What I’ve Learned in 30+ Years of Studying Retirement
In more than 30 years of researching, writing, and advising about Retirement and Retirement Planning I’ve learned that a key to a successful retirement is an open, inquisitive mind. That’s because almost everything about retirement finances changes over time.
I could fill a book with only the changes to both income taxes and Estate taxes over my career. One important change many people overlook is the Growth of what I call the Stealth Taxes, tax code provisions designed to raise taxes without raising tax rates.
Some key Stealth Taxes are the inclusion of Social Security benefits in gross income at certain income levels (the benefits used to be tax free) and the higher Medicare premiums imposed on higher-income individuals, also known as IRMAA or the Medicare premium surtax. Required minimum distributions and other rules about retirement plans also are among the other Stealth Taxes.
Stealth Taxes tend to be directed at or have their primary effects on retirees. They’re likely to be a major tool in Congress’s future attempts to close budget deficits and pay debt. Retirees and pre-retirees who don’t keep up with the changes leave a lot of Money on the table for the IRS and reduce their families’ after-tax income and wealth.
Medicare is a key to the financial Security of older Americans. Because it’s complicated and changed a lot over the years, many retirees choose Medicare and related insurance that aren’t optimum for them and learn about it too late.
Medicare is likely to change more as the Baby Boomers age and the program threatens to take a growing share of GDP and the federal budget. Retirees who don’t keep up with Medicare changes risk denial of the care they want and an increase in unexpected out-of-pocket medical expenses.
That’s only the tip of the iceberg. Numerous changes occurred in long-term care and insurance to cover it, annuities, estate planning, ways to tap home equity, and the investment markets.
Retirees and pre-retirees need to pay attention to more than the formal changes in these areas. On a regular basis, research and analysis develops new strategies or frameworks that lead to better decisions than the older rules of thumb and short cuts. For example, research cast doubt on long-time planning short cuts such as you’ll spend about 80% of pre-retirement income during retirement, you should defer taxes for as long as possible, your tax rate will decline in retirement, and more.
As the sign on the desk of my high school chemistry teacher said, “The only constant is change.”
It’s important to establish a plan for retirement, but that plan shouldn’t be considered set for life. It’s important to review the plan regularly and compare its assumptions with actual developments. The plan has to be adapted to changes in circumstances as well as changes in the laws, regulations, structure of retirement, and the latest objective, independent research.
The frequency of changes seems to have increased in recent years, and the significance of the changes seem to increase each year.
More importantly, it appears that we’re entering a period that will see explosive changes to retirement Finance. I think we’re going to see the fastest-occurring and most significant series of changes in retirement finance we’ve seen in a long time.
The cumulative effects of these changes are likely to be so significant that the mid-2020s are shaping up to be the most difficult time to be retired. It could be an especially tough time time to enter or be in the early years of retirement.
Retirees and pre-retirees need to be on top of the changes, increasing financial security and independence while others worry.
High investment returns overcame a lot of retirement finance mistakes and oversights the last few decades. I think that’s coming to an end. Retirees and pre-retirees need to “rev up their retirement plans” by focusing on the non-investment issues of retirement planning.
Your retirement will be more secure when you take a comprehensive view. Decide the optimum time to claim Social Security benefits. Choose the best Medicare plan for you and revisit the decision every year. Establish a plan to pay for any long-term care you might need. Create a plan to turn your retirement savings into regular cash flow and adapt the plan to changes in inflation and the markets. Minimize income taxes by engaging in tax planning all year. Have a plan to use your home equity in case it’s needed. Married couples need a plan for the solo years, after one spouse passes away.
Be ready to adjust and adapt your plan as needed. Don’t think that once a plan is developed, it’s set in stone. Too often, I run into people who say, “Well, I’ve been retired for a few years now. There’s not much I can do now.” You always need to be looking for outside factors and changes that could upend your plan or create opportunities. They’ve been happening regularly and are likely to happen more frequently in the coming years.
