If you have $2 million invested towards your retirement, you've accomplished something most Americans haven't. You're likely right around the top 10% by net worth.

But here's the problem: Being "ahead" of most Americans doesn't mean you are ready to retire, even if you are sitting on a seven-figure nest egg.

For many 65-year-olds, $2 million might be more than enough to support their retirement goals.

For others, $2 million might not.

When you have a $2 million net worth, you're "ahead" of 90% of Americans and averages and comparisons stop mattering as much.

What matters is: Does your $2 million support your specific retirement goals?

$2 million, 2 very different retirements

Dave and Susan are both 65. They live in a $600,000 home with no mortgage. Their ongoing housing costs are limited to property taxes, insurance and maintenance.

Dave has a pension of $25,000 per year, and between their two Social Security benefits, the couple collects another $50,000 annually. That's $75,000 per year in reliable, predictable income.

Dave and Susan want to spend about $115,000 per year, including income taxes. They have no credit card debt, their cars are paid for, and their travel plans consist of a couple of road trips each year to visit their grandchildren.

Because their guaranteed income covers $75,000 of their $115,000 lifestyle, Dave and Susan only need their $2 million portfolio to generate $40,000 of income per year. That's an initial withdrawal rate of just 2% — half the percentage of the often quoted 4% rule.

That relatively low initial withdrawal rate gives them more flexibility to weather market downturns or unexpected expenses without immediately making significant changes to their lifestyle.

For Dave and Susan, $2 million seems plenty.

Mark and Karen are also 65. They live in an $800,000 home that has a $300,000 mortgage balance, in addition to property taxes, insurance and maintenance.

Mark and Karen were high earners during their careers, so their Social Security benefits will be substantial — nearly $70,000 combined.

Neither has a pension or any other source of reliable retirement income.

They want to live on $170,000 per year. In addition, they also plan to purchase a $1 million vacation home in Florida.

They are asking their $2 million portfolio to generate $100,000 every year to cover their annual spending budget, including a mortgage payment, at a 5% withdrawal rate.

According to Morningstar's latest retirement spending research, the 5% portfolio withdrawal rate is within the range supported by a dynamic, or guardrail spending approach. These flexible withdrawal methods suggest a higher initial portfolio withdrawal if you're willing to reduce your withdrawals when needed, based on the market or inflation.

But here's where they might get into trouble.

Their $2 million will also have to produce the down payment for a second, million-dollar property, as well as cover a second set of mortgage payments, property taxes, utility payments and maintenance costs.

If they take out $400,000 total from their retirement nest egg for their down payment, including the income taxes due on their large traditional IRA withdrawal, that leaves them with $1.6 million.

Asking your $2 million portfolio to generate $100,000 income does fall within the ranges supported by some of the flexible spending strategies, but those approaches make assumptions, too, about your stock mix, retirement length and willingness to reduce withdrawals in times of market volatility or high inflation.

But asking your $1.6 million portfolio to generate $100,000 income is a 6.25% withdrawal rate, much higher than the percentages supported in the flexible withdrawal research — and that's without accounting for the new mortgage from their vacation home.

With two mortgages now, Mark and Karen are running out of room to be flexible.

If the market drops, Dave and Susan have the room to cut back.

Mark and Karen, however, have to pay their monthly mortgage no matter how their investments perform. For them, $2 million seems like a stretch.

Two couples, both with $2 million dollars saved, with two very different visions for retirement. An account balance is only one part of a retirement plan.

What $2 million actually has to accomplish

When I meet soon-to-be retirees for the first time, they often worry that their investments need to replace their entire working salaries.

That's almost never true.

Your retirement portfolio only needs to fill the gap between what you want to spend and what you already receive from other reliable income sources, such as a pension and Social Security.

The question is: How big is that gap? How much work will your portfolio need to do?

Let's go back to Dave and Susan. Their gap was $40,000. With Dave's pension and their Social Security benefits, they have a manageable initial withdrawal rate of 2%.

Meanwhile, Mark and Karen were asking for much more from their portfolio, at a 6.25% withdrawal rate.

Both sets of retirees had $2 million, but the right question isn't "How does $2 million compare with the rest of America?"

The right question is, "Will $2 million be enough for me in my retirement?"

5 questions that determine if $2 million is enough

1. How much will you spend?

Don't rely on a generic general rule that tells you to spend 70% or 80% of your pre-retirement income or withdraw 4% every year. Start instead with your current spending — that's how much is going to your current lifestyle, and often you'd prefer to maintain your current lifestyle.

The easiest way to estimate your spending is to look at your current take-home pay. You'll have to adjust for taxes and healthcare costs, but as I always say, "What goes into your checking account usually gets spent."

2. How much guaranteed income will you make in retirement?

Every dollar of guaranteed income from Social Security or a pension is a dollar your portfolio doesn't have to produce. If you're able to optimize your Social Security and pension, you don't have to rely as much on your investments in retirement.

3. How much money will you keep after taxes?

This largely depends on which types of accounts hold your money:

• Traditional IRAs and 401(k)s. Withdrawals are generally taxed as ordinary income.
• Roth IRAs. Qualified withdrawals are generally tax-free
• Taxable brokerage accounts. Long-term capital gains from investments held for more than one year are generally taxed at preferential federal capital gains rates.
• Cash savings. Withdrawals out of savings aren't by themselves taxable, although the interest earned is reported as taxable.

Your choices on which accounts you withdraw money from, and when you withdraw that money will be a big determinant to how much taxes you pay each year.

4. How will you invest your money?

In retirement, you need both short-term money to pay your living expenses and long-term money that's positioned for growth.

If your portfolio is exposed to too much market risk, you might feel uneasy about spending.

But if you're not exposed to enough market risk to drive up long-term returns, your money might not grow enough to support you in the later years of retirement.

5. What type of legacy will you leave?

Think about our second couple, Mark and Karen, who were planning to buy a $1 million vacation home. While that might be a worthy goal, they need to consider how things work out if their projections don't go as planned.

What's their plan for long-term care expenses, or what happens if one of them passes away earlier than expected?

How will the surviving spouse deal with a lower income? What are the tax consequences to how their kids inherit their remaining money?

In my book, Retire Today, I show retirees how to coordinate their answers to these questions into a simple five-step master plan: Spend, Make, Keep, Invest and Leave.

Your account balances matter. But only after you understand what the money needs to accomplish can you create your own retirement master plan.

Is $2 million enough to retire at 65?

For many retirees, the answer is yes.

That's a more likely yes if the lifestyle and spending needs you're planning for in retirement are aligned with your Social Security choices, tax planning, investments and legacy planning.

But high-earners whose salaries are paying for an expensive lifestyle today might find that a $2 million portfolio can't do all the work once their paychecks stop coming in.

Being 'ahead' doesn't always count as 'having enough'

Building a $2 million nest egg by age 65 puts you well ahead of most Americans.

But retirement isn't about being ahead of your peers. It's about having enough to support your lifestyle, your bucket list goals and your legacy.

So stop asking yourself, "Do I have enough compared with everyone else?"

Instead work on answering, "What does my money need to do for me in retirement?"

Once you answer that question, you'll stop comparing your retirement with everyone else's and start building the retirement that works for you.

Related Content

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• The Average 401(k) Balance Hits Record High in the Second Quarter — Is Your Nest Egg Keeping Up?
• Retirement Savings On Track? How Much You Should Have By 60 and 65
• If You're Nearly 65, You Need to Know How to Avoid These 5 Common Medicare Mistakes
• Just Retired? This Could Be Your Once-in-a-Lifetime Opportunity to Lower Your Lifetime Taxes

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

For decades, Generation X earned a reputation as the pragmatic generation.

• They were the first 401(k) generation, starting in the workforce as traditional pensions gave way to defined-contribution plans
• They learned early that retirement security would largely be up to them
• They saved, invested and have weathered bull markets and crises along the way

Conventional wisdom suggested that these investors would continue working well into their 60s, maximizing earnings, growing career status, and steadily building retirement assets.

Yet, something interesting appears to be happening.

At New Canaan Group, where I am a financial planner, we have observed a growing number of Gen X clients expressing a desire not to merely retire, but to leave careers that no longer align with how they want to spend their time.

Some intend to fully retire years earlier than originally planned. Others envision a second act, perhaps consulting, teaching, working part time, volunteering or pursuing a passion that generates far less income but delivers greater personal fulfillment.

While every client situation is different, the trend is noticeable enough that it raises an important question.

Why is Gen X suddenly rethinking the role of work in their lives, and how can we, as advisers, help them plan for this?

The Great Wealth Transfer

A significant reason that Generation X households are exploring these options is that they increasingly have the financial resources to consider them. One of the largest drivers is the Great Wealth Transfer.

As reported in Kiplinger's recent Trillion Dollar Talk report, nearly $124 trillion will transfer between generations through 2048, with Gen X expected to inherit more than any other generation over the next 10 years, receiving nearly $1.4 trillion annually on average.

The timing of the Great Wealth Transfer is particularly noteworthy because it coincides with the peak earnings years of many Gen X households. Inheritances are arriving when balance sheets are already strong, creating financial flexibility that previous generations did not have.

A different definition of success

Historically, many Gen X professionals were conditioned to view career advancement as the primary path toward financial security and personal achievement. Climbing the corporate ladder, increasing compensation and accumulating assets were often viewed as natural milestones to success.

Today, however, many Gen X investors appear to be redefining what success means. Rather than exclusively focusing on maximizing their assets, clients are increasingly asking us different questions:

• How much is enough?
• What if I no longer earned my current salary?
• Could I retire on my current assets?
• How can I regain more control of my life and time?

This mindset shift closely resembles attitudes often associated with younger generations. Gen Z, for example, has become known for placing high value on flexibility, work-life balance and personal wellbeing. What's surprising is that Gen X investors now seem to be reaching similar conclusions, albeit later in life and from a different starting point.

In addition, for much of their careers, Gen X measured their success against immediate peers and coworkers.

Today, they're exposed to daily stories of early retirees, entrepreneurs, hobbyists and those who have designed lifestyles around lived experiences rather than work.

Whether these examples represent reality or not, the message is still powerful. Life is finite, time is valuable, and there may be alternative ways to spend your most productive years.

The pension challenge — and opportunity

Research highlighted in Equitable's recent Gen X retirement study notes that only 14% of Gen X households have access to traditional pensions, compared with 44% of baby boomers. With pressure on other retirement systems such as Social Security, Gen Xers must rely primarily on assets they have accumulated themselves to generate retirement income.

This creates both opportunities and planning challenges, but gives households more flexibility to leave careers early without worrying about the cost of leaving a pension system.

Turning the dream into reality

For Gen X households who aspire to retire early or pursue a second career, enthusiasm alone is not enough. The goal requires thoughtful planning and disciplined execution.

The first step is defining the goal — what does retirement mean? For many clients, it doesn't necessarily mean never working again. Instead, it might mean replacing the high-stress career with something more manageable.

Just as important, lifestyle goals need to be defined. Does the big house really matter? Would we be willing to relocate to a less expensive area? Does the lawn need to be this green?

Second, investors should focus on maximizing savings during their peak earning years. Catch-up contributions to retirement plans, health savings accounts, deferred compensation plans and taxable investment accounts can help build the financial independence necessary to support a transition from traditional employment.

Third, healthcare planning deserves special attention and is where we see many early retirement plans derail. Bridging the gap between employer-sponsored health insurance and Medicare eligibility can be incredibly expensive.

After years of having subsidized employer healthcare, it's easy to be blown away by the cost of self-insurance. Understanding these costs in advance, long before leaving the workforce can prevent unpleasant surprises later.

Fourth, investors should stress test their plans. Retirement should be properly modeled, and should account for inflation, market volatility, longevity, tax changes and unexpected expenses.

Running conservative projections might help determine whether an early retirement target remains realistic under less than favorable conditions.

Finally, investors should consider the role inheritance might play in their planning, but avoid becoming dependent on it, as its timeline is uncertain. While many Gen X households will ultimately benefit from the Great Wealth Transfer, the timing and amount of inheritance is uncertain.

Sound retirement planning should remain viable even if inherited assets arrive later than expected or differ from assumptions.

Why wait?

Whether influenced by social media, changing cultural values, economic success or the largest intergenerational wealth transfer in history, many Gen X investors are beginning to ask a new question: If money is a tool designed to create freedom, what exactly am I waiting for?

For advisers, helping clients answer that question will be our defining purpose for the next decade.

Related Content

• 7 Tax Breaks and Strategies Gen X Might Often Overlook
• The Overlooked Generation: An Expert's Guide to How Gen X Can Finally Get Ahead
• Why So Many Gen Xers Feel Financially Stuck — and What You Can Do About It
• The Right Way and the Wrong Way to Use a 529 Plan That Doesn't Cover the Full Cost of College
• I'm a Financial Planner: Here Are Five Lesser-Known Ways to Avoid Estate Tax

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Dear Wealth Wise: I'm 29 and trying to build retirement wealth. I have most of my assets in my Roth IRA, 401(k) and HSA: over $270k in total, with about $220k in the Roth IRA. I mostly hold individual stocks, and I'm not sure whether it makes more sense to switch to index funds and accept market-adjacent returns or stay concentrated. I don't want to lose what I've built, but I don't want to give up valuable growth this early in my retirement savings. I am ready for a "set it and forget it" portfolio, but I also have experience researching stocks, so I'm wary of going all in on index funds. — Passive Curious

Dear Passive Curious: Before we dive into your question, we first want to note how far ahead of most young investors you are. If you left your total savings of $270,000 invested and didn't save another penny, you would have $2.05 million at age 60, assuming a conservative 7% return. Well done!

While your youth gives you more runway to experiment than older investors might have, your question is spot-on for anyone weighing the upside of stock picking against the simplicity of index funds.

Many investors prefer index funds over taking their chances with a portfolio of individual stocks. The S&P 500 index has rewarded investors with an average annual return of about 10% (or about 7% after inflation) since its inception in 1957.

Warren Buffett, one of the most successful investors of our time, agrees that everyday investors are well served by loading up on index funds over the long term.

In his 2013 Berkshire Hathaway shareholder letter (PDF), Buffett said, "The goal of the nonprofessional should not be to pick winners — neither he nor his 'helpers' can do that — but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal."

At 29, you might easily have a 30-year window to build wealth. Will a shift to index funds mean selling your goals short? Here’s what the experts have to say.

It’s a matter of how much risk you want to take

The good thing about being 29 is that you’re young enough to take on risk in your portfolio. But the question you want to ask, says Danielle Arlotta, CFP and founder at Sole Financial, is: "Can you continue to pick stocks for the rest of your life?"

"I’m sure that you’ve heard most active managers underperform their benchmark," Arlotta says. "It’s good that you’ve done your research and know what you’re buying. It sounds like you have been able to outperform the market as well. But one bad pick and you can also suffer significant losses."

As Arlotta explains, indexing works because it gives you instant diversification, which helps reduce portfolio volatility. As you get older and your risk tolerance starts to wane, it's important to recognize that benefit.

Keep in mind that broad indices such as the S&P 500 are market-cap weighted, meaning that just a few megacap tech giants (such as the Magnificent 7) make up a big slice of the fund. If you want true broad-market diversification, consider pairing an S&P fund with an international index, for example.

Holding individual stocks isn’t gambling

You’ll often hear that index investing is safer than holding stock individually. Vincent Garaventa, CFP and vice president at Bauman Wealth Advisors, says that has some validity. But not every individual stock holding is speculative.

A well-researched, diversified portfolio might not be risky off the bat. The key, says Garaventa, is to monitor your investments and rebalance as needed over time. You don’t want to remain too concentrated in a single company or market sector, so you’ll need to actively manage your portfolio.

"If done in the right amounts with the right portion of the portfolio," Garaventa explains, "there can be value for some diligent, disciplined investors in mixing in individual stocks or more targeted, themed investment funds."

Consider a hybrid approach: The core-satellite strategy

You might have the time and energy to follow individual stocks now, including the due diligence of reading 10-K reports and listening to earnings calls. But if you start a family or your work intensifies, index funds might look far more attractive. Arlotta says there’s nothing wrong with shifting to a "set it and forget it" strategy, but it doesn’t have to be all or nothing.

"Since you already have a majority of individual stocks, you can allocate all future contributions to index funds and rebalance when necessary," she says.

Arlotta's solution is easy to manage and avoids selling your stock positions. But there's another approach if you want to be more hands-on.

Garaventa suggests a core-satellite strategy, where the "core" of your portfolio consists of stable index funds and the "satellite" holdings can aim to beat the market.

"You siphon off a smaller portion of your portfolio and allocate it to your higher-risk investments, like individual security selection, and then run the core of your portfolio in a variety of index funds in a set it and forget it type of plan," he says. "This is a great way to balance the profit potential of individual stock selection with the high probability of index investing."

Advisers typically suggest that investors following the core-satellite strategy devote 80% or 90% to the core index fund portfolio and the remaining 20% or 10% to stocks. Many advisers recommend that no individual stock make up more than 5% of the portfolio.

Garaventa says it’s also important to consider the rate of return your plan needs to meet your goals.

"Sometimes that rate of return may be lower than one might anticipate, and investors may decide to use a higher-probability, index-only strategy where they’re not seeking significant outperformance beyond the benchmark because they’ve run the numbers and understand that their plan doesn’t require them to outperform the index," he says.

Garaventa acknowledges that most investors are wired to want higher returns, even if those returns aren’t needed to cover their future spending needs. It’s less about greed than ambition.

A 29-year-old investor doesn’t know what the future holds in terms of career growth, inflation and AI-related disruption. Having more money than less only puts you in a stronger position to manage whatever the future holds.

At the same time, Garaventa says, "It’s important to consider the drawbacks and the higher risk. In my view, if you don’t want to leave individual stock selection behind, there’s value in doing both, as long as you do it in portions that are reasonable for your plan."

Keep in mind that there are tax ramifications for the location (or type of account) where you've stashed your funds. On the plus side, you can reallocate the $220,000 in your Roth IRA without a tax hit. That would not be the case if those funds were held in a taxable brokerage account. But if one of your stocks suffers a permanent loss in your Roth account, you can't harvest tax losses.

You’ve already won the hardest part of the early wealth-building game. Moving into index funds isn’t conceding defeat — it’s building your lead so you can spend less time managing your money and more time living your life.

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our writers and experts in this advice column are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial adviser regarding any questions you may have in relation to the matters discussed in this article.

Read More

• Retirement Calculator: How Much Do You Need to Retire?
• Why Invest In Index Funds When Prediction Markets Pay Big?
• Invested in Index Funds? Here's What You Need to Know About Mega-Cap IPOs
• They Retired With $10 Million. Should They Still Invest Aggressively?

When I ask pre-retirees with large 401(k)s how they plan to handle the taxes on those accounts, I usually hear some version of the same answer: "We'll wait until we retire. Our income will drop, and we'll be in a lower bracket."

However, "What will my tax rate be the year after I stop working?" is the wrong focus for a household with $2 million or more in pre-tax savings.

It's far more useful to consider what you and your spouse, and eventually your children, may pay in taxes across all the years that money will be withdrawn.

Your deduction today is a decision about decades

Deferring taxes while you work can make sense, and today's deduction is a real benefit.

But a traditional 401(k) or IRA isn't entirely yours to spend. Every dollar that comes out is generally taxed as ordinary income, and the balance that will eventually be taxed keeps growing along with your investments.

