Tag: Retirement

Want to Retire Early? Do These 5 Things First

Posted on by Brian Colvert

5 Things to Consider Before You Retire Early

The idea of retiring early can be incredibly appealing. More freedom. More time with family. More travel. More control over how you spend your days.

But deciding to retire early involves much more than reaching a certain number in your investment accounts.

You also need to understand how retirement could affect your taxes, Social Security benefits, healthcare costs, and investment strategy. Perhaps more importantly, you need to decide what you actually want your retirement years to look like.

Before you leave work behind, here are five important questions to consider.

Keep reading, or if you prefer to listen or watch… check out the Podcast or full YouTube video.

1. Is Your Time More Valuable Than Earning More Money?

One of the hardest parts of retirement planning has nothing to do with spreadsheets. It comes down to deciding when you have enough.

Many people spend decades focused on accumulating wealth. They reach $1 million and want $2 million. They reach $2 million and start thinking about $5 million.

There is nothing inherently wrong with continuing to build wealth. However, there comes a point when the value of another dollar may matter less than the value of another healthy year.

We regularly see this contrast with retirees.

Some clients retire early without enormous portfolios and create fulfilling lives around travel, family, hobbies, and experiences. Others have more than enough money but continue postponing the things they say they want to do.

As people get older, their regrets rarely center around not working longer. More often, they wish they had traveled while they were healthy, spent more time with family, or enjoyed the freedom they had worked so hard to create.

If you want to retire early, start by asking a different question.

Instead of asking, “How much more can I accumulate?” ask, “What do I want this money to allow me to do?”

That answer can change the entire retirement conversation.

2. Should You Delay Social Security?

Retiring early does not necessarily mean claiming Social Security immediately. In many situations, delaying benefits can increase the amount you eventually receive each month.

That creates an important planning opportunity.

If you retire before claiming Social Security, you may be able to fund your lifestyle from other assets for several years while allowing your future benefit to grow. The right strategy depends on your assets, income needs, health, longevity expectations, and tax situation.

For someone with significant assets in an IRA or 401(k), delaying Social Security may also create an opportunity to strategically draw down tax-deferred accounts before other income sources begin.

There is no universal “best age” to claim Social Security.

The goal should be to coordinate Social Security with the rest of your financial plan rather than making the decision in isolation.

3. Take Advantage of the Tax Window After You Retire Early

The years immediately after retirement can create one of the most valuable tax-planning windows of your life. Your salary disappears, but required minimum distributions may still be years away.

That gap can potentially put you in a lower tax bracket than you experienced during your working years or may experience later in retirement.

This period may create opportunities for strategies such as Roth conversions.

For example, you might intentionally move money from a traditional IRA or 401(k) into a Roth IRA while your taxable income remains relatively low.

You will owe taxes on the conversion today, but the tradeoff may be worthwhile if it reduces future required distributions and creates more tax-free assets later.

That does not mean converting as much as possible.

Large conversions can push you into a higher tax bracket and potentially increase Medicare premiums through IRMAA once Medicare becomes relevant.

Good planning requires looking several years ahead.

Sometimes paying more tax today can reduce your lifetime tax bill. Other times, waiting makes more sense. You need to run the numbers.

4. Plan for Healthcare Before Medicare

Healthcare often becomes one of the biggest surprises for people who retire early.

Medicare generally does not begin until age 65.

If you stop working before then, you need a plan for covering the gap between employer-sponsored health insurance and Medicare eligibility.

That gap could last one year, three years, five years, or longer depending on when you retire.

Options may include coverage through the health insurance marketplace, a spouse’s employer plan, COBRA in some situations, or using available savings and HSA funds to help cover eligible healthcare expenses.

Whatever option you choose, build those costs into your retirement projections. Do not simply assume healthcare will work itself out.

Premiums, deductibles, prescriptions, and out-of-pocket expenses can add up quickly. Healthcare costs may also increase faster than many other household expenses.

If you want to retire early, healthcare deserves its own line item in your financial plan.

5. Change the Way You Think About Your Portfolio

Your investment strategy may need to change when your paycheck stops.

During your working years, your portfolio typically has one primary job: growth. You contribute to your 401(k), IRA, brokerage accounts, and other investments while continuing to earn income.

Market downturns can still hurt, but your paycheck helps support your lifestyle while your portfolio recovers.

Retirement changes that relationship. Once your investments begin funding your lifestyle, market declines can have a much larger impact. A 20% market drop feels very different when you are withdrawing money from the portfolio instead of adding to it.

That does not automatically mean becoming extremely conservative.

Your portfolio still needs enough growth to potentially support decades of retirement.

Instead, your allocation should reflect how much income you need from your investments, how much guaranteed income you receive, your risk tolerance, and how long your assets may need to last.

Someone with a pension that covers nearly all household expenses may invest very differently from someone who relies almost entirely on their portfolio.

The important point is simple.

The strategy that helped you accumulate your money may not be the same strategy you need once you retire.

So, Can You Retire Early?

There is no single portfolio balance that automatically means you are ready to retire early. Your decision depends on how your entire financial picture works together.

Before making the leap, look closely at:

  • What you want your retirement years to look like
  • When you should claim Social Security
  • How you can use your early retirement tax window
  • How you will pay for healthcare before Medicare
  • Whether your portfolio matches your new income needs

These decisions can matter just as much as the amount you have saved.

If you have spent decades building your wealth, retirement planning should help you transition from simply accumulating money to using that money intentionally.

You worked hard to build your portfolio.

Now the question becomes whether your financial plan gives you the confidence to use it.

Thinking About Retiring Early?

If you are considering an early retirement and wondering whether your savings, taxes, Social Security strategy, healthcare plan, and investments all work together, getting a second opinion can help.

At Bonfire Financial, we use the Bonfire Method to look at your full financial picture and help you understand how the different pieces of your retirement plan work together.

If you are thinking about retiring early, schedule a conversation with our team and find out whether your plan is ready for the next chapter.

5 Warning Signs You’re Not Ready to Retire

Posted on by Brian Colvert

Think You’re Ready to Retire?

You’ve built the portfolio. Your think your numbers work. Your spouse is ready. On paper, retirement might look like the obvious next step.

But having enough money to retire and having a plan that is actually ready for retirement are two different things.

For high earners especially, the transition from earning a paycheck to living off your assets can expose risks that were easy to overlook during your working years.

Before you are ready to retire, here are five warning signs worth addressing.

Keep reading, or if you prefer to listen or watch… check out the Podcast or full YouTube video.

1. Too Much of Your Wealth Is Concentrated in One Investment

Concentrated investments can be incredibly effective for building wealth. A successful company stock, a high-growth investment, or equity compensation may have played a major role in getting you where you are today.

The problem is that the same concentration that helped build your wealth can become a much bigger risk once you retire.

It is not unusual for someone approaching retirement to have 15%, 20%, or even significantly more of their portfolio tied to a single company or investment.

While you are working, market volatility may be easier to tolerate because you are still earning income and contributing to your accounts. Once that paycheck disappears, significant swings in your portfolio can feel very different.

Retirement planning requires thinking beyond growth. You also need to consider how much risk you can realistically afford to take when your portfolio becomes a primary source of income.

2. Your Portfolio Is Still Built for Accumulation

The portfolio that helped you build wealth may not be the same portfolio you want to carry into retirement.

During your working years, you may be able to tolerate an aggressive allocation because you have time to recover from market downturns. You also have income coming in, which reduces your dependence on the portfolio.

Retirement changes that equation.

Once you begin withdrawing money, you need to think about diversification, risk tolerance, your time horizon, and how much income you will need from your investments. A portfolio that remains heavily weighted toward aggressive or highly correlated investments may create more volatility than you are comfortable with once withdrawals begin.

The goal is not necessarily to eliminate risk. It is to make sure the level and type of risk you are taking fits the next stage of your financial life.

3. You Haven’t Calculated Your Real Retirement Tax Bill

One of the most common assumptions about retirement is that taxes will automatically go down.

For some retirees, they do.

For high earners with substantial assets, however, the reality can be much more complicated.

Retirement income can come from a variety of sources, including:

  • Traditional IRAs and 401(k)s
  • Brokerage accounts
  • Dividends
  • Real estate income
  • Pensions
  • Social Security
  • Other investments

Many of those sources can create taxable income.

If you need significant annual cash flow to maintain your lifestyle, your tax bill in retirement may remain much higher than expected.

This is why the years surrounding retirement can be so important for tax planning. Decisions about when to take distributions, when to complete Roth conversions, and how to manage future required minimum distributions can have consequences that extend decades into retirement.

The question should not simply be, “How much money do I have?”

It should also be, “How much of that money will I actually get to spend after taxes?”

4. You Don’t Know Your Real Retirement Burn Rate

How much do you actually expect to spend once you retire?

The answer may be higher than you think.

People often assume their spending will decline after they stop working. But the first several years of retirement can be some of the most active and expensive years.

