short to cry overlost money; just learn from your mistakes and move on. -Anonymous

Don’t dwell on mistakes. Fix itand get on with your plan. -Paula M.

Achieve retirement success 

There’s no secret to retirementsuccess. A successful retirement is the culmination of a lifetime of makinggoal-based decisions, being cost-conscious, and maintaining discipline. Butafter reading your comments, I think you already knew that!


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