At a hypothetical 6% annual return, $2 million doubles to roughly $4 million in about 12 years. That growth is good news, but it also means the pool of income you'll eventually pay tax on may be much larger than the one you're looking at today.

You also won't have full control over when that income shows up. Required minimum distributions (RMDs) generally begin at 73, or 75 if you were born in 1960 or later, and they're calculated from your pre-tax balance whether you need the money or not.

Where 'lower later' tends to break down

Retirement can open a window of lower-income years. But for large pre-tax savers, that window is often shorter than expected.

Income stacks. RMDs add taxable income. Higher income can make up to 85% of your Social Security benefits taxable. It can also trigger Medicare IRMAA surcharges on Part B and Part D premiums, which are based on your tax return from two years earlier.

Market declines leave fewer choices. A downturn strains any retirement portfolio. But if all of your savings are pre-tax, every withdrawal you take to cover spending also adds taxable income. Roth savings don't protect you from market losses, but they give you another account to draw from without raising your tax bill.

A surviving spouse files alone. After one spouse dies, the survivor generally files as a single taxpayer. Household income often doesn't fall by much, especially if the survivor inherits the IRAs, but the tax brackets are roughly half as wide.

Your children inherit the tax bill, too. Most non-spouse beneficiaries must empty an inherited IRA within 10 years, according to IRS Publication 590-B. Those withdrawals are generally taxable, and for many adult children they land during their own peak earning years. Inherited Roth IRAs have distribution rules too, but qualified withdrawals can be tax-free.

None of these factors makes a Roth conversion the right move on its own. But together, they're the reason "we'll be in a lower bracket" isn't the same as "we'll pay less."

What paying tax now can buy, and what it costs

A Roth conversion doesn't avoid tax. You recognize income today and move that amount into a Roth account, where future growth may be withdrawn tax-free if you meet the IRS qualified-distribution rules.

In return, you get more control. A smaller pre-tax balance can mean smaller RMDs later. Qualified Roth withdrawals aren't counted in gross income, so they generally don't increase the taxable portion of Social Security or the income Medicare uses to set IRMAA. And as the original owner of a Roth IRA, you aren't required to take distributions from it during your lifetime.

The costs are just as real. A conversion raises this year's tax bill and can push you into a higher bracket or trigger higher Medicare premiums two years later. Paying the tax from savings outside your IRA uses money you could otherwise keep invested. A conversion can't be undone. And if your future tax rate really is lower, waiting may cost less.

So the real decision is when to recognize income, and whether paying some tax now may lower what your household pays over both spouses' lifetimes.

How to test the assumption

If you're within 10 years of retirement or recently retired, these steps can show whether waiting is really your cheapest path.

1. Sort your savings by tax treatment. List pre-tax 401(k)s and IRAs separately from Roth and taxable accounts. Many couples I work with are surprised by how much of their net worth carries a future tax bill.

2. Project income, not just a rate. Estimate what RMDs may look like alongside Social Security, pensions and planned withdrawals. The question is how much income will land on your return each year, and in which years.

3. Plan for both spouses, and your heirs. Run the numbers for the years after one spouse is gone and for what your children would receive. Those are the years a pre-tax-heavy plan is most likely to cost more.

4. Convert in pieces. A conversion plan doesn't mean moving an entire account in one year. Many households convert enough to use available room in a chosen bracket, then pause in years with a bonus, a business sale or a large capital gain.

5. Line up the tax payment first. Decide how you'll pay the tax, and adjust withholding or estimated payments before you convert. Your tax professional can help you check the effect on Medicare premiums and state taxes.

Make waiting a choice

Waiting until retirement to convert may still be the right answer for you. But it should be a conclusion you reach after comparing your options over both spouses' lifetimes, not a default you accept because it's what most people do.

Every pre-tax dollar will be taxed at some point. You have the most say over when that happens in the years before RMDs and other retirement income begin to stack up.

Projections depend on assumptions about returns, tax law and your circumstances, and they cannot guarantee a lower tax bill. The 6% return above is hypothetical and does not represent any specific investment.

Related Content

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• 5 Times You Should Absolutely Not Do a Roth Conversion
• Just Retired? This Could Be Your Once-in-a-Lifetime Opportunity to Lower Your Lifetime Taxes
• The Retirement Move That's Quietly Taxing Your Social Security to the Max (and How Early Roth Conversions Can Help)
• Will Your Death Double Your Spouse's Tax Bill? 4 Ways Couples Should Prepare for the Widow's Penalty

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In Sir Terry Pratchett's 1993 Discworld novel Men at Arms, Captain Samuel Vimes laid out his grand economic theory: A rich man spends $50 on a pair of good leather boots that last 10 years. A poor man, who can only afford $10 cardboard-soled boots, must replace them every year.

After 10 years, the rich man still has his expensive boots and dry feet. But the poor man has spent $100 and still has wet feet. As Vimes noted with characteristic cynicism, "The reason that the rich were so rich ... was because they managed to spend less money."

Retirees on a fixed income face similar traps with their income taxes.

For instance, maxing out traditional 401(k)s and IRAs to save on taxes during your working years feels like a sensible, frugal choice. But deferring taxes without a plan is the financial equivalent of buying cardboard-soled boots — it gives temporary relief today, only to push you into higher federal tax brackets tomorrow.

The good news? You don't need a fortune in cash to keep your feet dry. You just need to know how to patch your boots in retirement.

How the 'Boots Rule' of retirement tax planning works

The "boots rule" of retirement tax planning acknowledges a simple reality: Most retirees don't have wads of cash hanging around.

As Sam Vimes alluded to in the Discworld series, everyone would buy durable, high-quality boots if they could afford the upfront cost — or, put another way, retirees would make the "perfect" financial move if circumstances allowed.

Nowhere is this clearer than in traditional retirement accounts. During your working years, deferring taxes offers an immediate, affordable benefit: Get your employer's match, deduct your contributions today, then pay the taxes later.

However, deferring taxes means deferring them on decades of compound growth, creating a mounting tax liability down the road.

Then, when standard financial advice tells you to "just convert your 401(k) to a Roth IRA today," it ignores the immediate, out-of-pocket tax bill that conversion triggers. Just as the worker was forced to keep buying cheap boots, many retirees stay in tax-deferred accounts because they lack the upfront cash needed to buy their way into tax-free growth.

To overcome this, you can become a financial cobbler. Rather than paying a big upfront tax bill all at once, you can patch your financial boots on a modest budget using three core levers:

• Smart timing. Withdrawing money from specific account types during "low-income gap years" (the window between career retirement and when Social Security or required distributions begin) to minimize tax exposure.
• Bracket management. Intentionally filling lower federal income tax brackets (such as 10% or 12%) without accidentally spilling into higher marginal tiers.
• Account sequencing. Choosing the order in which you spend down your taxable, tax-deferred, and tax-free accounts to prevent artificial income spikes later in life.

Coordinating these three levers creates a personalized "repair strategy" that systematically plugs your tax leaks year by year using dollars you already have. This can help protect your retirement portfolio against unoptimized required minimum distribution (RMD) payments, higher taxes on Social Security benefits, expensive Medicare surcharges, and wasted charitable deductions.

Four 'leaks' to plug in your retirement dollars

Without proactive planning, four major tax traps act as the "cardboard soles" of retirement — quietly draining your portfolio year after year. Here's how to fix each leak using low-cost levers:

1. Required minimum distributions (RMDs). Starting at ages 73 and 75, mandatory pretax withdrawals from traditional IRAs and 401(k)s force taxable income into your bank account, pushing you into higher brackets whether you need the cash or not.

The "shoe repair": Use smart timing to execute targeted "microconversions" during your gap years. Moving smaller IRA amounts — maybe $1,000 annually — from a traditional IRA to a Roth systematically chips away at future forced RMDs (since Roths aren't subject to them). Roth distributions are also not taxable when withdrawn.

See also: 6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't)

By only converting small amounts, you're less likely to push yourself into a higher marginal federal tax bracket. This type of bracket management might keep the federal tax on those annual Roth conversions as low as $100 to $220 per year (assuming a 10% to 22% marginal tax bracket rate).

2. The Social Security "tax torpedo." Unmanaged IRA withdrawals stack directly on top of your Social Security benefits. This triggers a compounding formula that can tax up to 85% of your Social Security income.

The "shoe repair": Blend tax-free Roth withdrawals or health savings account (HSA) funds to cover discretionary spending spikes (like home repairs or travel). Keeping ordinary income below the threshold limits helps protect your Social Security from taxation.

You can also draw down taxable brokerage accounts up to the 0% long-term capital gains tax threshold to fulfill your cash needs without raising your taxable baseline (or, as Kiplinger reported, utilize tax-loss harvesting to lower your tax bill).

3. Medicare IRMAA surcharges. One extra dollar of retirement income can cost you thousands. For instance, crossing an income-related monthly adjustment amount (IRMAA) threshold triggers automatic, high-cost monthly premium hikes on Medicare Parts B and D two years later.

The "shoe repair": Instead of draining pre-tax accounts first, sequence your annual withdrawals across three buckets: taxable, tax-deferred, and tax-free. Blending these sources keeps your modified adjusted gross income (MAGI) low, potentially helping your retirement income steer clear of IRMAA cliff edges. For more information on the three-bucket model, check out Kiplinger's report, The 40-Year Retirement Rule.

4. The RMD legacy and charitable waste. Donating cash directly from your checking account overlooks significant tax savings once you reach RMD age (and even a little before that).

The "shoe repair": If you are age 70½ or older, use a qualified charitable distribution (QCD) to transfer funds directly from an IRA to a qualifying charity (up to $111,000 per individual). This satisfies required distributions without adding a single dollar to your taxable income.

But if you want to donate outside an IRA, you can still get a tax advantage. Starting in 2026, the new charitable deduction for standard filers allows up to $1,000 in tax savings per individual on direct cash contributions.

Comparing your options side-by-side

To help evaluate your options, the breakdown below contrasts sticking with default standard tax-deferred accounts against a low-cost "boot repair" strategy.

The bottom line: Keeping your feet dry

Navigating taxes in retirement isn't about finding a magic bullet (or a magic shoe). As Sam Vimes realized, the real challenge is that short-term financial constraints often force choices that drain long-term wealth.

You don't need $5 million sitting in a bank account to protect your portfolio from future tax hikes, Medicare surcharges or mandatory distribution cliffs.

By making small, deliberate adjustments — filling low tax brackets, utilizing gap years and sequencing your withdrawals — you can patch your financial boots year by year using the money you already have. But financial strategy is highly personalized, and no one size fits all.

Take a look at your current account mix today. Identify whether your savings sit primarily in pre-tax accounts, and map out your income gap between retirement and forced RMD age based on your specific financial circumstances.

A few simple patches could help to keep your tax bill more predictable, your income intact, and your financial feet dry for decades to come.

This article does not cover state income tax and is for educational purposes only. The content does not constitute financial, legal, or tax advice.

Read More

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Is 2027 your year to retire, or should you prepare a little more and work another year? That might be the question running through your mind as we round out 2026.

It's been pretty tumultuous. Inflation is up 3.7%, gas is above $4 a gallon, and the stock market has been volatile. At the same time, 401(k) balances are at record highs, and there are more 401(k) millionaires than ever before.

If you've been doing your job and saving, you might be thinking you're ready. You've got the cash and the means, so why not go for it? It turns out there's a lot more to it than the balance in your retirement accounts.

"It's a conversation we're having a lot right now with consumer sentiment so low and what's happening out in the world," said Kelli Smith, a financial planner at Edelman Financial Engines. "Can you really afford to retire next year, and how do you feel about it?"

To help you decide, we've created a choose-your-own-path type guide. Read on to see which path might be best for you.

Retire in 2027? Work one more year?

Retire in 2027 if you know exactly what your retirement expenses will be each month. If retirement is only months away, a general idea of your monthly spending isn't enough; you should know exactly how much you'll spend and have a strategy. "Is your plan thorough?" says Smith. "Can it support your lifestyle, healthcare and income taxes in retirement?"

Work one more year if you don't have a retirement budget. If you're going off a rough estimate or plan to wing it, work one more year and create a detailed budget. To be extra ready: Smith says to follow that budget the year you're still working. You'll see if that's the right amount. It also gives you a chance to save more.

Retire in 2027 if you're comfortable with the amount you saved. Most Americans think they need more than $1 million to live comfortably in retirement, but that varies based on your unique situation. Some need more and some, less. Whatever your number, once you reach it, a major retirement hurdle is gone.

Work one more year if you're unsure about your number. If you're feeling a bit unsure about your retirement balance, working one more year can help build up your confidence. It's an additional 12 months to max out your retirement accounts, pay down any high-interest debt and save more. "A penny saved is a penny earned," says Smith. "Use the year to feel more comfortable."

Retire in 2027 if you have a withdrawal strategy. Do you know how much you plan to withdraw regularly, and does it account for inflation and any market downturns, particularly early in retirement? If you can answer yes, then it's another aspect of retirement readiness you can check off. A tax-smart plan for when and how much you withdraw in retirement will ensure your money lasts and give you permission to spend.

Work one more year if you plan to figure it out as you go. If you don't have a plan for using your money in retirement, another year might benefit you. Withdrawing as you go can lead to running out of money prematurely. That's particularly true during market downturns. To help build a strategy, check out our rules series, including the 4% rule, the bucket approach, guardrails and the pay-yourself-first strategy.

Retire in 2027 if you know what you'll do with your free time. Retirement isn't only about your finances; it's about your emotional health. Happy retirees typically have a passion that gives them a purpose and a sense of community. It can be volunteer work, a part-time job or spending time with friends and family. Whatever it is, if you know what your retirement passion will be, or at least have a list to try, it's a good sign you're ready to retire.

"It comes down to defining a lifestyle, not a number," says Michele Havens, head of U.S. wealth management at BMO. "We ask clients to think about their value and purpose more than their savings."

Work one more year if you don't know what you'll do in retirement. You might know you don't want to work anymore, but if you haven't really thought about what you'll do once you retire, take the time to ponder it. Spend one more year working and map out what retirement will look like for you. Not only the big trips and hobbies, but the day-to-day activities. What does a regular Tuesday look like?

Take your time with the choice

Deciding between 2027 and working one more year doesn't have to be an all-or-nothing choice you make today. Use the coming months to hone your plan, build your confidence and map out what life looks like after work. When the financial and emotional pieces align, you'll know it's time.

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For 30 or 40 years, the job is simple: Save more, invest it, let it grow, repeat. Then you retire, and almost everything about how your money behaves changes at once. The habits that built the nest egg are not the habits that manage it well in retirement.

As a financial planner with nearly two decades of experience, I've sat with plenty of accomplished people who mastered the accumulation game but were caught off guard by the drawdown phase. The shift is real, and knowing what's coming makes it far easier to handle.

Here are six things that happen to your investments the moment you stop working.

1. Sequence of returns risk takes center stage

While you were saving, a market drop early in your career was almost a gift. You kept buying shares at lower prices, and time smoothed everything out. In retirement, the order of your returns suddenly matters enormously.

A steep decline in the first few years of retirement, while you're also withdrawing to live on, can do damage that a later decline of the same size would not. You're selling shares to fund expenses at exactly the wrong moment, and those shares aren't around to recover when the market eventually rebounds.

Two retirees with identical average returns over a 30-year retirement can end up in very different places depending purely on when the bad years arrived. The one who hit turbulence late may sail through comfortably. The one who hit it in years one and two may run short, even though the long-run average was identical.

This is the single biggest behavioral and structural shift. But most people have never heard of sequence of returns risk until it is upon them.

2. You move from 'growth at all costs' to income and stability

The whole point of accumulation is growth. The point of retirement is using the money. That usually means dialing back the most aggressive parts of the portfolio in favor of holdings that can produce income and ride out volatility with less drama.

This isn't about abandoning stocks altogether, since a multi-decade retirement still needs growth to keep pace with inflation. It's about changing the mix so that a bad year doesn't force you to sell your strongest holdings at a loss to pay the electric bill. The balance you held at 45 is rarely the balance that serves you at 65.

3. Cash suddenly has a job

During your working years, large cash balances felt like a drag — money sitting idle while it could have been invested. In retirement, a cash reserve becomes a tool rather than a missed opportunity.

Holding a year or two of expenses in cash and equivalents gives you somewhere to draw from when markets are down, so you aren't forced to sell investments at depressed prices. That buffer is what lets the rest of the portfolio stay invested through a rough patch.

The mindset flip is hard for lifelong savers, who spent decades being told that idle cash is wasted cash. In retirement, that idle cash is doing important work.

4. Required minimum distributions start making decisions for you

Eventually the IRS stops letting your tax-deferred accounts grow untouched. For 2026, required minimum distributions (RMDs) generally begin at age 73. From that point, you must withdraw a calculated amount each year whether you need the money or not, and it's taxed as ordinary income.

For someone with a large traditional IRA, those forced withdrawals can be substantial enough to push you into a higher tax bracket or trigger Medicare surcharges. The penalty for missing one is steep: 25% of the amount you failed to take, reduced to 10% if you correct it promptly.

RMDs turn your portfolio into something that generates taxable events on a schedule you don't control. This is also why the years before 73 carry so much planning value. Drawing down or converting some of those tax-deferred dollars earlier, while you have room in lower brackets, can soften the size of the RMDs waiting for you later. Wait passively and the distributions, and their tax bill, only grow.

5. Dollar-cost averaging runs in reverse

For decades, you put money in on a regular schedule, buying more shares when prices were low. That steady-drip discipline worked in your favor.

In retirement, the flow reverses. You're taking money out on a regular basis, which means you sell more shares when prices are low — the mirror image of the dollar-cost averaging strategy that served you so well.

This is why withdrawal sequencing and that cash buffer matter so much. Pulling a fixed dollar amount from a falling market chips away at the share count faster than most people expect. The same mechanical force that built your wealth can erode it if you don't plan around it.

6. You become a spender — and that's harder than it sounds

This last one is psychological, but it is no less real. People who spent their whole lives saving often find it genuinely difficult to flip the switch and spend. They under-spend out of anxiety, denying themselves things they planned and saved for, because watching the balance drop feels wrong after decades of watching it climb.

I've seen retirees with more than enough ration their own travel and comfort as if the money were not really theirs to use. Others swing the other way and spend too freely early on, before they have a clear read on how long the money needs to last.

Neither extreme serves you. Becoming a deliberate, comfortable spender, drawing down the money you worked to build without fear or recklessness, is one of the underrated challenges of retirement, and almost nobody warns you about it in advance.

Putting it together

Look at these six issues together and a theme emerges. Retirement isn't just "accumulation, continued." It's a different game with different rules, different risks and a different relationship to your own money. The instincts that built the nest egg — save aggressively, stay heavily invested, ignore short-term noise — don't all translate cleanly to spending it down over decades.

None of this means retirement is something to dread. It means the transition deserves its own plan, not just an extension of the one that got you here. The years right around your retirement date are when these shifts hit hardest, which is exactly why thinking them through in advance, ideally before you stop working, tends to make the whole transition smoother.

The accumulation phase rewarded discipline and patience. The drawdown phase rewards planning and flexibility. Knowing the difference — and adjusting before the shift catches you off guard — is most of the battle.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Things that go bump in the night aren't the only frights retirees should fear this Halloween season; their retirement accounts might scare the dickens out of them.

That's especially true in the current environment, in which inflation is rising, gas prices are elevated, and a U.S. midterm election is around the corner. Short-term portfolio dips might be scary, but the true nightmares lie in these five hidden traps.