You finally have the time to travel. You may take longer vacations, visit family more often, tackle home projects, pursue hobbies, or start checking items off your bucket list.

That is not necessarily a problem. In many ways, that is exactly what the money was built for.

The problem is failing to plan for it.

Retirees can spend substantially more during the early years of retirement because they finally have the combination of time, money, and health to enjoy it.

Your retirement plan should reflect the life you realistically intend to live, not an artificially low spending number that makes the projections look better.

Understanding your actual burn rate gives you a much clearer picture of whether your portfolio is truly prepared to support your lifestyle.

5. You Don’t Have a Withdrawal Sequence Plan

You have a traditional IRA, a brokerage account, and Roth assets.

Which one do you spend first?

That decision can be far more important than many retirees realize.

A common approach is to spend down taxable brokerage assets first, then move to traditional retirement accounts, and save Roth assets for last. While that may work in some situations, retirement income planning is rarely that simple.

The better decision can change from year to year.

One year, it may make sense to take more from a brokerage account. Another year, you may intentionally withdraw from an IRA while remaining within a particular tax bracket. In some cases, using taxable assets may create room for a Roth conversion that helps reduce future required minimum distributions.

Your income needs, tax brackets, deductions, market conditions, and future RMDs can all affect the decision.

That is why a withdrawal strategy should not be something you create once and forget.

It should be actively managed throughout retirement.

Retirement Readiness Is More Than a Portfolio Number

A large account balance can create a sense of security, but retirement planning is not simply about reaching a number.

You need to understand how your investments, taxes, spending, and withdrawal decisions interact once you stop earning a paycheck.

Before you retire, ask yourself:

  • Is too much of my wealth concentrated in one investment?
  • Is my portfolio still positioned as though I am 10 or 20 years away from retirement?
  • Do I understand what my tax bill could actually look like?
  • Have I realistically modeled what I plan to spend?
  • And do I know which accounts I should withdraw from each year?

For high earners approaching retirement, these decisions can have a significant impact on how efficiently your wealth supports you over the next 20 or 30 years. Without addressing these areas, wealth can gradually be lost to taxes, market risk, and lifestyle spending that was not properly planned for.

The objective is not simply to make it to retirement. It is to enter retirement with a plan designed for what comes next.

If you’re approaching retirement and want to make sure all the pieces of your financial life are working together, schedule a conversation with our team. Through the Bonfire Method, we look at your investments, taxes, income, insurance, and overall retirement strategy together to help identify gaps and build a more coordinated plan for what comes next.

5 Retirement Tax Planning Moves That Can Lower Your Tax Bill

Posted on by Brian Colvert

Smarter Retirement Tax Planning

You can spend decades building your retirement savings and still lose more than necessary to taxes once you start taking money out.

The problem often comes down to one decision: which account should you withdraw from first?

Many retirees have money spread across several types of accounts. You may have a traditional IRA or 401(k), a taxable brokerage account, and a Roth IRA. Each account receives different tax treatment.

That gives you options. It also creates opportunities to make expensive mistakes.

A common rule of thumb says to spend from taxable accounts first, tax-deferred accounts second, and Roth accounts last. That approach can work in some situations. However, following the same withdrawal order every year may cause problems later.

For some retirees, a better approach involves coordinating withdrawals with tax brackets, Roth conversions, required minimum distributions, Medicare premiums, and other parts of their financial plan.

That is where retirement tax planning becomes important. Keep reading, or if you prefer to listen or watch… check out the Podcast or full YouTube video.

Why Your Retirement Withdrawal Strategy Matters

Saving enough for retirement is only part of the equation.

Once your paycheck stops, you need to create income from the assets you spent years accumulating. How you create that income can affect your tax bill for decades.

Imagine spending down your taxable brokerage account early in retirement while leaving a large IRA untouched.

That IRA may continue growing tax-deferred. Eventually, required minimum distributions, or RMDs, can force increasingly large amounts of taxable income onto your return.

At that point, you have fewer choices.

A more flexible strategy may involve taking money from several account types over time instead of completely draining one before touching another.

The goal is not simply to pay the least tax this year.

Instead, good retirement tax planning looks at your lifetime tax bill.

The 3 Phases of Retirement Tax Planning

Retirement does not create one single tax-planning environment.

Your opportunities can change dramatically as you move through different stages of retirement. The transcript breaks retirement withdrawals into three general phases.

Phase 1: Retirement Before Medicare

If you retire before age 65, the years between your final paycheck and Medicare eligibility can create valuable planning opportunities.

Your earned income may drop significantly during this period. Social Security may not have started yet either. As a result, you could find yourself in a lower tax bracket than you occupied during your working years.

That lower-income window may create opportunities to withdraw money from tax-deferred accounts or complete Roth conversions at more favorable tax rates.

Not everyone gets this window. Someone who retires at 65 may move directly into the next phase.

For those who retire earlier, however, these years can become an important part of the overall tax strategy.

Phase 2: Medicare Begins, but RMDs Have Not

The next phase generally begins around age 65 and continues until required minimum distributions start.

You may still have opportunities for Roth conversions and strategic IRA withdrawals. However, another factor now enters the picture: Medicare.

Higher income can trigger Medicare Income-Related Monthly Adjustment Amounts, commonly called IRMAA.

IRMAA uses income from prior tax years when determining certain Medicare premiums. That means a large Roth conversion or IRA withdrawal today could affect what you pay for Medicare later.

This does not automatically make a Roth conversion a bad idea.

Sometimes paying a higher Medicare premium now could still make sense if the strategy reduces larger taxes in future years. The important part is understanding the tradeoff before making the decision.

Phase 3: Required Minimum Distributions Begin

Eventually, RMDs enter the equation.

At that point, the government requires you to withdraw a portion of your tax-deferred retirement accounts each year.

Those distributions generally create taxable income whether you need the money for living expenses or not. Planning during the earlier phases can make a significant difference here.

If you reduced your tax-deferred balances strategically before RMDs began, your future required distributions may become easier to manage. You may also have more flexibility to fund additional spending from taxable or Roth accounts.

The work you do before this phase can shape your tax situation for the rest of retirement.

5 Retirement Tax Planning Moves to Consider

Understanding the phases helps establish the framework. The next step involves putting that framework into practice.

Here are five strategies that may help retirees manage taxable income and preserve more flexibility.

1. Strategically Fill Lower Tax Brackets

Retiring often causes taxable income to fall.

Rather than automatically avoiding taxes during those years, it may make sense to intentionally recognize some income while your tax rate remains relatively low.

For example, you could withdraw money from a traditional IRA or convert part of an IRA to a Roth.

You would pay taxes today. In exchange, you may reduce the amount sitting in tax-deferred accounts before RMDs begin.

The key involves looking beyond the current year.

Paying tax at a lower rate today could make more sense than waiting and potentially paying a higher rate later.

Your available tax bracket depends on your income, deductions, filing status, and other factors, so the right amount will vary from person to person.

2. Look for Capital Gains Harvesting Opportunities

A lower-income year may also create opportunities inside a taxable brokerage account.

Many long-term investors accumulate positions with significant capital gains. Selling those investments can trigger capital gains taxes.

However, your tax rate on long-term capital gains depends partly on your taxable income.

That creates an opportunity.

During lower-income retirement years, you may be able to realize certain gains at a lower tax rate than you would have paid while working.

You can also coordinate gains with investment losses when appropriate.

This strategy can help you reposition a portfolio while managing the tax impact at the same time.

3. Withdraw From Multiple Accounts Strategically

Retirement withdrawals do not have to follow a rigid sequence.

You do not necessarily need to drain your brokerage account, then empty your IRA, and finally touch your Roth.

Instead, you might take some income from each account depending on the year.

For example, part of your spending could come from an IRA while the rest comes from a brokerage account. In another year, a Roth withdrawal may help prevent taxable income from moving into a higher bracket.

This approach gives you something extremely valuable in retirement: flexibility.

Different accounts create different tax consequences.

When you have several sources available, you can choose where income comes from based on your tax situation, spending needs, and long-term plan.

4. Consider Qualified Charitable Distributions

If charitable giving already plays a role in your financial life, qualified charitable distributions can become another useful tax-planning tool.

A QCD allows an eligible IRA owner to send money directly from an IRA to a qualified charity. Once RMDs begin, qualifying distributions can also count toward satisfying part or all of your required minimum distribution for the year.

That can make QCDs particularly useful for retirees who already plan to give to charity.

Rather than taking an IRA distribution, adding it to taxable income, and then making a donation separately, a properly structured QCD may provide a more tax-efficient way to accomplish the same charitable goal.

Rules and annual limits apply, so coordinate the strategy with your tax and financial professionals before making the distribution.

5. Watch the IRMAA Lookback

Medicare can add another layer to retirement tax planning.

Once you reach Medicare age, certain income decisions may affect your future premiums. A large IRA distribution, Roth conversion, or other taxable event can increase reported income. That increase may later result in higher Medicare premiums through IRMAA.

