How to Keep More Money in Retirement


How to Keep More Money in Retirement: Diversification That Minimizes Taxation

No one likes paying taxes, especially once you've retired and are no longer earning a paycheck. So here are some steps to consider now that could pay off later.

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Although you can’t control all the challenges you might encounter as you move toward and through retirement, having a well-thought-out plan can help you be better prepared. That’s especially true when it comes to two of the biggest risks to a confident and successful financial future: market volatility and taxation.

SEE ALSO: 5 Reasons a 401(k) May Be the Worst Account to Have in Retirement

You’ve probably heard a lot about volatility lately, as the market reacts to the latest news about interest rates, trade wars and the possibility of an economic slowdown. If those up-and-down movements make you nervous, it may mean your diversified portfolio isn’t set to a mix that fits with your risk tolerance, and it’s time to talk to your financial professional about making some adjustments.

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While you’re at it, you should get the ball rolling on a plan to control taxes, which aren’t getting as much attention in the news right now but could be an even bigger threat to your income in retirement. Given the tax environment we’re in right now, and the potential tax environment we could see in the near future, it’s important to truly diversify your portfolio so that you don’t own too many assets that are taxed in the same way or are taxed at the same time.

How to divide up your assets

To do that, it helps to picture three buckets holding your investments.

  • There’s the “taxed-now” bucket, which can include earnings, wages, non-qualified brokerage accounts, checking and savings accounts, investments that earn interest and dividends, and capital gains.
  • There’s the “taxed-later” bucket, which is made up of 401(k)s, traditional IRAs and other tax-deferred retirement accounts, but also real estate and maybe some hard assets or collectibles.
  • And there’s “the taxed-rarely-or-never” bucket, which includes Roth IRAs and Roth 401(k)s, health savings accounts (HSAs), municipal bonds and certain types of life insurance.

If you’re like a lot of savers, you probably have most or all your investments in that middle bucket — the taxed-later bucket — and that could be a problem. Here’s why: Those accounts served you well by saving you on taxes every year while you were working, but when you start tapping into them in retirement, the money you withdraw will be taxed as ordinary income. Or, as I often tell my clients: Getting money into a retirement account is easy. Getting money out of that retirement account can be challenging and expensive.

Some problems with the taxed-later bucket

Let me explain. Those tax-deferred accounts include a debt people often forget. Here’s a good way to look at it:

If you own a house, and it’s worth $500,000, but you still owe $200,000 on the mortgage, you know you don’t have a $500,000 asset. You have a $300,000 asset. In the same way, if you own a 401(k) worth $500,000, the money in there isn’t all yours. You owe a good portion of it to the IRS, which has been waiting for payment for years. The taxed-later bucket is a tax postponement retirement plan.

As soon as you start taking your share of the money, the IRS is going to want its share as well. Even if you decide not to withdraw the money because you don’t need it — maybe your Social Security benefits and pension have you covered — the IRS is going to require you to take minimum distributions (RMDs) starting at age 70½.


Those distributions could bump you into a higher tax bracket and possibly cause you to have to pay taxes on a higher portion of your Social Security benefits. You might even have to pay more for your Medicare Part B and D premiums. Add to that the risk that if you’re drawing money from your investments in a market downturn — whether it’s necessary for income or RMDs — you could end up with far less money to live on in your later years. This could have a devastating effect on your lifestyle.

Let me ask you a couple of questions: Would you borrow money from a bank if it didn’t disclose in advance what the interest-rate charge was going to be over the life of a loan? Has the IRS disclosed how much it can charge you in taxes over your entire lifetime? This is the challenge with the taxed-later bucket!

Another thing to consider is that Congress is working on a new rule that would require most non-spouse beneficiaries to draw down inherited retirement accounts within 10 years of the original owner’s death, instead of letting heirs spread out their distributions over a longer time in what’s known as a “stretch” IRA. If you planned to leave your tax-deferred account to your children, you might just be handing over a tax burden along with it.

See Also: Selling Your Stuff: The Tax Dimension

Is it time for a Roth IRA conversion?

The good news is it’s never too late to make changes that can help save you money and better secure your retirement. There is no better time than now to get those changes underway. Thanks to reforms that have reduced tax rates through Dec. 31, 2025, taxes are effectively on sale for the next seven years! By converting the money from your tax-deferred retirement accounts to an after-tax Roth IRA or similar type plan over the next few years, and paying the taxes on the money as you go, you can get rid of the debt you owe to Uncle Sam now for what is almost certainly a lower cost overall than what you would pay in retirement.


Most are predicting that tax rates will go up after the current reforms sunset — and much higher rates aren’t unprecedented. The current top rate is 37% for those whose taxable income is over $510,300 (individuals) or $612,350 (married filing jointly). For the middle two tax brackets, the current rates are 22% and 24%. Historically, rates have been much higher. In 1944, the top federal rate peaked at 94%. And in the 1950s, ’60s and ’70s, the top rate remained high, never dropping below 70%.

This is an opportunity to start converting your assets by diversifying your portfolio into a more tax-efficient investment model. In a world filled with what-ifs and worrying news, it’s a positive step you can take to protect your retirement dream.

See Also: 3 Reasons to Convert an IRA to a Roth

Kim Franke-Folstad contributed to this article.

Investment advisory services offered only by duly registered individuals through AE Wealth Management LLC (AEWM). AEWM and Retirement Planning and Investment Solutions LLC are not affiliated companies. Safe Money Financial Solutions LLC is our name and it does not promise or guarantee investment results or preservation of principal. Neither the firm nor its agents or representatives may give tax advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. Investing involves risk, including the potential loss of principal. Any references to security or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. 00275976

As an Investment Adviser Representative and founder of Retirement Planning and Investment Solutions LLC (, Ronald Anno focuses on creating tax-efficient retirement plans that help people achieve their financial goals and strives to ensure they won't run out of money during retirement.

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