5 Spooky retirement investment moves to avoid

1. The monster you invited in

You might have heard this AI stock is the next Nvidia, or this option play using an upside-down multiway spread trade (whatever that is) will make you rich; if you don't understand it and still invest in it, Brant Wong, head of retirement solutions at Principal Asset Management, says that is one of the scariest things an investor can do.

"With any retirement account, for any investor, there are always different investments, different returns, and risks," says Wong. "It's important to understand how these things work." If you don't, you might make mistakes, leading to buying high and selling low, which is what true portfolio horror stories are made of.

2. Zombie investments

If you've switched jobs over the years, or aren't completely on top of your finances, you might have one or more of these: zombie investment accounts. These are old 401(k) accounts, stocks you forget about, or the same investment in multiple ETFs or mutual funds.

All those zombie investments cost you money in fees, redundancy and lost growth. They can be downright frightening, says Patrick Marcinko, a financial adviser at Bogart Wealth.

"Here's an easy fix. At least once a year, look at everything you own and why you own it. If you can't explain why, it's worth looking at it," he said. "It's very important to have an inventory."

To get started, you could search for lost 401(k) accounts.

3. Panic and run

In horror movies, you want everyone to run for the exit or get away from the axe murderer. But doing that when markets are going south, especially when you have a plan, can lead to a bloodletting, warns Wong. Look at what happened after the Great Recession in 2008 and 2009. Everyone who didn't sell recouped their losses and then some. History has proven that again and again.

"You may want to escape and get away, but with investments it's not that simple," said Wong. "There's risk mitigation, which is why it's important to understand the investment and to make moves to optimally derisk the portfolio." If you have a plan in place and the markets are dropping, don't react, warns Wong. Stick to the plan and ride out the fright show to live another day.

4. Putting all your screams in one basket

Maybe you had stock options at your job, owned a stock that did well over the years, or, for whatever reason, one investment has taken on a life of its own and now represents a big chunk of your investment portfolio. If that rings true, you are committing what Jaime Quiros, CFP and portfolio manager at FBB Capital Partners, says is a grave mistake.

"Too much concentration can hurt you in a downturn or if something happens," he says. "Think about Enron, think about Lehman Brothers." Quiros was referring to two companies that collapsed, taking their share value along with them. "You don't want too much of one stock, especially in retirement," said Quiros.

5. Flying blind

One of the most haunting things any retiree can do that will doggedly follow them in retirement is to lack a financial plan. Without one, you might react when things go bad, which could create shortfalls later in life. "The scariest thing in retirement isn't a market drop," said Marcinko. "It's one you didn't plan for."

Avoiding the financial horror movie

Investing in retirement doesn't have to be scary and spooky this Halloween season. By making sure you have a plan, your investments aren't overconcentrated in one area and that you stay the course once you are on track, you can put all those ghouls, goblins and demons to bed once and for all.

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Too much information about stock market seasonality can lead to overload and bad decisions for investors. Just enough can be fun, even valuable if properly deployed.

Traders and speculators who specialize in technical analysis take advantage of inefficiencies created by retail investors going too deep on those kinds of things.

Even among the experts, you'll find an amusing variance in how they define things such as the "Santa Claus Rally."

At the same time, as some of the greatest asset allocators who ever lived will tell you, the stock market is a reflection of us, our emotions and our psychology.

Warren Buffett said it's a "popularity contest" in the short term, a "weighing machine" in the long term. He also described it as "a church with a casino attached."

Those are colorful words from one of the best who ever did it. Basically, though, it's a barometer of human behavior, including our emotions and psychology, as well as what we choose to consume and when.

Think about it for a second: It's October, so you're probably pulling out your sweaters and corduroy, maybe prepping to do some leaf work in the yard, perhaps watching football, possibly hitting a pumpkin patch.

As much as we want to understand ourselves and how we behave as investors, we can also profit from seeing how our decisions plus those made by others like us aggregate over time.

Seasonality offers another reference point along that journey, a map based on history and data to use as you approach prevailing terrain.

But it's just a guide.

This quiz is for edutainment purposes only.

More on investing from the Kiplinger team:

• Now Is the Best Time to Make These 6 Financial Moves (You'll Thank Yourself in December)
• What the Midterms Mean for Your Stock Portfolio
• Stop Waiting for the Perfect Moment to Invest: There Isn't One
• How to Pick the Right ETF for Your Financial Goals
• The Best All-in-One ETFs to Keep Your Investment Portfolio Simple
• The 5 Best Long-Term Investment Stocks to Buy for Steady Returns
• Best Stocks to Buy for Rising Interest Rates This Fall
• 5 Stocks to Avoid as Interest Rates Rise This Fall
• 5 Best Momentum Stocks to Buy for More Upside in 2027

Do you need a steady paycheck in retirement, or are you ok with withdrawing money as you go? Not sure? Then you aren't alone.

We spend decades focused on accumulating money for retirement, but give little thought to how we'll spend it when we retire. Will we create a guaranteed stream of income deposited in the bank each month, or will we pay as we go, taking solace in the fact that the money is there when we need it?

The paths are vastly different. If you choose the guaranteed route, it means taking a portion of your savings and turning it into a steady paycheck, typically through an annuity. If you choose the pay-as-you-go route, it means making periodic withdrawals from your retirement account when you need the funds.

Which approach is right for you depends on several personal factors: your cash flow (steady monthly income), longevity (how long your retirement will last), and temperament (your ability to manage withdrawals on your own)

The decision is not as clear-cut as saving money in a 401(k), is it? Before you decide if you need some guaranteed income in retirement, ask yourself these three questions.

1. Does your guaranteed income cover your living expenses and if not, are you ok with that?

For most retirees, fixed income comes from either Social Security, a pension, other income like real estate, or a combination of some of the above. That money replaces the paycheck from working and typically covers monthly expenses. Sometimes the money is not enough, and retirees have to tap their savings to make up the difference. If that sounds familiar and you're ok with that scenario, then you probably don't need guaranteed income.

But if you're not comfortable with that scenario, guaranteeing the portion of your expenses not covered by Social Security and other fixed income would probably provide peace of mind.

"I would argue that if you cover most of the essential spending with guaranteed income, that takes out a lot of stress in retirement," said Nick Nefouse, global head of retirement solutions and head of LifePath, Multi-Asset Strategies & Solutions at BlackRock.

The key is to guarantee some, not all, of your retirement income, warns Barb Pietrangelo, a financial planner at Prudential Wealth Advisors. After all, retirement can easily last 30 years, so you still need some of the money to grow and compound.

Pietrangelo says to tally your monthly expenses against your recurring income, then ensure guaranteed income fills any gap. "The general rule of thumb is 70% of spending, but that is not always true," said Pietrangelo. "Look at your checkbook or charge card for the last three to six months to see what you are spending on a regular basis."

The easiest way to turn retirement savings into a monthly paycheck is via an income annuity. With this, you get guaranteed income for life, but it comes at a cost. Accessing your money early means high surrender fees, and you'll have no built-in inflation protections unless you pay extra.

2. Will you be ok if the stock market drops and takes your retirement portfolio along with it?

One major benefit of guaranteed retirement income is freedom from market anxiety. Stock drops, high unemployment, or economic slumps won't stop your checks — unlike living strictly off an investment portfolio.

An investment portfolio fluctuates with the market, carrying inherent risk and potential losses. If you can handle market volatility and potential shortfalls, self-managing your withdrawals may work best. But if market swings will keep you up at night, an annuity offers a more reassuring alternative

"Would you be ok if the market dropped? Would you still have enough income to pay yourself forever? Most people wouldn't," said Pietrangelo. "With guaranteed, you don't have to worry about that. But always pair it with another savings vehicle."

3. Is certainty important to you?

Is longevity on your side? Are you worried about running out of money in retirement? If you answer yes to either question, then guaranteeing a portion of your retirement income may be for you. After all, by doing so, you ensure the money will last as long as you do. If you live to 100, you will get a monthly payout until then.

Plus, you'll know exactly how much you get each month. For some people, that certainty is all the permission to spend they need.

"People don't like talking about life expectancy; they like being certain about the ability to spend," said Nefouse. "With guaranteed income, you're more certain; you're more willing to take more risks, take that extra trip."

Take your time before deciding

Whether to guarantee income or withdraw as you go is as unique a decision as your retirement plan. But one thing is for sure: it's not something you should choose blindly. Both approaches have pros and cons.

Guaranteed income gives you peace of mind, but you give up growth and flexibility. Withdrawing as you go provides the potential for appreciation and continued portfolio growth, but there's also more risk. Ultimately, finding the right balance is about matching your money to the lifestyle and comfort level you want.

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I'm sitting on the sofa in my office, which is in Virginia. Looking out the window, I can see both Virginia and Maryland. There's an often-incorrect assumption that when you cross the bridge from Virginia into Washington, D.C., your taxes jump. The reality is much more complicated.

Income taxes, which is how we often gauge whether taxes are "high" or "low," do go up if you move into D.C. But property taxes come down. So, if you're retired, you may actually be better off in D.C.

However, D.C. has an estate tax, and Maryland has an estate and an inheritance tax, so depending on your balance sheet, you may be better off staying in Virginia. You can see how things can get complicated quickly.

My goal in this article, as a CFP® and president of Exit 59 Advisory, is to help you avoid making a big decision on where you move in retirement for tax purposes — which I think is often a mistake in and of itself — without understanding the full tax picture.

Five taxes to consider

1. Income tax

You've heard of people moving from California to Texas. We have several clients in the process of changing residency from New York to Florida. This isn't because Texas has delicious BBQ or because Florida has Publix. It's typically because folks want to ditch the income tax. While this is almost always the most consequential tax when you're working, that isn't always the case for retirees.

Nine states don't tax earned income. However, like the federal government, most states do have a progressive income tax, where the rate rises with your income. Be sure you understand that progression and what effective or average rate you're likely to pay.

When we have a relocation in retirement in a client's financial plan, it becomes pretty clear what will happen to their income, capital gains and estate taxes, all else being equal. We recently had a client moving from California to Texas and were able to tell them how much money they would save, and therefore, could spend elsewhere. We used specialist software to do that, and you can use our subscription to access it for free.

2. Capital gains tax

Capital gains rates are more favorable than income tax rates at the federal level as a way to incentivize investment. The same cannot be said about state treatment of capital gains.

In most states that levy an income tax rate, the same rate is applied to capital gains. When my parents sold their (not so) forever home in Maryland, it basically looked as though the capital gain was income. It was taxed at the same rate.

There are some notable exceptions. Washington state, for example, doesn't have an income tax but does have a capital gains tax. If your savings are all in retirement accounts, you don't have too much to worry about. But let's say you sold a business and almost all your assets are in non-retirement accounts. For you, Washington state may not be a good tax destination.

3. Sales tax

I'm a (perhaps too) proud graduate of the University of Delaware. Delaware is often referred to as the "tax-free state." Incorrect. Delaware doesn't have a sales tax. It does have income and property taxes, though those property taxes are extremely low by the beaches. Take notes, Florida.

Sales taxes are more straightforward, except that there are adjustments on certain types of purchases. Like to eat out? Then Washington, D.C., is no good. To be clear, the food is good. Like to drink? Avoid Washington state.

4. Property taxes

You might be unpleasantly surprised when you arrive in Texas for the BBQ or Florida for the Publix, and you're presented with a massive property tax bill. As the saying goes, "There's no such thing as a free lunch."

States need income, and that income gets raised somewhere. The key is landing in a state where that somewhere or someone is not you. If you're looking at a second home, you could consider renting instead of buying, so long as you can still satisfy the residency requirements.

Another thing to evaluate when it comes to property taxes is the property's assessed value, which can sit close to the market value or far below. A high tax rate on an assessed value much below market value may not sting as much as you think.

5. Estate and inheritance taxes

While estate and inheritance taxes are often used interchangeably in the context of death taxes, they are not the same. Estate taxes are levied on the decedent's estate. Inheritance taxes are paid by the beneficiary.

Fewer and fewer states have either of these taxes. As of this writing, 17 jurisdictions. However, if you have enough money and haven't done enough planning, estate taxes can be punitive. Before you move because of it, see if you can plan around it.

Why the full picture is even more nuanced

There's an exception to every rule in our tax code, and nothing is black and white. While an income tax rate may be high on the surface, many states exempt retirement income sources such as Social Security, pensions and retirement account distributions. Many have income phaseouts or caps on those exemptions.

Property taxes can be discounted in multiple jurisdictions if you meet certain requirements.

And let's not forget the cost of living. You may be someone who had spreadsheets for all of the above but still wound up with astronomical grocery bills, mortgage payments and restaurant bills because you weren't the only one who moved to Florida during Covid.

If you do want to move for tax purposes retirement, my hope is that you go in with your eyes wide open.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

California can be a wonderful place to retire. The great weather, access to outdoor activities, good food and diverse culture are some reasons retirees choose the Golden State.

That said, retiring there comes with its unique financial considerations. The cost of living is high, state taxes can take a big bite out of retirement income, and housing, transportation and healthcare costs can add up quickly. The overall cost of living in California is roughly 40% to 45% higher than the national average.

Retiring comfortably in California requires careful planning and consideration. If you're taking a do-it-yourself approach to retirement in California, here are a few areas to consider.

Get a good handle on your expenses

One of the first steps in planning for retirement is understanding what it costs to maintain your lifestyle. This might sound obvious, but many of my clients come to work with me at Halbert Hargrove because I am a CFP® professional and wealth adviser.

I review my clients' bank and investment account information and help them analyze and understand how much they spend on a monthly or annual basis. While many of my clients know how much money they have in their bank accounts, they often don't have a clear understanding of how much they spend on a regular basis.

I recommend starting with your regular fixed expenses. Think housing, utilities, insurance, transportation and healthcare premiums. Then consider the expenses that don't occur every month: Vacations, home repairs, property taxes or helping family are examples of some.

Knowing your nondiscretionary expenses (what you need to spend), vs your discretionary expenses (what you want to spend), is helpful. If the stock market has a challenging year, knowing where you have the flexibility to cut back can help you adjust your withdrawals while you wait for the market to recover.

Plan for healthcare beyond Medicare

California is home to some of the greatest medical institutions and hospitals in the nation including Cedars-Sinai Medical Center, Stanford Health Care, UC San Diego Health and UCLA Ronald Reagan Medical Center. But medical planning goes beyond finding the best doctors for the care you need.

California retirees need to budget for Medicare premiums, Medigap or Medicare Advantage, Part D (prescriptions), dental, vision, long-term care and any out-of-pocket expenses. Knowing the average cost of healthcare as a starting point can help, but age, location and tobacco use can impact costs.

There's another issue: Higher taxable income can increase Medicare premiums through IRMAA (income-related monthly adjustment amount). This is a surcharge added to your monthly Medicare Part B and Part D premium if your income is above certain limits.

What this means for retirees is a large IRA or 401(k) withdrawal might create a tax bill today and potentially higher Medicare premiums later.

Pay attention to California taxes

In addition to a higher cost of living, California has one of the highest state income taxes in the U.S. State income taxes start at 1% and go up to 12.3%, plus an additional 1% for taxable income over $1M. This matters quite a bit when retirees are drawing from large IRAs, 401(k)s or pension plans, as the net distribution from a pretax account can be considerably lower after you account for taxes.

Long-term capital gains tax, which is triggered by the profit you make from the sale of an asset held for more than a year, is also taxed in California using the same ordinary income rate that's applied to withdrawals from pretax retirement accounts.

At the federal level, long-term capital gains are taxed at a more preferential rate, so California is unfortunately unique in this regard. For retirees with substantial investment income, this can really increase their tax liability.

One silver lining — California does not tax Social Security benefits, disability or survivor benefits, so retirees who live primarily on these types of income have less tax exposure.

Don't forget housing, property taxes and home insurance

For many retirees, homes can make up a large portion of their net worth. This is especially true for California, where the prices of homes have skyrocketed throughout the years.

I frequently hear my clients recount how they bought their first homes for tens of thousands of dollars, and have watched the property grow into a multimillion-dollar assets.

A retiree in that situation might have substantial equity in their home, but a low-cost basis and property tax assessment. That can make a decision such as downsizing or moving to a retirement community much more complicated than simply looking at the price of the new home.

Before moving, consider the complete cost of the new property, including property taxes, homeowners' insurance, homeowners' association (HOA) dues and maintenance.

A smaller or less expensive home might not lower monthly expenses by much, all things considered.

When it comes to property taxes, keep in mind that Proposition 13 imposes a 1% cap on the tax rate and a 2% maximum for annual increases, offering some protection from long-term owners.

If you're a homeowner age 55 and older who wants to move from one California home to another, Proposition 19 allows you to transfer the lower assessed value of the primary residence to a newly constructed or replacement principal home. Eligible adults can use this tax transfer benefit up to three times.

Keeping your California retirement on track

Retirement in California can be expensive, but for many people, the lifestyle is a significant factor in their decision to live here. Understanding the costs, staying flexible and recognizing how each financial decision affects others can help you make informed choices while enjoying this chapter of life.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When it comes to passing down a lifetime of hard-earned wealth, no two legacies look the same. Some high-profile stars, such as Sting, plan to spend down their fortunes to teach their heirs self-reliance. Others, like Shaquille O'Neal, demand advanced degrees and business proposals before opening the vault. A few, like Elton John, aim to hit just the right note — providing security without spoiling the next generation.

Which iconic approach mirrors your own financial philosophy? Answer these seven quick questions to uncover your celebrity estate planning archetype — and discover whether your style aligns with Sting "The Self-Made Spender," Shaq "The Milestone Mentor," or Elton John "The Middle-Ground Mentor."

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Dear Wealth Wise: My husband and I are 65 and 66, respectively, and retired. Our financial adviser suggested a $250K life insurance policy for each of us that could also cover nursing home care. The total cost would be about $15K a year, or around $7.5K for each. Is this a good rate or even a smart idea at our age? They would take the money directly out of our retirement fund and we would be paying tax on the amount withdrawn. We also have two adult children, and we are trying to figure out the best route to minimize their taxes once we pass. — Policy Perplexed

Dear Policy Perplexed: Long-term care costs are hitting retirees hard. CareScout puts the average annual cost of assisted living in 2026 at $82,482, while a shared nursing home room costs $118,424. Even well-off retirees can struggle to cover these expenses, especially when care is needed for multiple years. That’s why some financial experts recommend long-term care insurance.

While a pair of $259K hybrid insurance policies sounds comprehensive, the $15,000 annual premium is a heavy lift. Is it worth paying? Here’s what our experts have to say.

Is the $7,500 cost per person a deal-breaker?

Unfortunately, the later in life you apply for long-term care insurance, the more expensive your premiums are likely to be.

Sonja Breeding, CFP, CCFC, and Senior Vice President, Wealth Management at Rebalance, says, "At their ages, $7,500 a year per person is within a reasonable range, but I'd want to know whether that premium is paid for life or only for a set number of years, such as 10.”

As Breeding explains, it’s one thing to pay $7,500 a year per person for 10 years. It’s another thing to pay $7,500 a year for 20 or more.

Nicholle Overkamp, MBA, ChFC, CDFA, Founder and CEO of Wilcox Financial Group, isn’t necessarily put off by the rate either. But, she says, "My first question wouldn't be whether $7,500 per person is a good insurance rate. It would be, 'What problem are we actually trying to solve?'”

Given our couple’s age, Overkamp says she’d be cautious about committing $15,000 annually to new insurance policies without understanding the couple's complete financial picture, including their existing assets and financial goals.