Again, this does not mean you should automatically avoid creating income. A large Roth conversion could still save substantial taxes over your lifetime even if it temporarily increases Medicare costs.

You simply want to know about the consequence before making the move.

Good planning compares both sides of the equation.

Retirement Tax Planning Is About More Than This Year’s Tax Bill

One of the biggest mistakes retirees can make is optimizing every decision for the lowest possible tax bill today.

That approach can create much larger problems later.

A year with little taxable income might feel like a win. Yet leaving a large IRA untouched could result in much larger RMDs down the road.

Likewise, intentionally paying some tax during a lower-income year can feel uncomfortable. That decision may ultimately reduce taxes over the next 20 or 30 years.

That is why retirement tax planning requires a longer view. Your retirement accounts may have spent decades compounding.

Now, the way you withdraw from those accounts matters almost as much as how you accumulated them in the first place.

The Question to Ask Before You Retire

Do not stop at asking:

“Do I have enough money to retire?”

Ask another question:

“How will I actually take income from my accounts once I retire?”

You should know how your taxable accounts, traditional retirement accounts, and Roth accounts will work together.

You should also understand when Roth conversions might make sense, how RMDs could affect future taxes, and whether your income decisions may trigger higher Medicare premiums.

There is no universal withdrawal order that works for everyone. Your income, assets, tax situation, charitable goals, Social Security strategy, spending needs, and retirement date all affect the answer.

The earlier you start coordinating those pieces, the more options you may have.

If you are approaching retirement and have not mapped out where your income will come from, now is the time to start that conversation. A few decisions made before retirement begins could influence how much of your money you ultimately get to keep.

Ready to Build a Smarter Retirement Tax Planning Strategy?

The Bonfire Method brings your investments, taxes, income, and long-term goals together into one coordinated plan. If you’re approaching retirement and want to understand how each piece fits together, schedule a conversation with our team to see how the Bonfire Method can help you make more confident decisions and keep more of what you’ve built.

How Much Do I Need in Retirement? What Most Calculators Don’t Tell You

Posted on by Brian Colvert

How Much Do I Need in Retirement?

If you have ever typed “how much do I need in retirement?” into a calculator, you have probably been given a fairly simple answer.

Estimate your annual spending. Multiply it by 25. Withdraw roughly 4% each year.

That can be a useful starting point. But it is not a complete retirement plan.

The 4% rule was designed to help determine how much income a portfolio may be able to support over retirement. For example, using the rule, a $1 million portfolio would initially support about $40,000 of annual withdrawals.

The problem is not necessarily the 4% rule itself. The problem is expecting one percentage to account for taxes, healthcare, Social Security, market downturns, and the way you actually withdraw money over several decades.

So if you are wondering how much do I need in retirement, the better question may be:

How much do I need, and how should my retirement income strategy be built around it?

Here are five areas that can significantly change the answer.

Keep reading, or if you prefer to listen or watch… check out the Podcast or full YouTube video.

1. Your Retirement Accounts Are Not All Worth the Same After Taxes

Imagine two retirees each have $2 million saved.

One has nearly everything inside traditional 401(k)s and IRAs. The other has money spread across pre-tax accounts, Roth accounts, and taxable brokerage accounts.

On paper, they both have $2 million.

In practice, their retirement income could look very different.

A traditional retirement account generally creates taxable income when money is withdrawn. Roth assets may provide tax-free qualified withdrawals, while taxable brokerage accounts have their own capital gains considerations.

That is why retirement planning should include multiple tax buckets rather than simply focusing on one total savings number. There are three primary buckets: pre-tax, Roth or after-tax, and taxable accounts.

Having money available in different types of accounts can give you more flexibility when deciding where retirement income should come from each year.

So when asking how much do I need in retirement, do not only look at your account balance.

Look at where the money is located and how it may eventually be taxed.

2. Healthcare Can Change Your Retirement Number Quickly

Healthcare is one of the expenses retirement calculators can easily underestimate and one of most overlooked pieces of financial planning.

That makes healthcare worth planning for separately rather than assuming it will simply fit inside your normal retirement budget.

One potential tool is a Health Savings Account, or HSA.

For eligible individuals, an HSA can provide significant tax advantages. The strategy discussed in the episode is to contribute to the HSA, invest the balance when appropriate, and potentially pay current medical expenses from cash flow so the HSA has more time to grow for future healthcare expenses.

For someone approaching retirement with substantial assets, building a dedicated healthcare strategy can help protect the rest of the portfolio from an expense category that may continue increasing over time.

3. Social Security Can Affect How Much Your Portfolio Needs to Produce

Social Security is sometimes treated as an afterthought by high earners. It should not be.

Every dollar of dependable retirement income coming from Social Security is potentially one less dollar that has to come from your investment portfolio.

Timing matters.

The difference between claiming Social Security early and delaying benefits,  can result in a substantially larger lifetime monthly benefit.

That does not mean everyone should automatically wait until age 70.

It means Social Security should be coordinated with the rest of your retirement plan.

If you delay claiming, your portfolio may need to support more of your lifestyle during the years before Social Security begins. Later, the larger Social Security benefit could reduce the amount you need to withdraw from investments.

This is another reason the answer to how much do I need in retirement cannot always be reduced to one savings target. Your income sources matter too.

4. Your Retirement Plan Needs to Survive Bad Timing

One of the biggest risks in retirement is not simply whether the market goes down.

It is when it goes down.

Imagine retiring just before a major market decline. You are suddenly withdrawing money from a portfolio that has already fallen significantly.

That combination can be especially damaging because you are selling assets while values are depressed, leaving fewer assets available to participate in a future recovery.

This is known as sequence-of-returns risk, an important risk for retirees to manage. One potential response is creating dynamic guardrails within the retirement plan.

That could mean maintaining additional cash, positioning portions of the portfolio more conservatively, or holding assets that do not necessarily move in the same direction at the same time.

There is another side to this strategy too.

When the market performs exceptionally well, it can be tempting to permanently increase spending.

But allowing lifestyle expenses to rise every time the portfolio has a strong year can eventually put pressure on the plan.

A well-designed retirement strategy should account for both good markets and bad ones.

5. The Years After Retirement Can Create a Valuable Tax Planning Window

There can be a unique period between retirement and the beginning of required minimum distributions.

Your earned income may have dropped, but you may not yet be required to take significant distributions from traditional retirement accounts.

Those years can create an opportunity for Roth conversions.

Strategically converting portions of traditional retirement assets to Roth accounts during lower-income years, can allow you to choose when some taxes are paid instead of waiting for future required distributions.

For someone with a large traditional IRA or 401(k), this can become an important part of long-term retirement tax planning.

Rather than asking only:

How much money have I saved?

You may also want to ask:

How much control will I have over my taxable income once I retire?

So, How Much Do I Need in Retirement?

There is no single number that answers the question for everyone.

The 4% rule can provide a useful foundation, but the point is that it was never meant to function as an entire retirement plan by itself.

Your actual retirement strategy may need to account for:

  • How much you want to spend each year
  • Which accounts your money is held in
  • How withdrawals will be taxed
  • Healthcare expenses
  • Social Security timing
  • Market volatility
  • Roth conversion opportunities
  • The flexibility built into your spending plan

For someone with $2 million or more invested, those details can matter just as much as the initial withdrawal rate.

A retirement calculator can tell you whether the math looks reasonable.

A coordinated retirement plan helps determine how the money should actually work once your paycheck stops.

The Bottom Line

If you are asking how much do I need in retirement, start with your spending needs and your portfolio.

But do not stop there.

The 4% rule can help establish a baseline. Then the real planning begins.

Taxes, healthcare, Social Security, market risk, and Roth conversions all interact with one another. Coordinating those pieces can help turn a retirement savings number into a retirement income strategy designed around the life you actually want to live.

Build a Retirement Plan Around the Full Picture

Knowing how much you need in retirement is only one part of the equation. The bigger question is how your investments, taxes, income, insurance, healthcare, estate planning, and long-term goals all work together.

That is the idea behind The Bonfire Method. Instead of looking at each part of your financial life in isolation, we take a coordinated approach to help identify gaps, uncover opportunities, and build a retirement strategy around the full picture.

If you are approaching retirement and want a second set of eyes on your plan, schedule a call with Bonfire Financial. We can help you understand where you stand, what may be missing, and what steps could make your retirement strategy stronger.

Recently Divorced After 50? How to Protect Your Retirement

Posted on by Brian Colvert

How to Rebuild Quickly for Retirement after a Divorce

Divorce can disrupt nearly every part of your financial life, especially when retirement is no longer decades away.

You may now have fewer assets, one household income, different living expenses, and a retirement plan that no longer reflects your reality. That combination can feel overwhelming, but a divorce after 50 does not automatically mean you must delay retirement or abandon the future you planned.

The key is to make deliberate decisions before small oversights become expensive problems.

A successful divorced retirement requires more than dividing investment accounts. You need to understand how the divorce affects your taxes, Social Security benefits, retirement contributions, estate plan, housing costs, and long-term income strategy.