Does our couple need long-term care insurance?

Since we don’t know how wealthy our couple is, it’s hard to know whether they need long-term care insurance or whether they’re in a position to self-fund it.

"If this couple has accumulated enough wealth to comfortably self-fund potential long-term care expenses, purchasing expensive insurance may not be the most efficient use of their assets," Overkamp says.

"Insurance is about transferring risk,” she continues. “If they can absorb that risk without jeopardizing their financial security, maintaining control of those assets could be a better strategy."

We also don't know how healthy the couple is. At ages 65 and 66, securing a hybrid life and long-term-care policy requires passing rigorous medical underwriting. If either one has pre-existing conditions, they could be denied coverage or face steep premium surcharges.

What’s the actual benefit?

Another missing piece of the puzzle is what the proposed insurance policy would actually cover.

Before committing, our couple needs to look past the $250,000 death benefit per person and evaluate the care payout details, Breeding says.

"The most important missing piece is the long-term care benefit itself,” Breeding says. “Let's assume this is a standard hybrid life and long-term care policy. A $250,000 death benefit often pays around 2% per month for care, or about $5,000 a month for roughly four years. Many policies also include an extension rider that continues payments for another two to four years after the death benefit is used up, which can bring the total care benefit to $500,000 or more per person.”

But Breeding’s assumptions are just that. Our couple needs to see exactly what coverage they’ll have for long-term care, especially if the policy's main purpose is to pay for that rather than provide a death benefit for heirs.

Understand the hidden costs of funding insurance premiums

Our experts both caution that withdrawing funds from pre-tax retirement accounts to pay for insurance premiums creates hidden tax drags and missed growth opportunities.

"The proposed premiums would be funded through retirement account withdrawals, potentially creating additional taxable income, increasing Medicare premiums, and reducing invested retirement assets," Overkamp says.

"Over 20 years, that's $300,000 in premiums alone, assuming payments continue that long. That doesn't include the income taxes or potential investment growth they're giving up. Before making this commitment, I would want to see an analysis of the actual after-tax cost and what those dollars could accomplish elsewhere."

Breeding agrees.

"Paying premiums from a pre-tax retirement account makes the policy more expensive than it looks,” she says. "To net $15,000 for premiums in a 22% bracket, they'd need to withdraw more than $19,000. If they have cash or a taxable account, that's usually a better source."

Tax-efficient wealth transfer strategies

Our couple wants to ensure their needs are met while minimizing taxes for their heirs. Breeding says that, given that goal, a long-term care policy with a death benefit could make sense, provided the terms of the policy work for our couple.

"There's actually a silver lining here." Breeding explains that without the life insurance policy, "their kids would inherit an IRA and have to pay income tax on it within 10 years, likely during their peak earning years. Using IRA dollars to buy a tax-free death benefit converts taxable money into tax-free money for the next generation."

That said, Breeding points out that Roth conversions "accomplish something similar and are worth comparing" before buying the insurance policy.

They should keep in mind that federal estate taxes only hit ultra-high-net-worth households (currently over $15 million for an individual or $30 million for a married couple). That said, if they live in one of the 17 states (plus Washington, DC) that levies an estate or inheritance tax, that should affect their planning too.

Key questions to ask before buying the insurance

Whether a hybrid life and long-term care policy makes sense for our couple depends on a lot of specifics. To help them decide, Breeding suggests that they ask their adviser these four questions:

1. What’s the monthly care benefit, and is there inflation protection?

2. Are the premiums guaranteed, and for how many years are they paid?

3. Is there a joint policy option with shared benefits that might cost less?

4. Is there any return of premium if we change our minds?

The couple could also seek a quote for a traditional, standalone long-term care policy, which strips out the life insurance component and is often cheaper.

Finally, Breeding explains, these types of insurance policies typically pay a commission, so our couple should ask point blank how their adviser is compensated for selling them one. And if they’re inclined to buy the policy, Breeding says, “A second opinion from a fee-only fiduciary is worth getting.”

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our writers and experts in this advice column are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial adviser regarding any questions you may have in relation to the matters discussed in this article.

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Something interesting is happening among young Americans: Even young conservatives are becoming more skeptical of capitalism.

A Wall Street Journal opinion piece (paywall) recently cited a survey showing that 53% of conservatives under 40 support government-run grocery stores. Harvard's Fall 2025 Youth Poll found that just 39% of young Americans support capitalism, down from 45% in 2020, with only 19% describing themselves as capitalists.

Those numbers are striking. However, I don't think the explanation is as simple as young Americans suddenly embracing socialism. I think they're frustrated, and a lot of that frustration is justified.

Housing is expensive, education and healthcare costs have risen. People who already own homes and stocks have benefited enormously from rising asset prices, while those trying to enter the market are paying significantly more to do so.

A 25-year-old looking at that landscape has every reason to ask whether the system is working for them.

But there's another part of the equation that I think gets overlooked.

I've spent more than 25 years as a tax attorney focused on retirement accounts and wealth creation. One of the hardest things about convincing someone in their twenties to care about retirement is that the reward feels impossibly far away.

You put $7,500 into an IRA at 25. A year later, maybe it's worth $8,500. That's not exactly life-changing money.

The mistake is evaluating that decision at 26 instead of 65.

Capitalism has a similar problem. Its benefits often take time, and we increasingly live in a culture that expects results immediately.

Starting out has never been easy — but it's different today

When I started practicing law in New York in 2001, I made about $125,000 a year. That was a very good salary for a 25-year-old.

I still had a roommate.

I didn't buy my first house until I was 37. Of course I would have liked to own one sooner. But at the time, I didn't interpret not owning a home in my twenties as evidence that the economic system had failed me. I was building my career, saving money and starting a business. I assumed the payoff would take time.

There is an important difference today.

Young Americans aren't imagining the affordability problem. Housing costs are real, and rising asset prices have disproportionately benefited people who already own stocks and real estate. Someone starting from zero today can reasonably look at the cost of a home and wonder whether patience alone is enough.

We shouldn't dismiss that concern, but we also shouldn't make the opposite mistake and conclude that because the path has become harder, the principles behind building wealth no longer work.

Social media shows the finish line

When I was 25, I wasn't carrying around a device that showed me hundreds of wealthy people every day.

Today, someone can open TikTok and immediately see a 27-year-old entrepreneur stepping onto a private jet, an investor talking about making millions in crypto or an influencer showing off a house that most people historically wouldn't expect to own until much later in life.

What you don't see is the race.

You don't see the 10 years of work, the failed businesses, the bad investments or, in some cases, the family money behind the lifestyle.

At the same time, sports betting and speculative investing have made the idea of getting rich quickly feel more attainable. Pew Research found that 31% of Americans ages 18 to 29 bet on sports in the past year, compared with 22% of adults overall. A 2026 Urban Institute study found that 15% of young bettors saved less because of it.

My concern isn't that placing an occasional bet is going to destroy capitalism.

It's the mindset.

Real wealth creation is usually boring: Work. Save. Buy assets. Reinvest. Avoid major mistakes. Repeat.

The real divide is ownership

This is where I think young Americans are identifying a real problem but sometimes drawing the wrong conclusion from it. Capitalism rewards owners.

If you own a home and its value increases, you benefit. If you own stock in a growing company, you benefit. If you own a business, you participate in the value that business creates.

If you own nothing, you are primarily dependent on your labor, and that divide matters.

But if the problem is that too few people participate in ownership, the answer isn't to reject ownership. It's to help more people become owners earlier.

Retirement accounts are one of the simplest ways to do that.

Imagine someone invests $7,500 annually from age 25 to 65 and earns an average 8% return. That account could grow to roughly $1.9 million, even though only about $300,000 came directly from the investor's contributions.

That's what time does.

A person investing $10,000 annually at 8% would have roughly $145,000 after 10 years, $1.2 million after 30 and $2.6 million after 40.

The investor didn't suddenly become smarter in year 30.

Their capital had time to work.

Young Americans are right to want more

None of this means telling a 25-year-old struggling with rent, student loans or healthcare costs to stop complaining and wait 40 years.

That's not a serious response.

If we want younger Americans to believe in capitalism, they need a realistic opportunity to participate in it. That means making it easier to save for retirement, improving financial education, expanding access to investment and creating more pathways into home and business ownership.

It also means recognizing something uncomfortable: Previous generations benefited from economic conditions that aren't identical to those facing young people today.

But acknowledging that doesn't require abandoning the basic principles of long-term wealth creation. In fact, I would argue the opposite.

If rising asset prices have widened the gap between owners and non-owners, becoming an owner matters more, not less. Young Americans have access to investment tools my generation could barely imagine at their age. You can open an IRA in minutes, buy fractional shares and invest with virtually no commissions.

What young people have most of all is something nobody can buy later: Time.

Capitalism isn't perfect. It doesn't guarantee success, and legitimate structural problems deserve legitimate solutions.

But neither capitalism nor retirement investing should be judged solely by what they produce in a year or two.

At 25, you're not supposed to have already built wealth. You're building the foundation for it.

The question shouldn't be whether young Americans are patient enough to accept an economy they believe isn't working for them. It should be how we help more of them become owners.

Our retirement system may be the best tool we have to do that. A 401(k), IRA or Roth IRA gives almost every working American a tax-advantaged way to own stocks, businesses, real estate and other assets. And young Americans have the greatest advantage of all: Time.

At 25, they have four decades for ownership and compounding to work in their favor. If the economic divide is increasingly between those who own appreciating assets and those who don't, the answer isn't to abandon ownership.

It's to create more owners, and give them enough time for ownership to matter.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

I started to focus on retirement income planning about 15 years ago. One thing that struck me early in this journey was just how much our clients detest required minimum distributions (RMDs).

A large percentage of our clients were federal retirees with large pensions under the old system. They didn't need the money.

It wasn't that they were mad about having to take the funds — it was the taxes. On top of the taxes, there were also the other dominos that could fall — the phaseout of certain deductions, higher capital gains taxes and, perhaps the most hated, Medicare premium hikes (IRMAA).

Today, many of our clients still hate RMDs. This is not just because they all have large pensions, but many have put themselves in strong financial positions and do not like paying taxes on money they don't need. It's like paying the tolls on the Jersey Turnpike but having no desire to actually get where you're going.

We use many strategies to lower our clients' lifetime tax bills, but these three very niche strategies are designed to stop or delay the actual income you don't want, in turn, reducing or deferring the taxes.

1. Skip your first RMD

Everyone is eligible to defer the RMD in the year they hit their RMD age. This can be 70½, 72, 73 or 75, depending on your year of birth. This sounds better than it is, but it can make sense in the right situation.

Let's say you were born in 1960. Your RMD age is 75, and you will hit that in 2035. You can defer your 2035 RMD until 2036. Here's the catch: You'll then have to take two RMDs in 2036, one by April 1 and one by December 31.

Doing this without running the numbers can really backfire, because that lumpy distribution is more likely to cause more bad dominos to fall than if you'd split the distribution over two years.

Here are some situations where we've seen it make sense to skip the first RMD:

• You retire in 2035 and will have a significant income drop in 2036
• You sell your business in 2035

You have a lump sum from any other source in 2035 that causes your income to spike (unpaid leave, inheritance, inherited IRA distribution, home sale, etc.)

You see the theme. If your income is much higher in 2035 than you expect it to be in 2036, it could be beneficial to skip your first RMD. We rely on financial planning software to project out tax rates to make that determination. You can access a version of what we use.

2. Buy a qualified longevity annuity contract, or QLAC

When interest rates were hovering around zero, it rarely made sense to turn to a QLAC. Income guarantees move in the same direction as interest rates, so if there is any silver lining to inflation, it's that most fixed annuity rates moved up as the Fed raised rates to combat inflation. Merry Christmas!

A QLAC is a type of deferred annuity, basically meaning you give money to an insurance company in exchange for a future income stream. This is a unlike a single premium immediate annuity (SPIA), with which payments start immediately.

I believe that you need to approach this as longevity insurance first and as a tax tool second. Because many of these contracts will defer income until age 85, you are making a big bet on longevity.

The tax benefit is that you can move up to $210,000 per person (2026 limit) from your IRA into a QLAC. Round numbers: If RMDs start at 4%, you are delaying just $8,400 per year in RMDs.

"Delaying" is the key word. When that money does come out, it is still taxable.

Once again, this makes sense if you are already considering an annuity as a longevity hedge and like the idea of guaranteed income later in retirement.

3. Keep working

This one is not complicated but is often misunderstood. A costly mistake. If you are still working in any capacity as an employee and own less than 5% of the company, you can defer RMDs from your current employer retirement plan, but not from all your retirement plans.

Take the example of the client who started a manufacturing business that he sold to his employees. The business is his life. He tells me he'll work until the day he dies. I tell him he'll work until the day the new owners decide they can't take him anymore. He sort of laughs. He can defer RMDs until that day.

More commonly, we see clients continuing to work part-time in retirement. For anyone who is still working, and for employer retirement plans that accept rollovers into the plan, you may be able to roll funds from your IRA into your current employer plan and avoid RMDs on a much larger chunk of money.

This is the definition of the tax tail wagging the investment dog, which most textbooks caution against. But if you've got a good retirement plan at work and don't plan to stop working, it may make sense.

Most retirees spend more than their RMDs every year, so this is really an uptown issue for those who are really focused on taxes, as we are in our practice.

It is important to note that there are very few ways to completely eliminate the tax consequences, as you would if you did a qualified charitable distribution (QCD), so it's important to note that there is no prize for being the best tax deferrer. It only makes sense if your future tax rates will drop.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Katie retired at 67 after 30 years as a marketing executive. She had planned for it. In the final months of her career, she made a list of everything she had wanted to do but never had time for: Painting, reading, travel and long lunches with friends.

She retired in June and by September had done them all. By January, she was restless in a way she could not explain.

She was not exactly bored. Her days were full. She painted three mornings a week, attended a book club twice a month and had taken two trips she described as wonderful. She had the life most people picture for retirement. She also had a persistent, low-grade sense that something was not adding up.

She was doing everything right. She simply did not realize that doing everything right is not the same as doing the right things.

The leisure trap

Most retirement planning conversations miss a distinction entirely: Pleasant activity and purposeful engagement are not the same. One passes time agreeably. The other builds something.

Many retirees arrive at retirement with a version of Katie's list. They have delayed hobbies and postponed pleasures, and retirement finally gives them the time to pursue them. This is not a problem. The problem is mistaking the beginning of a fulfilling retirement for the whole of it.

Meaningful activity has three qualities:

• It draws on something you are good at
• It continues to challenge you
• It generates an outcome beyond personal enjoyment

Pleasant activities can satisfy one of those conditions, while purposeful engagement satisfies all three.

Katie's painting met one. She enjoyed it. It did not yet require her best thinking. It produced no outcome that mattered to anyone outside the room. And it was not growing.

What work was actually providing

For 30 years, Katie's career provided three things she did not consciously notice until they were gone: A skill that was always developing, an audience whose response to her work mattered and outcomes with real stakes.

The marketing campaigns she built either succeeded or failed. The metrics were visible, and the feedback was immediate. The challenge was never fully mastered.

That combination of novelty, accountability and consequence is what psychologist Mihaly Csikszentmihalyi identified as the conditions for flow: A state of full absorption in a demanding, skill-matched activity.

Flow is not relaxation. It is the opposite of relaxation. Csikszentmihalyi's decades of research identify flow as one of the most reliable contributors to well-being and meaning in adult life.

Pleasant hobbies rarely generate flow. They generate comfort. Comfort is not nothing. It is simply insufficient to fill the psychological space a career once occupied.

The distinction that changes everything

Purposeful engagement is not about what you do. It is about how you do it and for whom.

Golf is an instructive example. As a vehicle for walking, outdoor exposure and social connection, it is among the most valuable physical activities for a retiree. The distinction is not in the game itself. It is in what the game is being asked to carry.

As the sole answer to the question of how to spend the years after a career, it becomes a placeholder masquerading as a life. Same activity. Entirely different design.

Three conditions turn a hobby into purposeful engagement:

• A skill that still has room to grow. An activity not yet mastered that continues to demand more than you can deliver
• An audience beyond yourself. Someone whose response to your work, presence or contribution matters to the outcome
• Stakes. Something that would be diminished if you stopped showing up

A hobby that meets none of these conditions is considered leisure. Leisure is valuable. A retirement built entirely on leisure is like a financial portfolio held entirely in cash: It preserves what is there, but it yields nothing new.

The prescription

Katie's restlessness was resolved not by changing what she did but by altering the conditions under which she did it.

She joined a community art collective that required her to show work quarterly and to receive critiques.

She began teaching watercolor once a week at a center for older adults, which required her to clearly articulate what she knew.

She entered a regional exhibition but did not place. The following year, she entered again and had different results.

The hobby took on a higher purpose.

The painting did not change. The design did. She now has an audience, a standard and a reason to improve that extends beyond her own preference.

Her days have the quality of her career days, oriented toward something that is not yet finished.

That orientation is what the hobbies pillar, properly understood, is meant to provide. Not entertainment. Not the pleasant passage of time. An answer to the question retirement poses to every retiree who takes it seriously.

Who am I becoming in the years after my career, and is anyone watching?

The financial plan tells you how long the money will last. Purposeful engagement determines whether the person spending it keeps growing.

Both deserve a plan. For too long, only one has had it.

To learn more about designing a fulfilling retirement, pick up my new book, Your Encore Years: The Psychology of Retirement.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Americans have no shortage of retirement benchmarks competing for their attention. Some experts say you need $1 million, others suggest saving 10 times your salary, and then there's the 4% rule.

On top of that, there are annual surveys and statistics that aim to calculate or identify the ever-popular retirement "magic number" for how much the average American needs to retire comfortably.

While these figures and rules can offer a starting point, they can also create unnecessary anxiety and lead people to focus on the wrong end goal.

Retirement planning is not about reaching someone else's number. It's about creating enough sustainable, reliable income to support the life you want to live.

Start with the retirement you envision

Many people begin retirement planning by asking, "How much do I need to save?" However, a more useful question may be, "What do I want retirement to look like?"

For some, retirement means extensive travel and new experiences. For others, it may involve staying close to family and supporting children or grandchildren. Others might even consider relocating, volunteering, pursuing a passion project or continuing to work in some capacity.

Those decisions matter because they determine the amount of income you will actually need. A retirement built around international travel will look very different financially from one centered on spending time at home with family.

Starting with your goals rather than a savings target helps turn retirement planning from a math exercise into a strategy built around your life.

Focus on income, not just assets

During your working years, retirement planning is largely about accumulation. You save, invest and allow time and compounding to work on your behalf.

As retirement approaches, the challenge changes. The question is no longer how much you can accumulate. It becomes how effectively you can convert those assets into reliable income.

This is where popular rules of thumb can fall short. Let's take the 4% rule, for example. This strategy suggests withdrawing 4% of your savings in the first year and then adjusting that amount for inflation every year after.

While this can feel simple and may work for some, there is a lot it can't account for, including when you retire, your tax situation, spending patterns, desire to leave assets to heirs or charitable causes, among other factors.

Two retirees with identical portfolio balances could require very different withdrawal strategies based on their goals, other income sources and life circumstances.

Consider the personal risks, too

A retirement income strategy should also account for risks that a simple savings target can't capture.

Longevity is one example. Funding a retirement that lasts 20 years is very different from funding one that lasts 35 years.

Market conditions matter as well. Retiring into a market downturn can create challenges that don't exist when markets are rising, particularly if withdrawals begin immediately.

Inflation can reduce purchasing power over time, while taxes can significantly affect how much spendable income remains from different accounts.

Family considerations also play a major role. While some retirees expect to help support aging parents, others may want to assist adult children, fund education for grandchildren, or prepare for a future transfer of wealth.

These priorities are meaningful, but they're difficult to capture in a single benchmark or national average.

Build a plan that evolves

No matter what you envision for your retirement, planning for it shouldn't be a one-time exercise completed just before leaving the workforce. A strong retirement income strategy should be flexible enough to adapt as life and goals evolve.

That's where an adviser can add value. Working with an adviser can help you build and refine that strategy over time, aligning your resources with your goals, revaluating trade-offs and adjusting as circumstances change.

A retirement plan should reflect your life, not a "magic number" or arbitrary benchmark. In the end, what matters most is having a personalized income strategy that supports the retirement you want today and can evolve with you tomorrow.

This material is provided for informational purposes only and is not intended as investment, legal, or tax advice. Any opinions expressed are those of the author as of the date of publication and are subject to change. Individuals should consult their own legal, tax and financial professionals regarding their specific circumstances.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Many parents and grandparents set up college funds for their children or grandkids. Given the cost of higher education today, starting a college fund early could help ensure they can earn a degree without the burden of overwhelming student loan debt.

But given today’s sluggish entry-level job market, funding a college education might no longer be enough to help your kids or grandkids be financially stable in young adulthood. In addition to education, you might want to create a "launch fund" — money your heirs can use to supplement their post-college paychecks or reserve for a down payment on a home.

Here’s how a couple of experts suggest approaching your launch fund, and how to balance it with your own financial needs.

Your financial security must come first

It’s noble to want to set your kids or grandchildren up for financial success. But Tyler End, CFP, CEO and co-founder of Retirable, says it’s important to prioritize your own financial needs and only give what you can truly afford.

"There can be a strong emotional pull to be looked at as the provider, but it is important to pay yourself first," he says. "There are no loans for retirement income like there are with college. It doesn’t help to stretch yourself and ultimately become a worry for your heirs."

Beth Stenz, CFP and financial adviser at Edward Jones, agrees.

"I would start with one important rule — secure your own retirement before funding the next generation," she says. "A young adult has decades of earning potential ahead of them."

Before earmarking significant assets for younger heirs, Stenz says, make sure your retirement savings are sufficient or on track. Also make sure you have a solid emergency fund and a plan for what she calls "potentially significant health care or long-term care costs."

Decide how much flexibility you want

Accounts like 529 plans offer tax benefits, but they’re meant for education expenses. If you end up with excess funds, you have options, but avoiding tax penalties requires strategic planning.

If you’re going to set up a launch fund, Stenz says, you might want to use different "buckets" or accounts that address different goals.

"A launch fund is ultimately about flexibility," she says. "The money may be used to supplement income during a difficult job market, fund additional education or training, help with a relocation opportunity, support the early stages of a business venture, or assist with other important milestones in young adulthood."

To that end, Stenz recommends thinking about how much money you want to earmark for education vs other young-adult expenses. You’ll also need to decide how much control of the money you want to retain and for how long.

Account options to look at

Once you’ve narrowed down your specific goals, Stenz says, you can look at different account options.

Taxable brokerage accounts

"A grandparent-owned taxable brokerage account can be particularly attractive for a launch fund because of its flexibility," Stenz says. "The grandparent retains ownership and control, there are no education-only spending requirements, and the money can ultimately be used where it is most valuable."

If you’re going to use a taxable account, your investment allocation should reflect when you might need the money, Stenz says.

"A fund for a 2-year-old can generally accept substantially more market volatility than money intended for an 18-year-old," she explains.

529 plans

Stenz says a 529 plan is still an excellent option when creating a launch fund.

"Earnings receive favorable federal tax treatment when distributions are used for qualified expenses, and a grandparent can establish the account with the grandchild as beneficiary. I particularly like that the account owner retains control rather than simply handing the assets to the child," she says.

End says that funding college and young adulthood can be a tricky balancing act.

"The cost of education can vary greatly or be non-existent depending on the path taken," he says. "The best course of action is to decide what is most aligned with your values and give the gift that will make the biggest impact. For example, if education is important, prioritize making that accessible."

Thanks to recent rule changes, 529 plans allow the beneficiary to roll over up to $35,000 into a Roth IRA over their lifetime. That gives you the option to help a child or grandchild’s college education, save for graduate school and start a retirement nest egg if they don’t need all the money while earning degrees.

A number of parents and grandparents have "superfunded" 529 plans to support their heirs and get a nice tax break. As a result, some young adults have substantial 529 accounts that, even after a $35,000 rollover, would still leave them with more than they could spend on education. A Senate proposal would allow unlimited Roth IRA rollovers from unused 529 funds, but its fate is uncertain.

Custodial accounts

Custodial accounts are similar to brokerage accounts, but with a brokerage account, you retain control perpetually. With a custodial account, ownership eventually transfers to a child or grandchild at a certain age.

"Typically, you structure them under Uniform Transfers to Minors Act or Uniform Gifts to Minors Act accounts where the ownership transfers at a set age, giving the beneficiary full control of the funds," End explains.

If you go this route, keep in mind that because a custodial account is owned by your child or grandchild, it could affect their ability to qualify for college financial aid. If you’re planning to fund their education entirely, this might not be an issue.

Trump Accounts

Trump Accounts, says Stenz, add another potential tool to the mix. You can contribute up to $5,000 per year, per child, to one of these accounts, and the money grows tax-deferred. Funds are locked until the beneficiary turns 18, when the account converts to a traditional IRA.

A Trump Account won’t help your child or grandchild cover the rent as a young adult or buy a new car. But it could give them a vital jumpstart in building retirement savings.

Share your plans so no one’s in the dark

Whether you’re saving to help a child or grandchild tackle young adulthood, End says it’s important to share your thoughts and get input from the loved ones you’re trying to help.

"Don’t hesitate to open communication with your family," he says. "You might have an idea of how to make the biggest impact, but opening the dialogue might help you learn what will make the biggest difference."

You might, for example, be inclined to prioritize 529 plan contributions. But if your teenage grandchild already knows they don’t want to go to college, your money might be better off in another account. Having open conversations could help you achieve your ultimate goal of making life easier for a child or grandchild you care deeply about.

Read More

• Use the 529 'Grandparent Loophole' to Maximize College Savings
• How to Help Your Adult Kids Without Hurting Your Retirement
• 'Subsidized Adulting': Can You Afford to Help Your Children Financially?
• We Retired at 70 With $4.3 Million. My Wife Won't Spend 'Our Grandkids' Inheritance,' but I Want to Travel.
• I Want to Help Pay for My Grandkids' College. Should I Make a Lump-Sum 529 Plan Contribution or Spread Funds Out Through the Years?

I live in Arizona, and during monsoon season, we know what a black cloud looks like.

You can see it building in the distance. The sky gets darker. The temperature changes. The wind starts to pick up. Even though nothing has happened yet, you worry about it.

Is it going to rain? How bad will it be? Will there be hail? High winds? A dust storm? Is it even going to hit us — or will it pass by?

The other day, the clouds were dark enough that I called my 17-year-old daughter and told her to be careful driving. There wasn't a storm at our house yet, but I knew there was enough risk that it was worth thinking ahead.

Those clouds are a good metaphor for how I look at long-term care: It's the black cloud of retirement planning.

You know the cloud is out there

Most people approaching retirement understand they might need some form of long-term care. What they don't know is what it will look like. They're likely asking themselves:

• Will I need long-term care at all?
• When will I need it?
• Will my spouse be able to take care of me?
• Will I need a little help at home or full-time care?
• Will I need help for six months or six years?
• How much might that care cost?
• What happens financially to my spouse if I'm the one who needs care?

That's a lot of uncertainty hanging over a retirement plan, which makes long-term care so uncomfortable to discuss.

• We can estimate how much income someone will need in retirement
• We can model Social Security
• We can build an investment portfolio
• We can discuss taxes and estate planning

But long-term care is different.

We don't know if or when the storm is coming, how long it will last or how severe it will be.

That's why we should plan for it.

The storm isn't just about money

When people hear "long-term care planning," they often think about the financial hit. But that's not always the biggest risk.

Long-term care can become a family issue before it becomes a financial problem.

Someone must coordinate doctors, medications, transportation and care facilities. A spouse might become the primary caregiver. Adult children might begin rearranging work schedules and family responsibilities. Families are often forced to make difficult decisions when they're already feeling stressed.

There's also the potentially substantial cost.

Imagine a married couple who have spent 30 or 40 years saving for retirement. They've built a nest egg that's meant to provide income for two people. They have travel plans. They want to help their grandchildren. Maybe they want to leave something to their children.

Then one spouse needs significant care.

Suddenly, the same pool of assets has two jobs. It must provide for the healthy spouse's retirement while simultaneously paying for the other spouse's care expenses.

That's why I believe the long-term care planning conversation should start with people, not products.

What would you want to happen?

Before discussing insurance and other options, I like the idea of asking some basic questions:

• If you needed care, where would you want to receive it?
• Would you prefer to remain at home as long as possible?
• Who would you expect to help you?
• What assets would you be comfortable spending?
• How important is preserving assets for your spouse?
• How important is leaving an inheritance?

These questions change the conversation. The plan comes first. The product comes second.

There are several ways to prepare for the storm

There isn't one long-term care strategy that will work for everyone. Generally, families have at least a few options, including:

1. Self-funding

Some people have accumulated enough wealth to comfortably pay for care from their own assets, and that's a perfectly legitimate strategy.

But self-funding should be a strategy, not an assumption. It should include modeling what happens if one spouse requires significant care for several years.

• From where would the money come?
• Which assets would be tapped?
• What happens to the surviving spouse's income?
• Does the rest of the retirement plan still work?

2. Traditional long-term care insurance

Traditional long-term care insurance allows someone to transfer a portion of the risk to an insurance company. In the right situation, it can provide significant leverage and help protect other retirement assets.

But the tradeoffs include ongoing (usually high) premiums and the possibility of premium increases, not to mention the discomfort some people have with paying for something they might never use.

3. Hybrid or asset-based strategies

Another option is a hybrid or asset-based strategy — usually a life insurance policy or annuity that includes long-term care benefits.

The money that goes into this strategy can serve multiple purposes. If long-term care is needed, those benefits are available. If it isn't needed, the death benefit or other value remains.

This can make the decision more acceptable for someone who dislikes the idea of "use it or lose it" insurance.

4. Combining strategies

Planning doesn't have to be all or nothing.

A family might choose to insure against part of the risk while retaining enough assets to cover the rest.

That's often how we handle other risks in life. We decide how much risk we're comfortable shouldering and how much we want to transfer to auto, home, health or other insurance policies.

Doing nothing is still a decision

You could decide to do nothing and figure it out as you go. That's the long-term care strategy many families have by default.

Maybe a spouse provides the care. Maybe the children step in. Maybe assets are spent down. Eventually, Medicaid might become part of the conversation for some families.

But there's an important distinction between intentionally choosing to retain a risk and ignoring it: The default plan might give you fewer choices when you need choices the most.

Plan while the sky is still clear

Having a strategy in place can help you feel more prepared and might reduce the urge to constantly watch the sky.

That's one of the primary goals of a good retirement plan: It can help provide confidence in the face of uncertainty.

Planning earlier might give you time to evaluate your financial resources, your family situation and the various ways you could handle the risk.

You don't necessarily have to purchase something. But you should have the conversation.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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• What You Need to Know About Long-Term Care Before You Need It
• A Financial Professional's Take on Long-Term Care Insurance: Buy or Not?
• If Not Long-Term Care Insurance, Then What?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

How does an ordinary investor find a true professional financial planner when it can be like searching for a needle in a haystack?

The financial services industry includes hundreds of thousands of individuals who use titles such as financial advisor, wealth manager, financial consultant, retirement specialist or financial planner. Yet these professionals operate under very different business models, compensation structures and standards of care.

Over the years, I've developed three criteria that I believe help consumers identify a true financial planning professional:

1. Professional training and competency, often demonstrated through credentials such as the CERTIFIED FINANCIAL PLANNER™ certification.

2. A fiduciary relationship, where the advisor is legally obligated to place the client's interests ahead of their own.

3. Fee-only compensation, meaning the advisor is compensated only by the client and doesn't receive commissions or other sales-related compensation from financial product providers.

Financial advisers who are members of the Garrett Planning Network (GPN) are required to meet all three criteria. But they must also agree to one more, unique requirement.

Unlike many firms that require ongoing wealth management relationships, Garrett members must make financial advice available regardless of income, net worth or asset level. They must also offer time-based services, such as hourly planning or project-based engagements.

That may be the organization's superpower.

I spoke to Jean Keener, CFP®, founder of Keener Financial Planning in Keller, Texas and a long-time Garrett Planning Network member, to find out more.

The accessibility problem

One of the biggest challenges facing consumers today is simply gaining access to objective financial advice.

Many advisory firms establish minimum account sizes of $500,000, $1 million, $2 million or more. While those firms may provide excellent service, their business models can leave many Americans without access to professional financial planning advice.

According to Keener, when consumers attempt to seek help, they often encounter something very different from what they expected: "People maybe try to get some advice, but they end up getting a sales pitch instead.

"When people are looking for objective advice and the only solution that's available to them is a sales relationship, that's not what they're even looking for."

This distinction is important.

Consumers are often searching for advice. What they find instead is a product recommendation.

The Garrett difference

The Garrett Planning Network was built differently, Keener says: "I felt like it solved that problem of, 'how do we create a model that people can get the objective advice they're looking for without a sales pitch?'"

It allows consumers to seek professional advice without worrying whether they will meet a firm's minimum account requirements.

The practical impact of this policy cannot be overstated.

• A young physician beginning a residency
• A newly married couple saving for their first home
• A recently divorced individual
• A mid-career professional evaluating their stock options
• A retiree trying to make Social Security and Medicare decisions

All these individuals can benefit from professional financial planning advice, even if they don't have substantial investment assets.

Advice when you need it

One of the most interesting parts of my conversation with Keener involved the concept of comprehensive financial planning.

She described comprehensive planning as taking a holistic view of an individual's financial life, including investments, taxes, insurance, estate planning, retirement planning, cash flow, debt management and other financial decisions.

But she also emphasized that consumers don't always need a traditional comprehensive financial plan. Sometimes they simply need objective guidance on a specific issue.

That flexibility is particularly valuable for younger investors with modest assets. Keener said: "[A] 25-year-old doesn't need comprehensive financial planning the way our industry has defined it, but [they do] need holistic financial advice."

In other words, consumers should be able to access the advice they need today without waiting until they accumulate significant wealth.

Finding the needle in the haystack

The more financial planners I interview, the more convinced I become that true financial planning professionals represent a relatively small segment of the broader financial advice marketplace.

Many people who call themselves financial planners are primarily engaged in selling investment products, insurance products or investment management services.

By contrast, professional financial planners focus on providing advice.

That's why I continue to believe that three characteristics matter most:

• Professional training and competency
• Fiduciary responsibility
• Fee-only compensation

The Garrett Planning Network combines all three of those characteristics while also adding a fourth requirement that may be uniquely valuable to consumers: Accessibility.

Its members agree to make financial advice available regardless of a person's income, assets or net worth.

That commitment helps consumers find what can otherwise be a needle in a haystack: A professionally trained, fee-only financial planner who is willing to help them before they become wealthy.

How to find a Garrett planner

Consumers who are interested in working with a Garrett Planning Network member can begin by visiting the Garrett Planning Network's online advisor directory. The directory allows investors to search for fee-only financial planners who have agreed to the organization's membership standards, including providing advice without minimum income, asset or net-worth requirements and offering time-based planning services.

Before engaging an advisor, investors should review their credentials, regulatory filings, areas of specialization, compensation model and service offerings to determine whether they're a good fit for their personal financial situation.

The bottom line

When I asked Keener what continues to attract her to the Garrett Planning Network after nearly two decades of membership, her answer reflected the organization's mission.

She said Garrett members are committed to making objective financial advice available to a broader segment of the American public and helping consumers obtain the advice they need when they need it.

For investors searching for objective financial guidance, that commitment may be the organization's greatest strength.

In a marketplace crowded with salespeople, the Garrett Planning Network helps consumers find something increasingly rare: A professionally trained financial planner who combines fee-only compensation, fiduciary responsibility and a commitment to making financial advice accessible to everyone — not just the wealthy.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

I talk to a lot of 65-year-olds, and one of the biggest fears they have is making a mistake with Medicare. It's hard not to be afraid when you keep hearing well-intentioned, but conflicting advice such as:

• "You have to sign up for Medicare at 65."
• "You don't have to sign up for Medicare at 65."
• "You can change your Medicare insurance every year."

During my 20-plus years as a retirement-focused financial adviser, I've just about heard it all — some true, some false and just about all of it leaving near-65-year-olds wondering how they can figure it out in time.

Below are the five most common mistakes retirees make with Medicare and what you can do to try to avoid them.

What makes Medicare so different

Your health insurance choices used to be easy. Your work gave you two or three options and you chose the one that fit your family best.

Then you turn 64 and you get bombarded with advertisements in the mail touting how great a particular Medicare insurance plan is.

When I checked Medicare.gov's Plan Comparison Tool in September 2026, there were 81 different options near me in Wisconsin: 39 Medicare Advantage plans, 10 prescription drug plans and 32 supplement insurance (Medigap) options.

The number and types of plans available to you will depend on where you live.

With so much information and so many different plans, it's no wonder Americans keep making these five common mistakes.

Mistake No. 1: Assuming Medicare is automatic

Medicare feels automatic since many people enroll or get signed up for it at 65, but that feeling of "automatic" often turns into "I don't have to think about it" — and that's a big mistake.

Medicare enrollment generally is automatic if you've already been receiving Social Security retirement benefits for at least the four months before age 65. A few months before your 65th birthday, you'll get your Medicare card in the mail showing that you're enrolled for Part A and B.

If you have current employer-provided health insurance from a company with 20-plus employees, you may be able to delay starting Part B. Before you do, check with your employer to find out how your health coverage coordinates with Medicare.

If you're signed up for Part A and B automatically, that doesn't mean you automatically get signed up for other private Medicare insurance to pay for the gap between what Medicare covers and what Medicare pays.

You should still evaluate whether you're better off with Medicare Advantage or original Medicare with Medigap (supplemental) insurance — and you'll have to proactively sign up to get those coverages.

Mistake No. 2: Misunderstanding what counts as 'employer coverage'

Many people turning 65 think, "I don't need to sign up for Medicare. I already have insurance through my employer." It turns out they actually have retiree coverage, COBRA or even TRICARE from prior military service.

Retiree health insurance and COBRA plans are not coverage from your current employer. And TRICARE states that you need Part A and B to get TRICARE For Life.

If you have employer-provided health insurance based on your or your spouse's current employment with a company of 20-plus employees, you may be able to delay signing up for Medicare. That's true, and yet there's so much confusion around that.

Your "employer coverage" must be from active, current employment.

Retiree healthcare doesn't count as current employer coverage that could allow you to delay Part B. COBRA generally doesn't count either.

TRICARE states, "If you're eligible for both TRICARE and Medicare Part A, then in most cases, you must have Medicare Part B to keep TRICARE." (Emphasis added.)