Here are five financial moves that can help you regain control and protect your retirement after divorce.

Keep reading, or if you prefer to listen or watch… check out the Podcast or full YouTube video.

1. Make Sure Retirement Assets Are Divided Correctly

Retirement accounts often represent one of the largest assets divided during a divorce. However, your divorce decree alone may not provide everything a retirement plan administrator needs to transfer the funds.

Employer-sponsored retirement plans frequently require a qualified domestic relations order, commonly called a QDRO. This court order directs the plan administrator to pay an approved portion of the account to a spouse, former spouse, child, or other dependent.

The plan administrator must review and approve the order before dividing the account. A mistake in the language, account information, or distribution instructions could delay the transfer or create unintended tax consequences.

A QDRO may also provide a valuable planning opportunity for the spouse receiving the retirement funds. In certain circumstances, an alternate payee can take a taxable distribution from a qualified plan without paying the additional 10% early-distribution tax that normally applies before age 59½. Regular income taxes may still apply, so you should evaluate the decision carefully before withdrawing money.

Avoid treating this exception as an invitation to spend retirement assets unnecessarily. Cashing out part of the account may help cover immediate needs, but every dollar withdrawn loses years of potential investment growth.

Before completing the transfer, confirm:

  • The correct accounts appear in the divorce agreement.
  • The QDRO matches the terms of the settlement.
  • The plan administrator has formally accepted the order.
  • You understand the tax treatment of any withdrawal.
  • The remaining assets support your revised retirement plan.

Dividing an account and planning how to use it are two different steps. Both matter.

2. Review Your Eligibility for Divorced-Spouse Social Security Benefits

Social Security rules can create another source of retirement income after divorce.

You may qualify for benefits based on an ex-spouse’s earnings history when the marriage lasted at least 10 years. In general, divorced-spouse retirement benefits become available at age 62, although claiming before full retirement age can permanently reduce the monthly amount.

Your ex-spouse does not necessarily need to claim Social Security before you can receive a divorced-spouse benefit. If your former spouse qualifies for benefits, you have remained divorced for at least two continuous years, and you meet the other requirements, you may qualify independently.

Claiming on an ex-spouse’s record also does not reduce the benefit your former spouse or their current spouse may receive.

Still, eligibility does not guarantee that a divorced-spouse benefit will produce the highest payment. Social Security generally compares the benefit available from your own work history with the amount available under the divorced-spouse rules. Deemed-filing provisions may require you to apply for both, with Social Security paying the higher eligible amount rather than stacking both benefits.

Before filing, compare several strategies:

  • Claiming at age 62
  • Waiting until full retirement age
  • Delaying your own retirement benefit
  • Coordinating Social Security with pensions and investment withdrawals
  • Considering the tax impact of your combined income

Social Security decisions can affect your income for the rest of your life. Do not choose a filing date based only on the first available payment.

3. Use Catch-Up Contributions to Rebuild Savings

Divorce may reduce your retirement balance, but the tax code gives older savers opportunities to contribute more.

For 2026, employees can contribute up to $24,500 to most 401(k), 403(b), and governmental 457 plans. People age 50 or older may contribute an additional $8,000, bringing the potential employee contribution to $32,500. See latest limits here.

Workers who turn 60, 61, 62, or 63 during 2026 may qualify for a higher catch-up contribution of $11,250 instead of the standard $8,000 catch-up, assuming their plan allows it.

The 2026 IRA contribution limit is $7,500, with an additional $1,100 catch-up contribution available beginning at age 50. That creates a total potential IRA contribution of $8,600, subject to income, compensation, deductibility, and Roth eligibility rules.

Health savings accounts provide another opportunity. An eligible individual age 55 or older can generally contribute an additional $1,000 beyond the standard HSA limit.

Maxing out every account may not fit your budget immediately. Start by identifying the contributions that offer the greatest benefit.

For example, prioritize an employer match before directing additional money elsewhere. After capturing the full match, compare traditional and Roth contributions based on your current tax bracket and expected retirement income.

You can also increase contributions gradually. Raising your savings rate by one percentage point every few months may feel more manageable than making a dramatic change all at once.

The goal is not to punish yourself financially after divorce. Instead, build a sustainable savings plan that reflects your new income, expenses, and retirement timeline.

4. Evaluate a Roth Conversion Window

Divorce can temporarily lower household income, particularly when you move from filing jointly to filing as a single taxpayer.

A lower-income year may create an opportunity to convert part of a traditional IRA or other eligible pretax retirement account to a Roth IRA. You pay ordinary income taxes on the taxable amount converted, but future qualified Roth withdrawals can come out tax-free.

Roth accounts can also provide more flexibility later in retirement. Roth IRAs and designated Roth accounts do not require lifetime required minimum distributions for the original owner under current federal rules.

However, a Roth conversion does not make sense simply because one is available.

The conversion adds taxable income during the year you complete it. A large conversion could push you into a higher federal or state tax bracket, increase Medicare premiums later, reduce eligibility for certain tax benefits, or create an unexpectedly large tax bill.

Consider completing partial conversions over several years rather than moving an entire account at once.

A thoughtful Roth conversion analysis should examine:

  • Your projected taxable income
  • Your current and future tax brackets
  • The amount of cash available to pay the tax
  • Your expected retirement date
  • Future required minimum distributions
  • Medicare income-related surcharges
  • Your estate and legacy goals

Paying conversion taxes from funds outside the retirement account usually preserves more money for long-term growth. Still, your specific circumstances should drive the strategy.

5. Rebuild Your Entire Financial Plan

Divorce changes more than your account balances. It changes the assumptions behind your financial plan.

Your previous retirement projections may have included two Social Security benefits, shared housing expenses, joint insurance coverage, combined investment assets, or a spouse’s pension. Continuing to rely on those projections can create a false sense of security.

Start by calculating what your new life actually costs.

Housing deserves particular attention because it often represents the largest monthly expense. Keeping the marital home may provide emotional stability, but the mortgage, taxes, insurance, utilities, maintenance, and repairs could limit your ability to rebuild savings.

Ask whether the home still supports your financial goals rather than whether you can technically afford the next payment.

Next, review your investment strategy. Your portfolio should reflect your new time horizon, retirement income needs, and tolerance for market risk. An allocation designed for a married couple may no longer fit a single investor who expects to rely on the portfolio for regular income.

Taxes also require a fresh look. Your filing status, deductions, estimated payments, capital gains, property transfers, and retirement withdrawals may all change after divorce.

Insurance needs can shift as well. Review health, life, disability, long-term care, homeowners, and umbrella coverage. You may need more protection in some areas and less in others.

Finally, update your estate plan and beneficiary designations.

Retirement accounts, life insurance policies, annuities, transfer-on-death accounts, and payable-on-death accounts generally pass according to the beneficiary form associated with the account. Your will may not override an outdated beneficiary designation.

Review each account directly rather than assuming the divorce automatically removed your former spouse. Then update your will, powers of attorney, healthcare directives, trusts, and emergency contacts as appropriate.

Can You Still Retire on Time After Divorce?

Possibly, but you need a new definition of “on track.”

Your original plan relied on a different set of assets, expenses, tax assumptions, and income sources. Measuring your progress against that outdated plan may either discourage you unnecessarily or hide a real shortfall.

A new retirement analysis should answer several practical questions:

  • How much will your lifestyle cost?
  • What guaranteed income will you receive?
  • How much can you save before retirement?
  • When should you claim Social Security?
  • How much can your portfolio reasonably support?
  • Which expenses could you adjust if markets perform poorly?
  • What tax opportunities exist between now and retirement?

You may discover that you can still retire on your original schedule. Another person might work one or two additional years, reduce housing costs, increase contributions, or adjust retirement spending.

Those changes do not mean the plan failed. They mean the plan now reflects reality.

Build a Divorced Retirement Plan Around Your New Life

Divorce after 50 can create uncertainty, but uncertainty does not have to control your financial future.

Start by making sure retirement assets are transferred properly. Review Social Security benefits, use available catch-up contributions, explore tax-planning opportunities, and replace your old financial plan with one built around your current life.

Most importantly, do not make each decision in isolation.

Your investments affect your taxes. Housing choices influence how much you can save. Social Security timing changes how much you may need to withdraw from your portfolio. Beneficiary designations determine whether your assets ultimately reach the people you intend to protect.

A coordinated divorced retirement plan can help you understand those connections and move forward with greater clarity.

At Bonfire Financial, we use the Bonfire Method to examine the major areas of your financial life, including investments, taxes, insurance, income, and retirement planning. The goal is to build a strategy around where you stand today and the future you want to create.

If you recently divorced after 50 and need help rebuilding your retirement plan, schedule a complimentary call with our team. We will take an honest look at your situation, identify the most important next steps, and help you create a plan for moving forward

Stop Overpaying the IRS: 3 Tax Free Retirement Account Strategies

Posted on by Brian Colvert

Tax-Free Retirement Account Strategies to Consider Before You Retire

You have spent decades building your retirement savings. The next challenge is making sure unnecessary taxes do not quietly reduce what you worked so hard to accumulate.