Mistake No. 3: Confusing the different Medicare parts and choices

Medicare lists four different parts of Medicare, along with optional Medigap insurance, and points out the differences between Medicare and Medicaid. With similar names and so many parts, no wonder it's confusing.

Medicare Part A (hospital insurance) covers inpatient care in hospitals, skilled nursing facility care, hospice care and home healthcare.

Most people get Part A with no premium cost because they, or their spouse, qualified by working and paying Medicare payroll taxes for "40 quarters" — basically 10 years. Premium-free doesn't mean cost-free though. You can still have deductibles, copays and other out-of-pocket costs.

Medicare Part B (medical insurance) helps pay for doctor visits, outpatient care and preventive care, such as screenings, shots or vaccines, and yearly "wellness" visits.

Part B costs $202.90 a month, which is often a surprise to many retirees who think it's free. It can cost even more if you have a high enough income and must pay Income-Related Monthly Adjustment Amount (IRMAA) surcharges.

Medicare Part D helps cover the cost of prescription drugs.

Drug coverage is often part of a Medicare Advantage plan. But if you choose a Medicare Supplemental Insurance (Medigap) plan, you'll generally buy part D drug coverage separately, unless you have other creditable drug coverage.

Medicare Supplement Insurance (Medigap) helps you pay your share of the costs of original Medicare.

People often ask me, "What does Medicare Supplement cover?"

My answer is, "Medicare Supplement generally covers what Medicare covers, but it generally pays for many of the costs that Medicare makes you responsible for."

Medicare Part A has deductibles, coinsurance and copays that you are responsible for.

Medicare Part B has a deductible, after which you generally pay for 20% of the cost of the Medicare-approved amount for services Medicare covers.

That's where Medicare Supplement (Medigap) comes in, to help pay the costs of your healthcare that Medicare covers but doesn't fully pay. You could also choose a different route, called Medicare Advantage.

Medicare Advantage (also known as Part C) is an alternative to original Medicare. You get a "bundled" plan through a private insurance company that is Medicare approved and essentially brings your Part A, Part B and usually Part D coverages all together.

Many Medicare Advantage plans have low or even $0 monthly plan premiums, while Medigap policies generally charge a separate monthly premium.

However, those on Medicare Advantage generally must continue paying their Part B premium, along with deductibles, copayments and specific provider networks.

Mistake No. 4: Ignoring the potential extra costs of Medicare through IRMAA

Many people are surprised that Medicare Part B has a monthly premium. They expect the taxes they paid throughout their career to cover their Medicare in retirement.

What's even more surprising is when your income from two years ago causes you to pay extra for Medicare through the IRMAA.

I met a client recently who was upset that his Medicare premiums were higher this year than last year.

I discovered he had retired two years ago. His income from that year was high enough to go over the IRMAA threshold so that both his and his wife's Medicare premium was roughly double the normal amount.

Fortunately, you can appeal your extra Medicare costs through IRMAA, and "work stoppage" is one of the "life-changing" events Social Security will take into account.

My client had retired, and his income is now lower. So after the couple requested a new IRMAA determination based on his retirement and their reduced income, their combined Medicare premiums were reduced by roughly $5,000 for that year.

This client's IRMAA surcharge highlights how interconnected all the pieces of retirement are. Your added income in one year, from working or perhaps Roth conversions or stock sales, can affect your healthcare costs two years later.

Retirement isn't just about your Medicare decision and your investment decision, and your Social Security decision separately. It's about how each of these areas affect each other.

That's why I created a five-step retirement master plan to help all the pieces of retirement fit together, which you can find in my book Retire Today.

Mistake No. 5: Not re-evaluating your Medicare Advantage or drug plan each year

Each year during open enrollment from October 15 through December 7, I send a message to my clients encouraging them to review their Medicare Advantage or prescription drug plan for the following year.

By far, the most common response is, "Nothing changed for me this year, so I don't need to do this."

But here's the thing: Something may have easily changed. Your existing plan could have changed quite a bit.

Every year, your Medicare Advantage or Part D drug plan can change its cost, its network, its preferred pharmacy, its benefits, its provider list.

And even if your plan doesn't change one thing, all the other plans could change and you might be missing out on a better plan for you.

You may find another plan that better fits your healthcare needs, or your prescription drugs, providers and budget.

Whether you're on Medicare already, or getting ready for Medicare, follow these five steps to avoid big Medicare mistakes:

• File for Medicare at the right time
• Confirm how your current health insurance coordinates with Medicare
• Learn the different parts of Medicare and what they cover
• Understand how past income affects current Medicare costs — and whether you qualify for a reduction in those costs
• Re-evaluate your Medicare Advantage and drug plan options each year

Take these five steps before, and even after, you file for Medicare, and you'll feel much more confident in the Medicare decisions you make.

Related Content

• 10 Things You Should Know About Medicare Part D Plans
• Why Is My First Medicare Bill So High?
• Your 2027 Medicare Open Enrollment Guide: Essential Dates and Notices
• Claiming Social Security Soon? 5 Smart Moves to Make Before You File
• Retiring in the Next 12 Months? Answer These 3 Questions Before Your Paycheck Stops

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

We retired last year at 65 with $1.1 million, and our $6K monthly Social Security covers most of our expenses. I want to spend $80K on a pool so it's more fun for the grandkids to visit. My husband says it's a waste, and we can't afford it. Who's right?

When you have grandchildren, your mindset tends to shift. Things you never would’ve spent money on for yourself, or even your own kids, are suddenly purchases you’re willing to seriously contemplate.

Here, we have the example of a couple who can’t agree on whether a pool is a sound investment. With $1.1 million saved and an estimated cost of $80,000, a pool would eat up a little under 7.5% of their portfolio.

Is that too much to spend? Let’s see what our experts have to say.

The actual math probably works

Spending your entire retirement nest egg on a pool probably isn’t wise. Spending a portion of it is a different story.

Derilyn Freeman, a financial planner with Prudential Wealth Advisors, says, "If you were my client, I would tell you the question at hand is: 'Can you buy an $80,000 pool without it negatively affecting your retirement plans?' "

If the answer is "yes," then that answers the math problem.

Since our couple covers most of their expenses with Social Security, they’re probably withdrawing minimally from their savings. The question is, what sort of pressure does the pool place on their nest egg going forward?

"Let’s assume you withdraw the $80,000 for the pool, so now you have $1,020,000 left," says Freeman. "Let’s also assume you need an additional $1,500 per month for maintenance. That’s $18,000 per year, or about 2% that you’re withdrawing from your $1,020,000 in savings annually."

Freeman says high-yield savings accounts and CDs are paying 3% or more these days, which means even if all of your money was in savings and/or CDs, you could still see your account grow annually after withdrawing $18,000 for pool maintenance (assuming taxes and inflation don't outpace your conservative yields).

While these rates probably won’t stick around forever, you can shift into other stable assets, such as bonds, that could offer comparable returns.

"This tells me that you can afford a pool for $80,000 without it negatively impacting your retirement," she says.

To argue that case even more, pool rental marketplace Swimply puts the average annual cost of owning a pool at $3,000 to $6,000. If you’ll be outsourcing everything, you might need to estimate at the higher end of that range. But that’s well below Freeman’s much higher number, which may be more relevant to upscale pools.

Clearly, the math works. But another issue might be whether your husband can part with the money mentally.

"You and your husband are not alone in struggling to spend for enjoyment in retirement," Freeman says.

Prudential just released a survey on retiree spending confidence, and it found that most respondents feel guilty spending their savings on things they enjoy. Your husband’s pushback might stem more from fear or guilt than from worries about the math.

It's also possible that your husband just doesn't want a pool as much as you do. If so, you'll need to find ways to compromise. For example, you could opt for a cheaper above-ground pool that, with a custom deck, can be attractive. If your grandchildren are older and you live in a colder climate, they might be just as happy with an outdoor hot tub for winter chats and cold plunges in the summer.

Is a pool the best way to spend your 'fun bucket' savings?

With the math problem out of the way, Freeman says the next thing to focus on is whether a swimming pool aligns with your values and priorities.

"Think of your savings as a tool that you can use to build a life that reflects what matters most to both you and your husband," she says. "To me, this purchase reflects a priority on spending quality time with family and creating fun for the grandkids."

In other words, is a pool the best use of money you've set aside for family fun and bonding?

Freeman says, "There are other ways you could prioritize quality time with your grandkids, too, that do not include purchasing a pool."

If maintaining a pool, or making sure young children don't fall in it, feels overwhelming, you could put some of that money toward more flexible uses. For example, you could fund annual family vacations or cruises, stays at upscale national park lodges, or even an RV so you can visit the grandkids.

Also, just because you can afford pool maintenance doesn’t mean you want to deal with it. You should also know that, from a resale-value standpoint, a pool isn't necessarily a smart investment. You'll need to weigh additional swimming pool issues such as higher home insurance costs, safety fencing and energy bills for heated pools.

As Steve Azoury, a chartered financial consultant and owner of Azoury Financial, explains, "The $80,000 pool cost could be a good investment if it adds value to your home. However, sometimes pools in certain areas make homes harder to sell and can actually decrease a home’s value."

Geography could play a role in your decision. If you live in an area where you can use a pool year-round, it could be a smart purchase. But if you’re in a part of the country where the swimming season is only three months long, a pool may not be worth it. It also won’t solve the problem of what to do with your grandkids for the majority of the year when they visit.

That’s why Azoury, as does Freeman, says you should think about what you really want. If the goal is to get your grandkids to come over more often, you can find other activities to entertain them that could do the job at a fraction of the cost, without forcing you to maintain a feature you don’t otherwise use much.

But if you both decide a swimming pool is the backdrop you want for your family’s memories, go for it. You’ve earned it.

Read More

• 9 Upgrades That Transform Your Family Home Into a Retirement Oasis
• In-Ground vs. Above-Ground Pools: Which Is the Best Investment?
• We're 78 and Want to Use Our 2026 RMD to Treat Our Kids and Grandkids to a Vacation. How Should We Approach This?
• Our Children Want Us to Take Care of the Grandkids This Summer at Our Lake House. How Do We Say No?

AI became a larger part of our ordinary lives quickly.

We already had AI assistants like Amazon's Alexa and Apple's Siri. And in March, Amazon added a health assistant to its website that can read your medical records and book your appointments.

In May, Schwab gave retail clients a tool that summarizes why their portfolio moved. The technology turns up in the search bar and the banking app whether you asked for it or not. Schwab includes a disclaimer on their AI tool saying the output, "should not be construed as investment advice or recommendations and are for informational and educational purposes only."

A general-purpose chatbot like ChatGPT or Claude includes no such disclaimer when someone asks whether to pull $60,000 out of an IRA for a new roof and to replace windows.

Yet, people keep asking. A July J.D. Power survey found that 40% of respondents had sought help from AI to manage their personal finances. In the same survey, 34% said AI helps them make smarter financial decisions, 1 percentage point behind the 35% who said that about their own bank.

A chatbot answers in the same confident tone whether it has the facts or not, and it doesn't flag what might be left out.

The chatbot doesn't know:

• Your marginal tax bracket
• Whether the money sits in a traditional IRA, a Roth or a taxable account with a low cost basis
• How your state treats the distribution
• That a two-year lookback on your income sets your Medicare premium
• That your income will drop in 18 months when you move to part time
• If you have carryforward losses to utilize

None of those details, which can sway the answer completely, enter the conversation unless you introduce them. The chatbot answers the question that is asked, not necessarily the ones that are exclusive to your situation.

Sixty thousand dollars out of a traditional IRA arrives as ordinary income, and if the rest of your income already sits near a tax line, that money can push the total past an IRMAA threshold that resurfaces as a higher Medicare premium two years later.

The same $60,000 from a taxable account with a high cost basis might barely register on your tax return.

None of those details require the chatbot to be wrong. It's answering a loaded question for the general reader without the specificity and complexity of your personal situation.

Where AI helps

AI makes a good study partner and can prepare you for more productive meetings with your adviser.

For example, researching and learning about qualified charitable deductions (QCDs) at home saves time that doesn't have to be spent on explanations.

Other ways it can help include:

Translating documents. Paste in the section of your summary plan description that governs in-service withdrawals or the paragraph of an annuity contract that lays out the surrender schedule, and ask the chatbot to explain it in plain language. Those documents get written for compliance review rather than for you, the reader. Delegate the explanation to the chatbot.

Build a question list before the meeting. Provide the chatbot with three sentences about your situation and request questions you should ask your adviser. This will create an agenda for an efficient and productive meeting.

Argue the other side. Ask it to make the strongest case against a recommendation you've already received, including mine. The objections it raises are worth bringing to the person who made the recommendation.

Ask it what it does not know. Some version of "what would you need to know about my situation to answer this well?" returns insightful questions to consider.

One note to keep in mind. Account numbers, Social Security numbers and full statements don't belong in a general-purpose chatbot. Round numbers and account types give the tool everything it needs to be useful.

What's next

Forty percent of consumers have already taken a money question to AI, and that number is likely rising. There are smart ways to use these tools. Moving money on an answer that never had your full picture is not one of them.

The tools will keep improving, and more people will walk into meetings with better questions because of them.

Take the response for what it is, which is a starting point. Reading it against your own numbers is where we come in.

Related Content

• We Gave AI Chatbots 5 Financial Challenges. Here's How They Did
• If AI Is Doing More of the Work, What Are You Paying Your Financial Adviser For?
• More of Us Are Using AI for Financial Advice: Here's Where I'd Draw the Line
• AI Can Build a Budget, But Does It Know the Person Behind It? Why Your Financial Plan Will Benefit From the Human Touch
• Gen Z Thinks They Need $9.5 Million to Be Successful. Here's What Healthy Money Habits Actually Look Like

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The Social Security cost-of-living adjustment (COLA) for 2027 will be 3.6%, the Social Security Administration (SSA) announced Wednesday. The increase matches Kiplinger staff economist David Payne's final estimate of 3.6%, follows a 2.8% boost in 2026, and sits near the long-term historical average of 3.8% since automatic COLAs began in 1975.

According to the SSA fact sheet, the 3.6% increase will translate to an additional $75 per month for the average retiree. In January 2027, the average payment will be $2,170, up from the pre-COLA amount of $2,095. Married couples will see an average increase of $117, raising the average monthly benefit for couples to $3,355 from $3,238.

The 2027 COLA in context

The 3.6% COLA is 0.8% more than the 2.8% increase in 2026 and is close to the historical average of 3.8%.

Payne, economist for The Kiplinger Letter, was right on the mark and projected a 3.6% COLA, arguing that "high energy prices bleed into other categories." September's inflation numbers supported his conclusion. The Bureau of Labor noted in its press release that "the index for gasoline rose 9.1% in September, accounting for over half of the monthly all items increase" and that "the energy index increased 5.2% over the month."

Will this increase help retirees? "Retirees shouldn’t interpret a higher COLA as having more spending money. If their benefit rises 3% or 4%, it is because the prices used to calculate the adjustment have risen, as well. The objective is preservation of purchasing power, not an increase in purchasing power," Martha Shedden, co-founder of the National Association of Registered Social Security Analysts (RSSA), told Kiplinger.

Historic COLAs. The COLA hit a low of 0.0% in 2016 during a period of price declines but surged to 8.7% in 2023 when pandemic-fueled inflation peaked. The biggest COLA increase was 14.3% in 1980. That was also the same year the U.S. prime rate reached a record high of 21.50% on December 19, 1980.

Below are the three lowest and highest COLAs beneficiaries have received since the formula was implemented in 1975.

Earnings test when you receive benefits while working

Earned income can cost you if you continue to work after claiming Social Security benefits before your full retirement age (FRA). How? The Social Security earnings test for annual income is applied to your gross wages and reduces your monthly benefit. Bonuses, commissions and vacation pay also count as income for the earnings test.

The SSA does not count:

• Other government benefits
• Distributions from tax-deferred accounts, such as 401(k) or tax-exempt accounts, including Roth IRAs
• Investment earnings, including interest, dividends and capital gains
• Pension benefits, including Social Security benefits
• Payments from annuities.

How much SSA withholds. The SSA temporarily withholds $1 of your benefits for every $2 earned above $25,560 or $2,130 per month for 2027. This is an annual increase of $1,080 from $24,480 and a monthly increase of $90 from $2,040 in 2026.

In a year the worker hits FRA, the test is more generous — the worker forfeits $1 in benefits for every $3 in 2027 earnings above $67,920 or $5,660 per month. This is an increase of $2,760 and $230, respectively, over the 2026 earnings limits of $65,160 or $5,430 per month.

Social Security tax wage cap for 2027

Social Security caps the amount of income you pay taxes on and get credit for when benefits are calculated. The new Social Security tax limit is $192,300 in 2027, up $7,800 from $184,500 in 2026. The tax limit is indexed to inflation, so you can anticipate it will rise again in 2028.

How much you need to earn to qualify for Social Security credits in 2027

You must earn a minimum of 40 Social Security credits to qualify for retirement benefits, up to four credits per year. The SSA cannot pay you benefits if you don’t have enough credits.

The SSA also uses the number of credits you’ve earned to determine your eligibility for retirement or disability benefits, premium-free Medicare Part A and your family’s eligibility for survivor benefits.

To earn one credit in 2027, you must have wages and/or self-employment income of $1,970, and you must earn $7,800 to get four full credits. In 2026, you only needed to earn $1,890 to earn a credit, $80 less than what you need to earn in 2027. This amount increases annually and will rise in 2028.

How is the COLA calculated?

The Consumer Price Index (CPI-W) for Urban Wage Earners and Clerical Workers is the benchmark the SSA uses to determine the COLA, but that is a recent development. Initially, a new act of Congress was required each time benefits were increased.

However, the rapid and persistent inflation in the 1970s quickly eroded the purchasing power of fixed pensions and Social Security benefits. As a result, Congress enacted the COLA provision in the 1972 Social Security Amendments, and automatic annual COLAs began in 1975.

The COLA is now determined by the inflation observed in July, August and September in the CPI-W. The SSA calculates the percentage change between average prices in the third quarter of the current year (2026) and the third quarter of the previous year (2025).

This is the formula: (328.746 - 317.265 ) / 317.265 x 100 = 3.6%

Some proposals call for the COLA to be based on the Consumer Price Index for Americans age 62 or older (CPI-E), but they have so far failed. Proponents of using this price index argue that it reflects the costs older adults incur more accurately than the broader CPI-W. Medical expenses, an increasing burden on older adults, are weighted more heavily in the CPI-E than in the CPI-W.

However, the COLA applies not only to retirement benefits but also to disability and survivor benefits. A COLA geared toward older beneficiaries wouldn't necessarily address the needs of the other two groups.

Related Content

• Projected 2027 IRMAA Brackets and Surcharges for Medicare Parts B and D
• Medicare 2027 Projections: Here's How Much Your Monthly Premiums Are Estimated to Rise
• 8 Changes Coming to Medicare in 2027

Having a pension can provide a powerful foundation for retirement. If you also have significant savings, your planning challenges may look very different from those of the average retiree.

For many Americans, retirement planning revolves around one question: "Will I have enough money to last?" But what if you have a pension that will provide reliable income for life, and you've also accumulated $1 million or more in savings?

This changes the retirement planning equation. I know this because, as a CERTIFIED FINANCIAL PLANNER® professional and the founder and CEO of Peak Retirement Planning, I specialize in serving those with pensions and more than $1 million saved.

You may have more flexibility than you realize when it comes to investing, withdrawing money and managing taxes. At the same time, having a pension and significant assets can create planning challenges that are easy to overlook, particularly when it comes to required minimum distributions (RMDs), Roth conversions and your eventual legacy.

I call this group the 2% Club: People who have both a pension and substantial retirement savings (I even wrote a book about this group — you can request it for free).

Many also fit what I call the Midwestern Millionaire profile: Hardworking, frugal and diligent savers who spent decades prioritizing saving over spending.

If that sounds like you, congratulations. You've done the hard part. Now comes the part that requires a different kind of planning.

Here are seven areas to put on your retirement checklist. And if you'd like to watch a video about it, here you go:

1. Build an investment plan around your pension

One of the biggest mistakes I see is assuming that every retiree needs the same investment portfolio. You may have heard that retirees should simply use a traditional 60/40 portfolio, but there is no universal investment allocation that works for everyone.

A pension can significantly change your risk profile because it provides a source of income that isn't dependent on the performance of your investment portfolio. Think of your pension as one part of your overall retirement income picture, then ask:

• How much income will I need from my investments?
• How much of my spending will my pension cover?
• What are my goals for leaving money to my children or grandchildren?
• Do I have charitable goals?
• How much investment risk am I comfortable taking?
• How important is preserving principal vs maximizing long-term growth?

For someone whose pension covers most or all of their essential expenses, their investment portfolio may have a different job than it does for someone who depends heavily on portfolio withdrawals. That could mean taking more investment risk because you have a reliable income floor.

On the other hand, it could mean taking less risk because you don't need your portfolio to generate aggressive returns.

The key is that your pension should be incorporated into your investment strategy, not treated as a completely separate issue.

2. Pay attention to tax location, not just asset allocation

Once you have determined what you should own, the next question is: "Where should you own it?" Many retirees have money spread across several types of accounts:

• Traditional IRAs and 401(k)s
• Roth IRAs
• Taxable brokerage accounts

These accounts don't all receive the same tax treatment, which creates an opportunity to think strategically about tax location.

For example, if you have growth-oriented investments that you expect to appreciate substantially over time, holding some of those investments in a Roth account may allow that future growth to occur tax-free, assuming you follow the applicable Roth account rules.

At the same time, assets designed primarily for preservation or income may be candidates for tax-deferred accounts, depending on your broader strategy.

Your taxable brokerage account presents another opportunity. Investments that generate capital gains may receive different tax treatment than investments generating ordinary income.

Tax-loss harvesting can also potentially help offset capital gains and ordinary income, while a properly constructed portfolio may offer greater tax efficiency.

The point isn't that one type of investment always belongs in one particular account; it's that your investment and tax strategy shouldn't operate independently. Where you hold an investment can be almost as important as what you invest in.

3. Prepare for RMDs

If you have accumulated substantial money in traditional IRAs, 401(k)s or other tax-deferred accounts, RMDs deserve attention well before they begin.

Under current law, the applicable starting age depends on your birth year, with some individuals subject to RMDs beginning at age 73 and those born in 1960 or later generally beginning at 75.

For someone with a large tax-deferred balance, RMDs can become significant.

Consider a hypothetical retiree who is 60 and has $2 million in tax-deferred accounts. If those assets continue to grow for another 15 years, the balance could be substantially larger by the time RMDs begin.

This is where having a pension can create an unusual situation. Many retirees have been told that they'll automatically fall into a lower tax bracket after they stop working, but if you have a sizable pension, Social Security and substantial tax-deferred savings, your taxable income in retirement could remain high, or even increase.

Your pension provides valuable income, but it can also mean that you have less room to absorb large RMDs at low tax rates.

That's why planning for RMDs should begin years before the first distribution is required.

4. Consider whether Roth conversions make sense

Roth conversions can be one tool for addressing a large future RMD problem. The basic concept is straightforward: You move money from a tax-deferred account, such as a traditional IRA, into a Roth IRA and pay the applicable income taxes on the converted amount.

In exchange, the money can potentially grow tax-free in the Roth account, and qualified Roth IRA withdrawals are tax-free. The challenge is determining how much to convert and when.

Converting too much in a single year could push you into a higher tax bracket or trigger other tax consequences. Converting too little could leave you with a large tax-deferred balance and potentially larger RMDs down the road.

That's why I prefer to think about Roth conversions as a multiyear tax-planning strategy rather than a one-time transaction.

For retirees with pensions and substantial tax-deferred assets, the goal may be to create greater tax diversification by having money available in taxable, tax-deferred and tax-free accounts.

This diversification can provide more flexibility later. You don't necessarily know what your future tax rate will be, but you can give yourself more options by not having your entire retirement portfolio concentrated in one tax bucket.

5. Plan for the 'widow's penalty'

For married couples, retirement planning shouldn't stop at determining whether both spouses have enough money. You also need to ask: "What happens financially when one spouse passes?"

When a married couple file taxes jointly, they benefit from married-filing-jointly tax brackets and a larger standard deduction. After one spouse passes, the surviving spouse may eventually have to file as a single taxpayer, and at the same time, the surviving spouse may lose some income, depending on the pension and Social Security benefits involved.

This combination can create what is sometimes called the "widow's penalty." The surviving spouse could have less income but pay more in taxes. This is one reason tax planning should happen before a spouse dies.

For example, a married couple may want to evaluate whether Roth conversions or strategic withdrawals make sense while both spouses are alive and filing jointly.

And don't overlook the practical side of the equation. If one spouse has always handled the investments, taxes and financial decisions, what happens when that spouse is gone?

A successful retirement plan isn't just one that works mathematically; it needs to be a plan that the surviving spouse can understand and implement.

6. Don't overlook legacy planning

If you've accumulated significant wealth, retirement planning eventually becomes estate planning. That means making sure the legal documents supporting your wishes are in place and up to date.

At a minimum, review whether you have the appropriate documents, such as:

• A will
• Financial and healthcare powers of attorney
• Healthcare directives or a living will
• Beneficiary designations
• Appropriate trust arrangements, when applicable

But estate planning isn't just about determining who gets your money; it's also about determining how efficiently they receive it.

For example, inherited retirement accounts can have different tax consequences than inherited taxable investments.

Under current rules, many non-spouse beneficiaries who inherit retirement accounts are generally subject to the 10-year rule, meaning the account must be distributed within 10 years. This can create significant tax consequences for beneficiaries, particularly if they inherit a large traditional IRA and are already high-income earners.

State estate and inheritance taxes can also matter, particularly for retirees living in states with their own estate tax systems.

The more you've accumulated, the more important it becomes to look at your retirement and estate plans as one integrated strategy.

7. If you haven't retired yet, carefully evaluate your pension options

If retirement is still a few years away, don't wait until you're ready to walk out the door before examining your pension options. This is particularly important when evaluating survivorship options and lump-sum choices.

A pension may offer several ways to structure your benefit. You might have to choose between receiving a larger monthly payment for yourself or accepting a reduced payment that continues to a spouse after your death. There isn't one universally correct answer.

Your decision should consider your spouse's age, health, other income sources, assets, life expectancy and the amount of income they would need if you passed first.

In some cases, life insurance could potentially be part of the equation. In other situations, retaining the pension's survivor benefit may make more sense. And some households may have enough assets that they can effectively self-insure.

The key is to calculate the actual need. Don't spend thousands of dollars for a survivorship benefit simply because you're afraid of what could happen. But also, don't eliminate a valuable survivor benefit simply because you're trying to maximize your own monthly check.

The same principle applies to the lump-sum option. The attractiveness of taking your pension as a lump sum can depend on factors such as interest rates, the pension's financial strength, your investment strategy, your income needs and your legacy objectives.

It shouldn't be an emotional decision driven by fear; it should be a mathematical and financial decision based on your specific circumstances.

Having a pension and significant retirement savings is something to celebrate, but it also means you shouldn't necessarily follow generic retirement advice designed for someone with an entirely different financial picture.

Your pension may give you greater flexibility with your investment portfolio. Your savings may create opportunities for Roth conversions and tax diversification. Additionally, your higher retirement income may make tax planning even more important.

The biggest mindset shift may be this: Your goal isn't simply to avoid running out of money. If you've spent decades being a disciplined saver, you may actually have the opposite problem; you may need to learn how to confidently use the wealth you've accumulated.

That means planning not only for how to maximize your money, but also for how to maximize your life, purpose and experiences in retirement.

A successful retirement plan should answer more than "Will I have enough?" It should answer, "How can I use what I've built to live the retirement I actually want?"

Related Content

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• 8 Retirement Tax Strategies Your CPA Won't Tell You
• When Is a Roth Conversion a Bad Idea? 6 Situations Retirees Should Consider Carefully
• Why a Roth Conversion Is Wrong for Most People But Often Right for Pension Holders
• Many Retirees With a Pension and $1 Million-Plus Do These 7 Things (and Regret It Later)

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Would you like to leave a legacy to your children, grandchildren or other loved ones?

A trust fund will accomplish that, but you'd likely need to hire a lawyer to draw up documents. There also may be ongoing management fees that will reduce the amount your heirs will receive.

Unless you're leaving a vast estate, a trust fund is likely overkill. Simpler, cheaper ways to leave a defined legacy include cash-value life insurance, a 529 college savings plan and annuities.

All three have their advantages, but I'm going to focus on how different types of annuities can fund your legacy. (As founder and CEO of AnnuityAdvantage, I'm a retirement income expert.)

Income annuity keeps on giving

One of the better options, a lifetime deferred income annuity, is often overlooked. It's the only gift guaranteed to keep on giving for a lifetime. The vehicle converts a cash deposit into a stream of future income, much like a private pension.

Here's how it would work using a grandchild as an example. (It would work the same way for a child.) You would buy a lifetime annuity — also called a deferred income annuity — for your grandchild. It defers income payments until a future date that you choose.

Let's say your granddaughter is 10 years old. You make a $100,000 deposit. You decide to have payments begin when she reaches age 25 and continue for the rest of her life.

There won't be the normal 10% penalty the IRS levies on interest withdrawals before age 59½, because there's an exemption for systematic distributions over life expectancy.

As of mid-September 2026, when I was writing this article, one top insurer will guarantee a payment of $1,229.71 per month, with $1,083.37 of it taxable. If your grandchild lives to age 85, she would collect $885,391, including $785,391 in taxable interest plus tax-free return of the $100,000 of principal, over the payment term.

It's foolproof

An income annuity has no cash surrender value. Your grandchild or child won't be able to blow the money all at once on a fancy pickup or lavish vacation. And since he or she will receive a check from you every month, you'll be remembered fondly.

If you choose annual payments, you could have the electronic or paper check arrive each year on your grandchild's birthday or on Christmas, Hanukkah or another holiday.

The checks can increase if you add an inflation-protection rider so that the amount will go up over time. This option will help the recipients retain future purchasing power. However, it will reduce the initial payments.

Another advantage is tax efficiency. When income is received, only a portion of it will be taxable. This is because part of the income from this type of annuity is considered a return of principal, and part is considered earnings.

While earnings are taxed, return of principal is not. Once all principal has been repaid after many years, the payments will be fully taxable.

Guaranteed annuities with cash value also work

The drawback of an income annuity is that because there's no cash value, the child or grandchild can't tap it to pay for education or a home or anything else. Three types of deferred annuities — variable, fixed-rate and fixed-indexed — do offer cash value as well as income options.

Variable annuities offer growth potential but are not principal-guaranteed, so we'll focus on the other two varieties.

Multi-year guarantee annuities (MYGAs), the main type of fixed-rate annuity, behave much like a bank certificate of deposit (CD), paying a set, guaranteed interest rate for up to 10 years. Interest is tax-deferred until withdrawn.

Most MYGAs allow penalty-free withdrawals, sometimes up to 10% of the policy value annually.

Fixed-indexed annuities pay interest based on the performance of a stock market index, giving policyholders a portion of the index return. So they offer more growth potential than MYGAs.

However, when the market is down for the year, they normally pay nothing, but they never decrease in value. Therefore, the interest rate fluctuates markedly from year to year.

Indexed annuities usually also allow penalty-free withdrawals of a portion of the policy value.

Tax matters

To avoid tax problems, the child or grandchild should be listed as the primary beneficiary, not the owner of the policy. Then, upon the death of the policyholder, the contract value will be paid out as a death benefit and won't be subject to the 10% IRS early-withdrawal penalty. They will still owe standard income tax on the untaxed gains.

The beneficiary can receive a lump sum, but some insurers will charge surrender penalties and market-value adjustments for a full death-benefit payment if the contract is still subject to an early surrender penalty.

Other options for the beneficiary typically include various monthly payout options, such as lifetime payments.

An insurance company cannot pay a deferred annuity's death benefit directly to a minor. To name a minor as a beneficiary, specify a Uniform Transfers to Minors Act (UTMA) account, which designates a trusted adult custodian to manage the funds until the child reaches legal adulthood. An UTMA is easy to set up.

While others may give gifts that are soon forgotten, providing loved ones with an ongoing gift of income that will last for the remainder of their lives will ensure that you have created a legacy for yourself as well as a nice financial cushion for the younger generation of your heirs.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356. The firm also offers an income-annuity quoting service. There are no fees or charges for the firm's services; 100% of the client's money goes to work for them in their annuity.

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• Income and Life Expectancy Not Adding Up? An Annuity Could Solve the Equation
• Why Annuities Sometimes Sound Too Good to Be True

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Carlos, an experienced accountant based in Los Angeles, called me with a six-word question: "When should I claim Social Security?"

Then his Mexican pension pulled up a chair.

His final year of work sat down beside it. A planned move back to Mexico arrived, carrying two suitcases. The tax rules brought a calculator and no sense of humor.

Within minutes, Carlos's one question had formed a committee.

He had worked legally in the U.S. since 2009. His Mexican pension was expected to begin in January 2027. His initial plan was to continue working in the U.S. until approximately September 2027 and then return home to Mexico.

But even as an accountant, he struggled to navigate all the rules and scenarios of the Social Security Administration (SSA). He worried: Should he claim when the pension began, when work ended, after moving, at full retirement age or at 70?

Five dates. Each had an argument in its favor.

Carlos had come looking for a date. I needed to understand what he wanted that date to accomplish.

First confirm which choices are available

Before weighing the alternatives, I confirmed that Carlos qualified on his U.S. earnings record. We couldn't assume his Mexican work history would fill any gaps: The U.S.-Mexico Social Security agreement has not entered into force.

His remaining earnings also mattered. Claiming before full retirement age while still working could cause benefits to be withheld under the retirement earnings test.

SSA later adjusts the retirement benefit at full retirement age to account for affected months.

Fortunately for Carlos, his Mexican pension wouldn't trigger a reduction under the Windfall Elimination Provision (WEP) as it no longer applies to benefits payable for January 2024 and later. But overseas payment rules and tax residency still needed attention.

Those rules established the boundaries. They didn't choose a filing date for him.

The pension changed the question

Near the end of our conversation, I asked, "How much money will you need each month once you return to Mexico?"

"About $2,200," he said.

Carlos was single and already owned his home there.

"And how much will your Mexican pension provide?"

"The equivalent of $2,500 a month."

His expected pension exceeded his stated monthly budget by about $300, before adding any U.S. Social Security. We still needed to consider taxes, unexpected expenses and whether that budget would remain adequate over time. But the numbers changed the discussion.

Returning to Mexico and claiming Social Security were separate decisions. Once his pension began, he could consider going home, living on that income and delaying his U.S. benefit.

Delaying retirement benefits beyond full retirement age earns credits until age 70. That could give Carlos a larger monthly payment and, depending on his lifespan, greater lifetime benefits.

It was a reasonable option. Then he explained what the comparison had missed.

Waiting meant postponing generosity

"Ray, I was kinda thinking that if I had my Social Security money now, I could use it to take care of my family and friends."

For the first time, the committee went silent.

Carlos missed the people he loved. His parents had both died in their 60s. Many of the friends and relatives he wanted to return to were now in his age bracket. He didn't know how many years they would have together.

His parents' experience didn't predict his lifespan. It did help explain why a larger check years later held less appeal than the opportunity to help someone sooner.

An accountant understands that money has a time value. Carlos was also thinking about the value of time.

I quickly understood his real question: How much future income would he give up by claiming earlier, and was using that money sooner worth the trade-off to him?

That required calculation. It also required listening.

Give the math the right assignment

I explained that a complete individualized analysis could compare the filing dates, incorporate his remaining earnings and quantify the differences. The pension's apparent ability to cover his budget didn't make the alternatives financially identical.

It gave him room to weigh something beyond basic bill-paying.

My responsibility was to help Carlos understand the consequences of each choice. The largest number on his Social Security statement wasn't a commandment.

You don't need a foreign pension to face a similar decision. You might want to retire while a spouse is healthy enough to travel, reduce work to care for a parent or preserve dependable income for your later years.

Start by describing that objective. Then compare realistic claiming dates using your spending needs, other income, taxes and family circumstances. Include a longer-than-expected life in the analysis.

Wanting to enjoy the present doesn't eliminate the need to finance the future.

Carlos's pension gave him an option worth exploring. His wish to help people explained why he valued it.

A financial analysis could estimate the price of claiming earlier. It couldn't calculate the value of generosity delivered on time. The most useful question we discussed wasn't printed on his benefit statement: What is the money for?

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

For years, retirees were told that saving $1 million was the benchmark for a comfortable retirement. Today, that number feels increasingly outdated, and recent studies bear that out. Americans now believe they will need nearly $1.5 million to retire comfortably.

Rising costs, longer life expectancies and market uncertainty have left many retirees wondering whether they'll outlive the money they spent decades building.

That fear is only becoming more common. Whether you're a young saver just starting your career or on the brink of retirement, the worry is less about if you can retire and more about if you've saved enough to maintain your current lifestyle.

The real retirement problem isn't always saving — it's spending

One of the biggest retirement planning mistakes people make is that they assume that their spending habits will remain the same or decrease in retirement; in reality, they might increase. Their lifestyle no longer matches what their savings can support.

High earners typically struggle with this more than most. They were used to increased spending during their working years, but once the paycheck stops in retirement, they're met with a rude awakening.

I've seen many retirees struggle with this problem throughout my career. Rarely is the issue about whether they saved enough, but whether they can live on the income their savings generate. That's why I believe it's important to find ways to replace the paycheck you've lost.

Replacing your paycheck

If you're no longer receiving monthly income from an employer, how do you replace it?

For many, Social Security alone won't be enough to cover essential living expenses. The answer lies in building a retirement plan around guaranteed income first and investment growth second.

Utilizing guaranteed income sources, such as annuities, allows the rest of your portfolio to remain invested in the stock market for growth and added flexibility.

This approach can reduce the emotional stress that often comes with relying entirely on the stock market for retirement income. All it takes is one bad year in the markets to potentially threaten the longevity of your money.

Creating multiple sources of income

Annuities are designed to address those fears directly. Think of an annuity like a self-funded pension. Instead of a company paying into a retirement savings vehicle, you're the one funding the investment. You contribute funds to the annuity, and in exchange, an insurance company promises to pay you a certain amount of money for a set period, depending on the type of annuity you purchase.

This predictable income stream can help cover basic living expenses such as housing, healthcare and utilities, replacing the paycheck you lost once you stopped working.

Annuities tend to be a safer investment because the value never goes down due to market conditions. It reduces the need to sell investments during downturns or worry about whether one bad year in the market will hurt your monthly cash flow.

The other portion of your money should stay invested in equities and other growth assets for discretionary spending and long-term opportunity.