Many people focus almost entirely on how much they have saved. Far fewer consider how their accounts will be taxed once they begin taking money out.

That distinction matters.

Two retirees could enter retirement with the same account balance but end up with very different amounts available to spend. The difference may come down to how their assets are divided among taxable, tax-deferred, and tax-free accounts.

A thoughtful tax-free retirement account strategy can give you more flexibility, help you manage future tax bills, and reduce the risk of being forced into higher tax brackets later in life.

No single account solves every tax problem. Instead, effective retirement planning often involves coordinating several types of accounts based on your income, age, retirement date, and future spending needs.

Here are three strategies to consider as you approach retirement.

Keep reading, or if you prefer to listen or watch… check out the Podcast or full YouTube video.

Why Retirement Taxes Require Advance Planning

Taxes do not disappear when your paycheck stops.

Traditional retirement accounts may eventually create taxable income. Social Security benefits can become partially taxable. Investment income, required minimum distributions, and Medicare-related costs may also affect your overall financial picture.

Waiting until retirement to address these issues can limit your options.

Some of the most valuable planning opportunities arise during the years before retirement and immediately after you stop working. Your income may be lower during that period, giving you an opportunity to reposition assets before required distributions begin.

The goal is not necessarily to pay no taxes at all. A better objective is to pay taxes intentionally, at favorable times, and at rates that support your broader retirement plan.

1. Use Roth Strategies to Create Tax-Free Retirement Income

A Roth account is one of the most familiar examples of a tax-free retirement account.

You contribute money after paying income taxes on it. The funds can then grow tax-free, and qualified withdrawals generally come out tax-free as well.

That structure can be especially valuable in retirement.

Unlike traditional retirement accounts, Roth IRAs are not generally subject to required minimum distributions during the original owner’s lifetime. You maintain more control over when and how much money you withdraw.

High earners often assume they cannot use a Roth IRA because their income exceeds the direct contribution limits. However, other strategies may still be available.

Consider a Backdoor Roth Contribution

A backdoor Roth allows certain high-income earners to contribute money to a traditional IRA and then convert those funds to a Roth IRA.

There is no income limit that prevents someone from completing a Roth conversion. For that reason, the strategy may provide another path into a Roth account when direct contributions are unavailable.

The process sounds simple, but existing IRA balances can create complications.

Money held in traditional, SEP, or SIMPLE IRAs may trigger the pro rata rule. Instead of allowing you to convert only the after-tax contribution, the IRS looks at the taxable and after-tax portions across your applicable IRA balances.

As a result, part of the conversion may become taxable.

Someone who attempts a backdoor Roth without reviewing existing IRA assets could receive an unexpected tax bill. Proper coordination is essential before moving money.

Evaluate Roth Conversions Before Required Distributions Begin

A Roth conversion involves transferring money from a tax-deferred retirement account into a Roth account. The converted amount is generally treated as taxable income during the year of the conversion.

Paying taxes today may seem counterintuitive. In the right circumstances, however, a conversion can reduce future taxable distributions and create a larger pool of tax-free retirement money.

Timing makes a major difference.

The years between retirement and the start of required minimum distributions may offer a valuable planning window. Your employment income may have ended, while mandatory IRA withdrawals have not yet begun.

401k retirement

That temporary drop in taxable income could allow you to complete conversions at lower tax rates than you might face later.

Rather than converting an entire account at once, many retirees complete a series of annual conversions. Each year’s amount can be coordinated with tax brackets, Medicare premiums, charitable giving, Social Security, and other income sources.

A conversion should not be viewed as an isolated transaction. It works best as part of a multi-year tax plan.

2. Coordinate Pre-Tax Retirement Accounts With Your Future Tax Strategy

Traditional 401(k)s, IRAs, profit-sharing plans, and cash balance plans are not technically tax-free retirement accounts.

They are tax-deferred accounts.

Contributions may reduce your taxable income during your working years. Investment growth is generally not taxed annually while the money remains inside the account.

Taxes are typically due when withdrawals begin.

Although these accounts do not provide permanently tax-free income, they remain an important part of an effective tax-free retirement account strategy. The deduction you receive today may allow you to save more during your highest-earning years.

Use Pre-Tax Contributions During Peak Earning Years

Many professionals earn their highest income during the final decade of their careers.

That period may also coincide with some of their highest marginal tax rates. Making pre-tax retirement contributions can reduce current taxable income while allowing more money to compound for retirement.

Employer-sponsored 401(k) plans remain one of the most common options. Employees may contribute through payroll, and employers may provide matching or profit-sharing contributions.

Business owners could have access to additional opportunities.

Profit-sharing plans and cash balance plans may permit substantially larger contributions than a standard 401(k), depending on plan design, age, income, employee demographics, and other factors.

For the right business owner, these plans can create meaningful tax deductions while accelerating retirement savings.

Cash flow still matters.

A large allowable contribution is only helpful when the business and household can comfortably afford it. Retirement savings should be coordinated with operating reserves, debt obligations, investment needs, and personal spending.

Do Not Ignore the Future Tax Bill

The deduction you receive today does not eliminate taxes. It postpones them.

Over time, a large tax-deferred balance can create significant required distributions. Those withdrawals may increase taxable income, affect Medicare premiums, and influence how much of your Social Security is taxable.

Future tax rates are also uncertain.

No one can predict exactly how tax laws will change. Building several different tax buckets can reduce your dependence on any single set of rules.

Pre-tax accounts may still be the right choice during your highest-income years. Later, partial Roth conversions could help move some of that money into a tax-free environment.

This is where coordinated planning becomes more valuable than simply choosing one account over another.

3. Turn Your HSA Into a Long-Term Retirement Asset

A health savings account can be one of the most tax-efficient accounts available.

Eligible contributions may be tax-deductible or made through payroll on a pre-tax basis. Funds can grow tax-free, and withdrawals used for qualified medical expenses can also be tax-free.

That combination is often called a triple tax advantage.

Despite those benefits, many people use an HSA only as a short-term spending account. They contribute money, leave it in cash, and withdraw it whenever a medical bill arrives.

That approach may capture only part of the account’s potential.

Invest Your HSA for Future Medical Expenses

Some HSA providers allow account holders to invest funds after meeting a minimum cash threshold.

Investing introduces market risk, but it may also provide the opportunity for long-term growth. Someone who has several years before retirement could potentially build a dedicated pool of money for future healthcare expenses.

HSA Benefits

Medical costs often represent a significant part of retirement spending.

Medicare does not cover every expense. Retirees may still face deductibles, copays, dental care, vision expenses, hearing costs, and other qualified healthcare needs.

A well-funded HSA can help cover those expenses with tax-free withdrawals.

One strategy involves paying current medical bills from regular cash flow while allowing HSA assets to remain invested. This approach gives the account more time to compound.

Keep detailed records when using this strategy.

Current rules may allow you to reimburse yourself later for qualified medical expenses incurred after the HSA was established, provided you retain proper documentation and did not previously deduct or reimburse those expenses.

Understand How an HSA Changes After Age 65

After age 65, HSA funds may generally be withdrawn for nonmedical purposes without the additional penalty that applies at younger ages.

What is the best age to retire

Those nonmedical withdrawals are usually taxed as ordinary income. In that situation, the account begins to function more like a traditional IRA.

Qualified medical withdrawals can still remain tax-free.

That flexibility makes the HSA a powerful complement to Roth and traditional retirement accounts. It can provide tax-free funds for healthcare while preserving other assets for general spending.

Eligibility rules still apply while contributing.

You generally need to be covered by an HSA-eligible high-deductible health plan and cannot have certain other disqualifying coverage. Contribution decisions should be reviewed each year based on your insurance and enrollment status.

How These Three Strategies Work Together

The real value does not come from selecting one account and ignoring the others. A stronger plan coordinates all three.

During your peak earning years, pre-tax contributions may help reduce current income taxes. An HSA can create a dedicated source of tax-free money for healthcare. Roth contributions and conversions may build a flexible pool of tax-free retirement income.

Each account serves a different purpose.

Imagine that you need additional income during retirement but want to avoid moving into a higher tax bracket. A Roth withdrawal may provide spending money without creating the same taxable income as a traditional IRA distribution.

Perhaps you experience a costly medical year. HSA funds could cover qualified expenses without increasing your tax bill.

In another year, you may intentionally take more from a traditional account because you have room within a lower tax bracket.

Having multiple account types gives you choices.

Without that flexibility, retirees may be forced to take most of their income from taxable sources regardless of the tax consequences.

Common Tax-Free Retirement Account Mistakes

Even strong strategies can backfire when they are implemented without enough planning.

Assuming Every Retirement Account Is Tax-Free

Roth accounts and qualified HSA withdrawals may provide tax-free income. Traditional retirement accounts generally provide tax deferral, not permanent tax elimination.

Understanding the difference helps prevent unrealistic expectations.

Completing a Backdoor Roth Without Reviewing IRA Balances

Traditional, SEP, and SIMPLE IRA balances can affect the taxation of a Roth conversion through the pro rata rule.

Review all applicable accounts before moving forward.

Waiting Until Required Distributions Begin

Once required minimum distributions start, your taxable income may become harder to control.

Earlier planning can create more room for strategic Roth conversions.

Leaving HSA Money Uninvested for Decades

Cash may be appropriate for near-term medical needs. Long-term HSA funds, however, may lose growth potential when they remain entirely uninvested.

Your investment approach should reflect your time horizon and risk tolerance.

Focusing Only on This Year’s Tax Bill

A large deduction today may feel beneficial. Future withdrawals could still create significant taxes.

Good planning compares the current benefit with the long-term impact.

Making Decisions Without Considering Medicare

Large Roth conversions or retirement withdrawals can increase modified adjusted gross income. Higher income may lead to Medicare income-related surcharges in future years.

Tax planning and healthcare planning should be coordinated rather than handled separately.

When Should You Start Planning?

The best time to build a tax-efficient retirement strategy is usually before retirement begins.

People in their 50s and early 60s may still have time to adjust contribution types, evaluate HSA investing, increase savings, and prepare for future Roth conversions.

Recent retirees may have an especially valuable opportunity.

The period after employment income ends but before required distributions begin can provide several years for intentional tax planning. Social Security timing may create additional flexibility during that window.

Starting earlier gives you more options.

A single large transaction can create unnecessary taxes. Smaller adjustments made over several years may produce a better result.

Is a Tax-Free Retirement Possible?

A completely tax-free retirement is not realistic for everyone.

Most retirees will have some combination of taxable income, Social Security benefits, pensions, investment gains, or tax-deferred withdrawals.

Still, increasing the portion of your retirement assets that can be accessed tax-free may improve your flexibility.

The phrase tax-free retirement account should not be interpreted as a promise that every dollar you save will escape taxation. Instead, it describes accounts and strategies that may allow qualifying contributions, growth, or withdrawals to receive favorable tax treatment.

The right mix depends on your individual circumstances.

Income, age, account balances, filing status, state residency, retirement date, healthcare coverage, and estate goals can all affect the strategy.

Build a Retirement Plan That Gives You More Control

Saving enough for retirement is only one part of the equation. You also need a plan for how that money will be taxed, invested, and withdrawn. The larger challenge is coordinating those accounts with your income needs, investment strategy, Social Security, healthcare costs, and long-term goals.

The Bonfire Method brings those pieces together into one personalized retirement plan. Rather than looking at taxes, investments, and income in isolation, we evaluate how each decision could affect the rest of your financial life.

The-Bonfire-Method-Financial-Plan

That may include identifying opportunities for Roth conversions, determining how to draw from different accounts, preparing for required minimum distributions, and finding ways to reduce unnecessary taxes over time.

The goal is not simply to accumulate more money. It is to create a clear strategy for using your money efficiently throughout retirement.

Ready to see how the Bonfire Method could work for your situation? Book a complimentary call with our team today.

What Happens When You Retire? 5 Things That Disappear When You Stop Working

Posted on by Brian Colvert

Most people spend years planning for the day they retire.

They think about when they will stop working, how much they have saved, where they want to live, and what they want their lifestyle to look like.

But fewer people stop to ask a very important question:

What happens when you retire?

Not just emotionally or socially, but financially.

Because retirement is not only about gaining more time. It is also about losing certain financial benefits, income sources, tax advantages, and safety nets that may have been supporting your life for decades.

Some of these changes happen immediately. Others happen quietly over time. But if you are not prepared for them, they can create stress, increase your tax bill, and make retirement feel far less secure than expected.

Here are five things that can disappear when you retire, and what you can do to plan ahead.

Keep reading, or if you prefer to listen or watch… check out the Podcast or full YouTube video.

1. Your Paycheck Disappears

The first and most obvious thing that disappears when you retire is your paycheck.

For years, your paycheck has likely been the foundation of your financial life. It covers your mortgage, groceries, taxes, travel, savings, and everyday expenses.

When you retire, that steady income stops.

That can be one of the scariest parts of retirement. Even if you have saved well, the way money comes in changes completely. Instead of receiving a predictable paycheck from your employer, you may now need to create income from your investment accounts, Social Security, pensions, rental income, or other retirement assets.

This is where many people feel uncomfortable.

While you are working, your income can feel almost unlimited because you can continue earning. But once you retire, your savings may feel finite. At the same time, your expenses do not disappear. You still have housing costs, property taxes, insurance, food, travel, medical expenses, and lifestyle needs.

That shift from accumulation to distribution is a major mental and financial adjustment.

Before you retire, you need a written income plan that answers questions like:

  • How much do you need each month?
  • Which accounts will you pull from first?
  • How will Social Security fit into the plan?
  • How will taxes affect your withdrawals?
  • How will you handle unexpected expenses?

Retirement income should not be a guessing game. The more clearly you understand where your money will come from, the more confident you can feel when the paycheck stops.

2. Your Employer Health Insurance Disappears

Another major thing that changes when you retire is your health insurance.

If you had employer-provided health insurance while working, that benefit may have been more valuable than you realized. Once you retire, especially if you retire before age 65, you may need to find coverage on your own until you are eligible for Medicare.

This can become one of the biggest expenses in a retirement plan.

Health insurance costs can rise quickly, and for early retirees, private coverage can be expensive. If you retire before Medicare eligibility, you may need to purchase insurance through the marketplace or another private option. Depending on your age, location, income, and coverage needs, this can become a significant monthly cost.

Then, once you reach Medicare age, healthcare planning still matters.

Medicare is not free, and higher-income retirees may face IRMAA, which stands for Income-Related Monthly Adjustment Amount. IRMAA can increase your Medicare Part B and Part D premiums based on your income from prior years.

This often surprises retirees.

You may retire and expect your income to drop, but Medicare premiums can be based on income from two years earlier. If you had a high-income year before retirement, sold a business, exercised stock options, or completed a large Roth conversion, your Medicare premiums could be higher than expected.

That is why healthcare planning should happen before retirement, not after.

Before you retire, you should know:

  • How you will get health insurance before age 65
  • What Medicare may cost once you are eligible
  • Whether IRMAA could apply to you
  • How HSA funds may fit into your healthcare strategy
  • What your expected out-of-pocket costs could be

Healthcare can quietly become one of the largest retirement expenses, so it deserves serious planning.

3. Your 401(k) and IRA Contributions Disappear

When you retire, your ability to keep contributing to certain retirement accounts may also disappear.

While you are working, you may be contributing to a 401(k), IRA, Roth IRA, or other retirement plan. You may also be receiving an employer match. Those contributions help your accounts grow, and they may also provide tax benefits.

Once you stop working, that changes.

Without earned income, you generally lose the ability to keep contributing to certain retirement accounts. That means you are no longer adding to the accounts. Instead, you may begin pulling from them.

This is a major shift.

Your retirement accounts go from being assets you are building to assets you are using. That also means your tax strategy may need to change.

For many retirees, there is a valuable window between the time they retire and the time required minimum distributions, or RMDs, begin. During that window, your taxable income may be lower than it was during your working years. That can create an opportunity to consider Roth conversions.

A Roth conversion allows you to move money from a pre-tax retirement account, such as a traditional IRA or 401(k), into a Roth account. You pay taxes on the converted amount now, but the money can potentially grow tax-free and may not be subject to RMDs later.

This strategy is not right for everyone, but it can be powerful when done carefully.

The goal is to look at your current tax bracket and determine whether it makes sense to convert some pre-tax money while staying within a reasonable tax range. This may help lower future RMDs, create more tax flexibility, and improve the tax treatment of assets passed to heirs.

The key is planning.

If you wait until RMDs begin, you may have less control over your taxable income. But if you use the years before RMDs wisely, you may be able to make your retirement plan more tax-efficient.

4. Some Tax Deductions Disappear

Another thing that can quietly disappear when you retire is your tax deductions.

Not all tax deductions go away, but some of the deductions you relied on during your working years may no longer apply.

For example, you may no longer have:

  • 401(k) contribution deductions
  • HSA contribution deductions
  • Mortgage interest deductions if your home is paid off or nearly paid off
  • Dependent-related tax benefits if your children are grown
  • Business or work-related deductions if you are no longer working

Many retirees end up relying mostly on the standard deduction. That may be fine, but it is important to understand how your tax picture changes after retirement.

This is where many people make mistakes.

They assume they will automatically pay less in taxes because they are retired. But that is not always the case.

Depending on your income sources, withdrawals from traditional IRAs and 401(k)s, Social Security taxation, pensions, investment income, and Medicare premium thresholds, your tax situation may be more complicated than expected.

Retirement does not eliminate tax planning. In many cases, it makes tax planning more important.