Don't miss your window; plan early

Like many things in life, timing matters. I recommend people start building their retirement income plan about three to five years before retirement. That window gives you time to structure income strategies, evaluate expenses and prepare assets for the transition from accumulation to distribution.

Planning early gives you more flexibility and a better sense of whether you're on track to retire when you want. Instead of wondering whether you can afford to retire, you can start envisioning how you want to spend your time and what you want to do in your golden years.

Interest rates and opportunity

The current interest rate environment has also created a unique opportunity for retirement income planning.

While consumers often associate higher interest rates with expensive mortgages and credit cards, higher rates can also improve payouts on certain guaranteed income products such as annuities.

When interest rates were hovering near historic lows a few years ago, retirement income payouts were far less attractive. Today, higher rates have significantly changed the math for some retirees looking to create predictable income streams.

The bottom line: Retirement confidence comes from income security

Retirement planning isn't about hitting a magic savings number. It's building a strategy that aligns with the life you want to live.

1. Start planning three to five years before retirement. Create an income strategy before leaving work.

2. Build your retirement around income, not just portfolio size. Focus on replacing your paycheck to ensure essential expenses are covered.

3. Understand if your retirement can support your current lifestyle. If they don't match, make the appropriate adjustments to ensure your savings last.

The retirees who most often struggle are those who focus only on growing their money, without a plan to turn that money into predictable income, should market volatility strike.

On the other hand, the retirees who feel most confident know exactly where next month's paycheck is coming from, even if they no longer work for one.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As someone planning for the future, protecting your health and savings is likely at the top of your list.

The cost of healthcare, especially long-term care, can quickly erode even a substantial nest egg. While Medicare provides vital health coverage, it has limits — particularly when it comes to long-term custodial care such as nursing homes.

That's why many people are turning to a tool called a Medicaid Asset Protection Trust (MAPT) to shield their assets while maintaining access to Medicare and Medicaid benefits.

What is a Medicaid Asset Protection Trust?

An MAPT is a specialized legal arrangement designed to protect your assets and help you qualify for government healthcare programs.

Unlike a straightforward will or a general trust, an MAPT is specifically crafted to help people navigate the complex rules surrounding Medicare and Medicaid eligibility.

At its core, the MAPT moves selected assets out of your personal ownership and places them into a trust.

This legal shift can reduce your countable assets when government agencies evaluate your eligibility for Medicaid's long-term care benefits, while still allowing you — or someone you trust — to manage and use the assets for your benefit.

Why is this important?

Medicare offers excellent coverage for hospital stays and certain medical services but provides limited support for long-term custodial care, the kind of ongoing help many people need as they age.

Medicaid, on the other hand, covers long-term care costs but comes with strict eligibility rules — especially regarding your assets.

Many retired people face a harsh choice: spend down their savings to qualify for Medicaid or pay out-of-pocket for costly long-term care. An MAPT offers a third, smarter option. Here's why:

Preserve your savings. The MAPT can protect your life savings, your home, investments or other assets from being fully spent on nursing home or in-home care. This gives you peace of mind knowing your financial legacy is secure.

Ensure eligibility for Medicaid benefits. By placing assets in the trust, you reduce your personal resources in the eyes of Medicaid without losing control or access to those assets. This helps you meet Medicaid's asset limits more easily and quickly, ensuring you get the care you need.

Maintain control of your finances. Contrary to popular belief, creating an MAPT doesn't mean you lose all control. Depending on how the trust is set up, you can still access funds for your care and daily expenses or appoint a trusted family member to manage the trust in your best interest.

Avoid probate and promote privacy. Assets held in a trust often bypass the lengthy probate process, allowing your heirs to avoid court delays and maintain confidentiality about your estate.

Plan ahead to avoid a crisis. Establishing an MAPT before a health crisis strikes is crucial. Medicaid has a "look-back" period (usually five years), scrutinizing any asset transfers made before applying for benefits. Proper planning can help navigate these rules and prevent costly penalties.

Until you provide every receipt, distribution and bank statement for all transfers predating the application for Medicaid benefits for the prior five-year period, you are responsible for paying the costs of care.

Who should consider an MAPT?

If you have assets such as a family home, savings or investments, and you anticipate needing long-term care, an MAPT might be a valuable part of your estate planning.

It's particularly beneficial if you want to protect your wealth for children or other heirs while ensuring access to government healthcare assistance.

Consult an experienced elder law attorney

Navigating Medicare and Medicaid rules can be complicated and varies by state. An elder law or estate planning attorney familiar with local regulations can guide you in creating an MAPT tailored to your situation, ensuring compliance and maximizing your benefits.

An MAPT offers people a strategic way to protect assets, maintain access to Medicaid long-term care benefits and plan without exhausting their savings.

It's a safeguard that balances financial security and healthcare needs, helping you maintain control, dignity and peace of mind as you age.

If protecting your assets while qualifying for government healthcare assistance is a concern, now is the time to explore whether a Medicaid Asset Protection Trust fits your retirement plan.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Dear Wealth Wise: My 72-year-old wife and I are retired with a net worth of around $10 million. About $3 million is in real estate, including a rental house that provides $1,500 a month in net income and has a $180,000 mortgage. We own a home and a vacation home outright. Our investment portfolio is aggressive. We have $3.8 million in IRAs, another $850,000 in Roths and $900,000 in a generation-skipping trust of which I am the trustee. We get about $9,600 a month in Social Security, pension and annuity payments. We have $800,000 in non-tax-deferred accounts, including $150,000 in cash accounts. My philosophy is that we have enough money to never have to worry, so I’m investing for my heirs. Therefore, we’re heavily invested in mutual funds and ETFs, some of which are fairly aggressive. Is this OK?
— Legacy Builder

Dear Legacy Builder: Retirees are often encouraged to reduce portfolio risk. The logic is that when you’re tapping your portfolio for income, you don’t want to be in a position in which you have to take losses on stocks or other assets to pay the electric bill or put food on the table.

Here, we have a wealthy couple who are still investing aggressively, but for a good reason. Are they taking on too much risk? Here’s what our experts have to say.

'Risk' is all relative

A stock-heavy portfolio can be dangerous for retirees with limited income outside of it. That’s not the case here, which is why Phillip E. Battin, president and CEO of Ambassador Wealth Management, says he’s not particularly worried.

"With about $10 million in net worth and $9,600 a month in combined Social Security, pension and annuity income, they indicate their income needs are met," he says.

"There is a risk that the current renters don’t renew their current lease, or that the couple will have trouble renting the home in the future," he continues. However, it doesn’t seem as if our couple is particularly dependent on that income. They could probably unload the rental home if needed and use the proceeds to generate income another way.

As such, Battin doesn’t think our couple’s stock holdings sound too risky. However, he cautions, investing "aggressively" doesn't have to mean taking an overweight position in technology or speculative investments.

Robert Jeter, CFP and financial planner at Back Bay Financial Planning & Investments, agrees.

"I would be careful conflating 'aggressive' with asset allocation vs speculating," he says. "Higher-net-worth individuals tend to have extra confidence in deviating from simple investment strategies, costing themselves money. The best course can be to remain aggressive from an allocation standpoint, but simplify the investment strategy to reduce tracking error and tax drag."

Focus on tax efficiency

When you’re a couple with a roughly $10 million net worth who's focused on passing down a legacy, tax optimization becomes extremely important, which is why Jeter says this couple needs to allocate assets properly.

"Your most aggressive investments should be in your taxable and Roth accounts, while any conservative investments [should] be in your deferred accounts," he says.

Battin agrees. "With the assets outside the retirement accounts, they may want to consider investing those aggressively to take advantage of the step-up in cost basis upon their passing," he says.

Speaking of inheritances, Brandon M. Cox, CFP and founder at Coastline Complete Wealth, says this couple should not overlook the benefits of a Roth conversion.

"The tax brackets today may be as friendly as they will ever be for you or your heirs," he says. "I would absolutely be looking at whether it makes sense to start converting some of that IRA money to Roth."

As he explains, if either our reader or his wife outlives the other by a substantial amount of time, that IRA eventually gets taxed at the much less favorable single tax brackets.

"Then," he says, "whatever is left could go to your children, who generally will have to empty inherited traditional IRAs within 10 years. They may be taking those distributions in their 50s or 60s, right in the middle of their peak earning years, and stacking that IRA income on top of everything else they already earn."

By doing a Roth conversion, Cox explains, "you may actually have an opportunity to pay less tax on some of that money today than you, your surviving spouse, or your children will pay on it in the future."

Have a spending plan, and make sure you can handle market dips

Given our couple's net worth, it's easy to see why they say they have "enough money to never have to worry." But to figure out an appropriate investment strategy, you first need to understand their spending and emotional needs, says Chris Berkel, president and founder of AXIS Financial and an investment adviser.

"Risk tolerance, practically speaking, is made up of two components — ability and willingness to accept risk," he says. "The most common way to assess ability is through a robust financial plan, and so to help this gentleman and his wife, we really need to understand his spending goals."

As Berkel explains, if our reader and his wife spend $150,000 a year, their situation is very different than if they’re spending $400,000 a year. If their guaranteed income can’t fully support their near-term spending without using their invested assets, their ability to handle a stock market downturn might be more limited.

If our couple relies at all on their aggressive assets for near-term needs, they might want to rethink that part of their plan.

Berkel further explains that willingness to accept risk is typically "emotionally driven."

"Some people are the go-get-'em type and will gladly accept a 50% loss to maximize their longer-term gains," he says. "Other people like to be steady, and even a 10% drawdown can have them waking up in the middle of the night."

If our reader thinks he and/or his wife will struggle emotionally during market downturns, they might want to reduce at least some risk, even if they don’t need to spend the money soon and want to leave it to their heirs.

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our writers and experts in this advice column are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial adviser regarding any questions you may have in relation to the matters discussed in this article.

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More than one-third of Americans (37%) plan to make a change to their portfolio or investment strategy this year.

That's according to New York Life's Wealth Watch 2026 Midyear Outlook. It is not hard to see why. Inflation, interest rates, market volatility, the boom of generative AI and a steady run of unsettling headlines have left many investors feeling they should do something different with their money.

The instinct is understandable, but acting on it without a detailed financial plan can be costly, and your portfolio is only one part of your strategy.

Changing your portfolio can be one of the smartest moves you make, or one of the most damaging. The deciding factor is rarely the market itself. It's whether the change reflects your long-term strategy or reacts to short-term noise.

Before you rebalance or reallocate, here is how to tune out the distractions.

Know what is driving the urge

Begin by naming the pressure you feel, because the trigger for a portfolio change is not always the same as the source of financial stress. Headlines and market swings could prompt the urge to act, but our data show that day-to-day costs are weighing more heavily on many investors.

Higher costs of living topped the list of financial concerns, cited by 61% of respondents, while market volatility was named a top concern by just 15%.

In other words, many people feel the squeeze most directly through groceries, housing and gas, even if market news is what gets their attention.

That distinction counts, because pressure on your monthly budget likely calls for a change to how you spend or save, not how you invest.

Avoid two common mistakes

When people act, they tend to err in one of two directions.

The first is to overreact: Chasing last year's winners, trying to time the market or making decisions based on whatever is trending. Today, that often means turning to technology for answers.

In our survey, 13% of people said they research financial topics with generative AI. These tools can help with education, but they might not know your full financial picture, including your goals and your timelines.

The second mistake runs the other way: Doing nothing. About 29% of people told us they took no action in response to factors affecting their finances.

Paralysis and panic look different, yet they often share a root cause: the absence of a strategy.

Run every change through five lenses

Whether you manage your own investments or work with a financial adviser, test any proposed change against five questions before you act.

1. Does it serve your long-term goals? A portfolio move should ladder up to something specific, such as a retirement date, a home or a college fund. If you can't explain how a change advances a goal, treat that as a warning sign.

2. Does it match your risk tolerance? Adjusting your asset allocation — the mix of stocks, bonds and other holdings — is the change that most directly reflects your comfort with risk. Any shift should reflect how much volatility you can absorb, not how you feel this week.

3. What are the tax consequences? Taxes are an often overlooked cost of trading. Selling an appreciated asset, moving money between account types or realizing gains can trigger a bill that erases the benefit of the change. Model the after-tax outcome before you trade.

4. Are you diversified and protected? A resilient plan involves more than the assets you hold. Insurance and guaranteed income belong in the same conversation as your investments. Diversification and protection are what keep a single bad year from derailing an entire plan.

5. Will it hold up against your retirement income needs? This is where changes get personal. Any change you make today should be judged against the income you'll need to generate for decades, not against this year's return.

The case for working with a financial adviser

If this data holds one lesson, it is that the investors who feel most confident about their money are the ones who aren't going it alone. Close to a third (30%) of American adults say they don't have a strategy. Among people who work with a financial adviser, however, that figure is 5%.

That gap follows through to financial confidence: 44% of those who work with a financial adviser are very confident their retirement savings will last the rest of their lives, against 24% of adults overall.

Across nearly every measure of preparedness we track, from emergency savings to debt to retirement readiness, the advised group runs roughly one and a half times ahead of the general population.

None of this means advice does the work for you, and it doesn't mean sitting still. People who work with a financial adviser are more likely to plan portfolio changes this year, not less: 44% vs 37% of Americans overall.

That's the point. A financial adviser gives you a framework for deciding when to change course and how — based on a full picture of your financial life.

Should you make changes to your portfolio this year? Perhaps. If a change reflects your goals, your timeline and your tolerance for risk, it might be the right move.

If it reflects a headline, an app or the knot in your stomach, treat that as your signal to pause and consider talking it through with a trusted financial adviser before you act.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

More retirees are asking AI the money questions they used to ask financial advisers.

The appeal is obvious. AI chatbot answers arrive in seconds, nothing is embarrassing to ask, and it costs nothing. The problem is that a wrong or incomplete answer looks exactly like a right one.

This guide explains why AI gets retirement questions wrong and provides seven steps you can use to check an answer before you act on it.

Why AI gets retirement numbers wrong

A chatbot does not look anything up. It was trained on a large body of text gathered up to a cutoff date, and it answers by predicting which words most plausibly come next. When it states a figure, it is reproducing what appeared most often in that text — it's not reading a current government page.

Retirement rules are badly suited to that, because most of the important numbers change every year.

Contribution limits are the clearest case. For 2026, the amount that can go into a 401(k) rose to $24,500, and the IRA limit to $7,500. A year earlier, they were $23,500 and $7,000. A model trained before that announcement would provide last year's figures with complete confidence, and nothing in the phrasing would suggest the numbers are stale.

Other figures can be changed by legislation, after the former figure has circulated for years. For example, the age when retirees must start taking required minimum distributions (RMDs) used to be 70½, then it was 72, then 73, and it reaches 75 in 2033. All four ages appear across the internet, usually with no date attached.

Basically, AI handles concepts reliably and specifics unreliably. The seven steps below are built around that split.

Step No. 1: Check the year on every number

Any answer containing a dollar amount, an age, a percentage or an income threshold needs a date attached before it is worth anything.

Ask the chatbot directly which tax year the figure applies to. When asked, a chatbot will often admit its information may be outdated, even though it volunteered the number without hesitation a moment earlier.

Consider any figure with no year attached suspect.

Step No. 2: Ask which agency sets the rule

This is the one question a chatbot answers reliably, because it is a concept question rather than a numbers question.

Information about contribution limits, RMDs and tax treatment should come from the IRS.

Benefit amounts and claiming ages should come from the Social Security Administration.

Information about Medicare premiums and income surcharges (IRMAA) should come from Medicare.gov and the SSA.

Pension rules sit with the Department of Labor.

Knowing which agency oversees the rule turns vague verification into a single page to open.

Step No. 3: Verify at the source

Once you get an answer from a chatbot, go to the agency's own site rather than simply reading a summary. For example, federal agency pages will state which year a figure applies to.

Skipping this step could be expensive. Missing an RMD triggers a penalty of 25% of the amount that should have been withdrawn, reduced to 10% if corrected quickly.

On a $40,000 distribution, that is $10,000 for a deadline a chatbot might have gotten wrong.

Step No. 4: Feed it your own circumstances

A chatbot answers in generalities unless you provide specifics.

Supply the details that actually influence the outcome: Age, types of accounts, pension income, state of residence and marital status, including whether your spouse has their own earnings record. (Never provide details that are personally identifiable, though.)

Then compare the answer with the answer you get when you provide none of those details.

If the response barely changes, then the advice for your particular situation cannot be trusted.

This matters most when it comes to thresholds. Medicare's IRMAA works as a cliff rather than a gradual increase — income above $109,000 in 2026 for a single filer and $218,000 for a couple.

A chatbot that suggests you do a Roth conversion without making any reference to IRMAA can lead to you facing four figures in annual premiums two years later (since IRMAA is based on your income two years ago).

Step No. 5: Ask the same question twice

Pose the question again in different words, ideally on a different day, and see whether the original response holds.

Then change one detail, such as adding five years of age or removing pension income, and check that the answer moves in a direction that makes sense.

Answers that swing wildly when you rephrase the question are being generated, not recalled. When two responses conflict, the tie gets broken by checking the relevant agency's page, not by asking the chatbot a third time.

Rawad Baroud, CFO of ZeroGPT, says that consistency should never be confused with accuracy when evaluating AI-generated information. "Generative AI can produce an answer that is clear, detailed and convincing without having verified the facts behind it.

"Asking the question again can expose inconsistencies, but getting the same answer twice doesn't prove it is correct. For financial information, the final check still needs to be against an authoritative source."

So use repetition as a warning system, not as proof of accuracy. Whether the answers are different or the same, you should always verify any important numbers or rules.

Step No. 6: Ask what it left out

Chatbots answer the question asked and rarely flag what sits outside it.

Two prompts do most of the work here:

• Ask what assumptions the answer depends on
• Ask what would make this the wrong move

A recommendation to convert to a Roth, for instance, should surface the tax due this year, the effect on Medicare premiums and the five-year rule before it counts as complete.

According to Gregor Emmian, deputy chief growth and finance officer at Rise, "The most dangerous AI answers are the ones with no caveats attached. If a chatbot tells you to convert to a Roth or claim (Social Security) early without mentioning what could go wrong, that's not a complete answer — it's half of one.

"Retirees should treat 'what am I not being told?' as a mandatory follow-up question, not an optional one."

An answer that mentions no downside is incomplete — every retirement decision requires tradeoffs.

Step No. 7: Consult an adviser when an irreversible decision is involved

Some actions cannot be undone once you do them. Claiming Social Security, converting a large sum to a Roth, buying an annuity or taking a pension as a lump sum all belong in that category.

The cost of a wrong turn here is permanent. Claiming Social Security at 62, for someone whose full retirement age is 67, reduces the monthly benefit by about 30% for life, and that reduction extends to the survivor's benefit.

On a $2,400 benefit, it is roughly $720 a month, or more than $8,600 a year, for as long as either spouse lives.

For anything in this category, print the chatbot's answer and take it to an adviser or accountant. Ask which parts are wrong and why.

That conversation will be quicker and less expansive than one you start from nothing, and it puts the specifics in front of someone who can be held responsible for them, which no chatbot can.

The bottom line: If you're using AI this way, the main thing you should keep in mind is that the moment an answer sounds the most authoritative is the moment when you should question its accuracy and explore further, preferably through the relevant agency.

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• An Expert Guide to Your Financial Priorities Decade-by-Decade: What to Focus on in Your 30s, 40s, 50s and 60s

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.