Before and during retirement, you should understand:

  • Which accounts create taxable income
  • How your Social Security may be taxed
  • How RMDs may affect your future tax bracket
  • Whether Roth conversions make sense
  • How investment income may impact your tax return
  • How Medicare IRMAA thresholds could affect you

Taxes are one of the biggest areas where proactive planning can make a meaningful difference.

5. Your Ability to Recover From a Market Downturn Changes

The fifth thing that can disappear when you retire is your ability to recover from a major market downturn.

This one is partly financial and partly psychological.

When you are still working, market downturns can feel uncomfortable, but you may have time on your side. You are still earning income. You are still contributing to retirement accounts. You may even be buying investments at lower prices through regular contributions.

But when you retire, the situation changes.

You are no longer contributing. You may be withdrawing from your portfolio to fund your lifestyle. If the market drops early in retirement and you are forced to sell investments while they are down, it can create long-term damage.

This is often called sequence of returns risk.

The timing of market returns matters more once you are taking money out of your accounts. A downturn early in retirement can be much more damaging than the same downturn during your working years.

There is also the emotional side.

People do not feel losses in percentages. They feel them in dollars.

If a $1 million portfolio drops by 20 percent, that is a $200,000 decline. Even if the market eventually recovers, that kind of loss can feel very real, especially when you no longer have a paycheck coming in.

That fear can lead to poor decisions, such as selling investments during a downturn, moving too conservative too quickly, or abandoning a long-term strategy at the worst possible time.

That is why asset allocation matters so much in retirement.

You need to understand how much risk you can actually tolerate, not just when markets are doing well, but when they are down sharply. Your investment strategy should be aligned with your income needs, time horizon, cash reserves, and emotional comfort level.

The goal is not to avoid all volatility. That is usually unrealistic. The goal is to build a plan that helps you stay invested appropriately without being forced into panic decisions.

What To Do Before You Retire

If you are approaching retirement but have not retired yet, this is the time to prepare.

Here are a few important steps to consider.

First, do not blindly max out your 401(k) without understanding your full retirement tax picture. A 401(k) can be a great tool, but if all your money is in pre-tax accounts, every withdrawal may create taxable income later.

You may want to build flexibility by saving into different types of accounts, such as taxable investment accounts, Roth accounts, or cash reserves.

Second, create a larger cash buffer.

As you get closer to retirement, having three to six months of expenses may not be enough. Some retirees may benefit from having closer to one year of expenses in cash or cash alternatives. This can help reduce the need to sell investments during a market downturn.

Third, make a healthcare plan.

Know how you will cover health insurance before Medicare, what your Medicare costs may look like after age 65, and whether IRMAA may apply.

Fourth, create a retirement income withdrawal strategy.

You need to know which accounts you will pull from, in what order, and how those withdrawals will affect your taxes.

Fifth, run the math on Roth conversions.

The years before RMDs begin can be a valuable planning window. Do not waste it.

What To Do If You Are Already Retired

If you are already retired, it is not too late to improve your plan.

First, review where your income is coming from. If you are only pulling from a traditional 401(k) or IRA, you may be creating more taxable income than necessary.

Second, revisit Roth conversion opportunities if you are still before RMD age. There may be room to convert some pre-tax assets in a tax-conscious way.

Third, review your investment allocation. Make sure your portfolio matches your real risk tolerance, income needs, and retirement timeline.

Fourth, look at your Medicare premiums and IRMAA situation. If your income has dropped due to retirement or another qualifying life event, you may be able to appeal an IRMAA surcharge.

Fifth, get professional guidance if your retirement plan feels unclear.

Retirement decisions rarely happen in isolation. The way you create income can change your tax picture, which may also impact Medicare premiums. Your investment strategy plays a role in how much income you can safely take, while your withdrawal plan can affect how long your money lasts.

You do not want to make these decisions in isolation.

The Bottom Line

So, what happens when you retire?

Your paycheck may stop. Your employer health insurance may disappear. Your retirement contributions may end. Some tax deductions may go away. And your ability to recover from market downturns may change.

That does not mean retirement has to feel stressful or uncertain.

It means you need a plan.

The best retirement plans are not just about how much money you have saved. They are about how that money will be used, taxed, invested, protected, and turned into income.

If you are nearing retirement, now is the time to prepare for these changes. If you are already retired, now is the time to review your plan and make sure it still supports the life you want.

Retirement can be one of the most rewarding seasons of life, but only if you understand what changes when the paycheck stops.

Take the Guesswork Out of Retirement

Retirement comes with major changes, but you do not have to figure them out alone.

With The Bonfire Method, Bonfire Financial helps you build a clear plan for your retirement income, taxes, healthcare, investments, and long-term goals.

If you are nearing retirement or already retired, now is the time to make sure your plan is working for you.

Book a call with Bonfire Financial today and take the next step toward a more confident retirement.

Retirement Investing Strategy: How $100K Can Grow Into $2 Million

Posted on by Brian Colvert

How a Smart Retirement Investing Strategy Can Help $100K Grow Into $2 Million

Can $100,000 really grow into $2 million by retirement?

For many people, that number feels unrealistic. It sounds like something that only happens if you pick the right stock, get lucky with the market, inherit money, or earn an extremely high income.

But that is not usually how retirement wealth is built.

In reality, growing $100K into $2 million often comes down to a handful of simple but powerful retirement investing strategies. They are not flashy. They do not require perfect market timing. And they definitely do not require chasing the next hot investment.

They require consistency, patience, discipline, and the right structure.

Today we will break down five reasons some retirees are able to turn $100,000 into $2 million or more, and how you can apply those same principles to your own retirement plan.

Keep reading, or if you prefer to listen or watch… check out the Podcast or full YouTube video.

1. Let Compounding Do the Heavy Lifting

The first major reason $100K can grow into $2 million is the power of compounding. Compounding is when your money earns returns, and then those returns begin earning returns of their own. Over time, that snowball effect can become incredibly powerful.

For example, if $100,000 grows at an average annual return of around 10%, it can grow to more than $1.7 million over roughly 30 years. That does not happen because of one lucky investment. It happens because time and growth are working together.

The problem is that compounding is hard to see in the beginning. In the early years, the growth can feel slow. You may not feel like much is happening. But later, the growth can accelerate because your gains are building on prior gains.

That is why one of the biggest mistakes investors make is interrupting compounding too early. They get impatient. They move in and out of the market. They stop investing during scary periods. Or they keep too much money sitting in cash because they are waiting for the “perfect” time to invest.

But compounding rewards time in the market, not perfect timing. The sooner you start and the longer you stay invested, the more opportunity your money has to grow.

2. Contribute Consistently

Compounding is powerful, but it needs fuel.

That fuel is consistent contributions.

Most people who build serious retirement wealth do not do it by investing one time and walking away forever. They build wealth by putting money away consistently over many years.

That may mean contributing to a 401(k), Roth IRA, brokerage account, SEP IRA, SIMPLE IRA, or another investment account. The exact account depends on your situation, but the habit is the same: money goes in regularly.

One of the best ways to make this happen is to automate it.

Willpower is not a great retirement strategy. Life gets busy. Expenses pop up. Markets get scary. It is easy to talk yourself out of investing when you have to manually make the decision every month.

Automation removes that friction. When contributions happen automatically, you are no longer relying on motivation. You are building the habit into your financial system.

That is how retirement wealth is usually created. Not through one dramatic decision, but through repeated decisions made easier over time.

A strong retirement investing strategy should answer questions like:

  • How much are you saving each month?
  • Which accounts are you contributing to?
  • Are your contributions automatic?
  • Are you increasing contributions as your income grows?
  • Are you taking advantage of employer matching when available?

If you want $100K to become $2 million, consistency matters. A lot.

3. Stay Invested When the Market Drops

This is where many investors lose momentum. It is easy to say you are a long-term investor when the market is going up. It is much harder when your account is down 20%, 30%, 40%, or more.

When the market drops, people do not usually think in percentages. They think in dollars.

A 20% decline on a $1 million portfolio is not just “20%.” It feels like $200,000 is gone. That can be emotionally brutal, especially for people approaching retirement.

This is when investors often panic. They sell. They move to cash. They abandon the strategy they built during calmer times.

The problem is that selling after a major decline can lock in losses and make it harder to recover.

For example, if you have $100,000 and the market drops 50%, you now have $50,000. To get back to $100,000, you do not need a 50% gain. You need a 100% gain.

That is why your investment strategy needs to match your actual risk tolerance before the downturn happens. If your portfolio is too aggressive, you may not be able to emotionally stick with it when things get rough. But if your portfolio is too conservative, your money may not grow enough to support the retirement you want.

The goal is not to build the most aggressive portfolio possible. The goal is to build a portfolio you can stay invested in through different market cycles.

Because the investors who benefit from long-term growth are usually the ones who remain invested long enough to experience it.

4. Keep Investment Fees Low

High fees can quietly eat away at your retirement savings.

That is why fees are often called the silent killer of investment returns. Many investors do not realize how much they are paying inside mutual funds, ETFs, annuities, insurance products, alternative investments, or retirement plans. The fees may be disclosed, but they are often buried in long documents most people never read.

Even a small difference in fees can have a major impact over time.

For example, there is a big difference between an investment charging 0.03% and one charging 1.5%. That difference may not feel huge in one year, but over decades it can add up to a substantial amount of money.

The issue is not that every fee is bad.

Sometimes paying for advice, planning, or professional management can make sense. The real question is whether you understand what you are paying and whether you are receiving value for that cost.

A good retirement investing strategy should help you identify:

  • Fund expense ratios
  • 401(k) administrative fees
  • Advisory fees
  • Annuity or insurance product fees
  • Trading costs
  • Hidden or layered investment expenses

If you have a 401(k), you can often find fee information on your quarterly statement, summary plan description, or by asking your plan administrator. You can also look up fund tickers through financial research sites to review expense ratios.

The bottom line is simple: the less you lose unnecessarily to fees, the more of your return you keep. And the more you keep, the more you can compound.

5. Use the Right Mix of Retirement Accounts

Building $2 million is one thing. Keeping more of it is another.

This is where account structure becomes incredibly important.

Many people save heavily into a 401(k), which can be a great tool. But if all of your retirement savings are in pre-tax accounts, you may create a tax problem later.

Money taken out of a traditional 401(k), traditional IRA, SEP IRA, SIMPLE IRA, or profit-sharing plan is generally taxed as ordinary income. That means every dollar you withdraw can increase your taxable income in retirement.

If all of your retirement income comes from pre-tax accounts, you may have less flexibility to manage your tax bill.

That is why it can help to build wealth across different types of accounts.

Pre-tax accounts

These include accounts like traditional 401(k)s, traditional IRAs, SEP IRAs, SIMPLE IRAs, and profit-sharing plans.

You may receive a tax benefit when you contribute, but withdrawals are generally taxable later.

Roth accounts

Roth IRAs and Roth 401(k)s are funded with after-tax dollars. The potential benefit is that qualified withdrawals can be tax-free in retirement.

This can give you more flexibility later, especially if tax rates rise or your taxable income is higher than expected.

Taxable brokerage accounts

Brokerage accounts are funded with after-tax dollars. You do not receive the same upfront tax break as a pre-tax retirement account, but you may have more flexibility with withdrawals, capital gains treatment, and access before retirement age.

Having a mix of account types can give you more options.

For example, in retirement, you may choose to take some income from a pre-tax account, some from a Roth account, and some from a brokerage account. That can help you manage your taxable income, coordinate with Social Security, and potentially reduce unnecessary taxes.

This is one of the biggest differences between simply accumulating money and building a real retirement income strategy.

The goal is not just to grow the account balance, it is to create flexibility, control, and income that supports the life you want.

The Real Retirement Investing Strategy

The retirees who grow $100K into $2 million usually do not get there because they made one genius investment.

  • They usually get there because they followed a few core principles for a long period of time.
  • They understood compounding.
  • They contributed consistently.
  • They stayed invested through difficult markets.
  • They paid attention to fees.
  • They built wealth across the right types of accounts.

None of these strategies require you to predict the future. None require you to time the market perfectly. And none require you to chase whatever investment is popular this year.

But they do require a plan.

Without a plan, it is easy to make emotional decisions. It is easy to overpay in fees. It is easy to end up with all of your money in one tax bucket. And it is easy to build wealth without knowing how to turn that wealth into retirement income.

That is where many people get stuck. They save. They invest. They accumulate.

But when retirement gets closer, they realize they do not have a coordinated strategy for taxes, income, risk, withdrawals, and long-term flexibility.

Bringing It All Together

A smart retirement investing strategy is not just about picking investments. It is about building a system that helps your money grow, protects you from emotional decisions, reduces unnecessary costs, and gives you flexibility when you need income later.

Turning $100K into $2 million does not happen overnight. It happens through time, discipline, and structure.

  • The earlier you start, the more powerful compounding can become.
  • The more consistently you contribute, the more fuel you give your plan.
  • The better your portfolio fits your risk tolerance, the more likely you are to stay invested.
  • The more you understand your fees, the more of your return you can keep.
  • And the better your account structure, the more control you may have in retirement.

That is the difference between simply having investments and having a retirement strategy.

Next Steps

If you are serious about retirement, do not stop at asking, “Am I invested?”

Ask better questions:

  • Do I have the right retirement investing strategy?
  • Am I saving enough?
  • Am I using the right mix of accounts?
  • Am I paying too much in fees?
  • Could taxes take more of my retirement income than they need to?
  • Do I know how I will turn my portfolio into income?

At Bonfire Financial, we help people answer those questions through a more complete planning process.

The Bonfire Method is designed to help you look at your full financial picture, including investments, taxes, income, risk, and retirement goals, so you can make smarter decisions with more confidence.

If you want to know whether your current strategy is built to support the retirement you actually want, schedule a call with Bonfire Financial.

A better retirement does not happen by accident. It starts with a better strategy.

How Much Should You Have in Your 401(k) by Age?

Posted on by Brian Colvert

How Much Should You Have in Your 401(k) by Age?

Most people know they should be saving for retirement.

They know they should be contributing to their 401(k). They know they should probably be saving more than they are. They know retirement will be expensive. They know Social Security probably will not be enough on its own.

But here is where the confusion starts.

How much should you actually have in your 401(k) by age?

Is the average 401(k) balance a good benchmark? Is maxing out your 401(k) enough? Should all your retirement money be in one account? And if your 401(k) balance looks healthy, does that automatically mean your retirement plan is on track?

Not necessarily.

Keep reading, or if you prefer to listen or watch… check out the Podcast or full YouTube video.

A 401(k) can be one of the most powerful retirement savings tools available, but it was never meant to be your entire retirement plan. The problem is that many people have been trained to look at one number, their 401(k) balance, and assume that number tells the whole story.

It does not.

There is a big difference between having a large retirement account and having a retirement strategy that actually works. Your 401(k) balance matters, but so does where that money is held, how it will be taxed, how much flexibility you have, what fees you are paying, and whether you will be able to use your money in the way you want when retirement arrives.

So let’s walk through how much you should aim to have saved by age, what the averages really mean, and why the number alone is only part of the picture.

Why Your 401(k) Balance Is Not the Whole Story

A lot of people treat their 401(k) like it is their entire retirement plan.

They contribute every paycheck, maybe increase the percentage every few years, and occasionally check the balance. If the number is going up, they assume they are doing okay.

That is understandable. It feels productive. It feels responsible. And in many ways, it is.

But a 401(k) balance can be misleading.

For example, having $1 million in a traditional pre-tax 401(k) is not the same as having $1 million spread across a traditional 401(k), a Roth account, and a taxable brokerage account.

The total balance might look the same on paper, but the retirement experience can be very different.

That is because traditional 401(k) money has not been taxed yet. Every dollar you withdraw in retirement is generally treated as ordinary income. That means your tax bill, Medicare premiums, Social Security taxation, and required minimum distributions can all be affected by how much money you have sitting in pre-tax accounts.

In other words, the question is not just, “How much do I have?”

The better question is, “How much control will I have over my income, taxes, and withdrawals in retirement?”

That is where many people miss the bigger picture.

A big 401(k) balance is great. But if all of your money is locked in one tax bucket, you may have fewer choices than you think.

The History of the 401(k), and Why It Matters

The 401(k) was not originally designed to carry the entire weight of someone’s retirement.

Decades ago, many workers had pensions. Employers were responsible for funding a meaningful portion of retirement income. The 401(k) was meant to be a supplemental savings vehicle, something that worked alongside pensions, Social Security, and personal savings.

Over time, that changed.

As pensions became less common, more of the responsibility shifted from employers to employees. The 401(k) became the primary retirement savings tool for millions of Americans.

That shift matters because the burden is now on individuals to make decisions that used to be handled, at least in part, by employers and pension systems.

  • You have to decide how much to contribute.
  • You have to choose your investments.
  • You have to understand your fees.
  • You have to figure out Roth versus traditional contributions.
  • You have to think about taxable savings.
  • You have to plan for taxes, withdrawal strategies, and required minimum distributions.

That is a lot to put on someone who may have never been taught how retirement planning actually works.

This is why simply asking, “How much should I have in my 401(k)?” is a good start, but it is not enough.

You also need to know whether your overall plan is built correctly.

Average 401(k) Balances by Age

One of the most common mistakes people make is comparing themselves to average retirement savings numbers. The problem is that “average” does not always mean “on track.”

If the average person is underprepared for retirement, being above average may still leave you short.

According to the figures discussed in the episode, average 401(k) balances look roughly like this:

Age Average 401(k) Balance
30 $37,000
40 $97,000
50 $190,000
60 $271,000

At first glance, those numbers may not sound terrible. A 40-year-old with nearly $100,000 saved might feel like they are making progress. A 50-year-old with close to $200,000 might feel like they have built a decent foundation.

And they have.

But progress is not the same as being on pace. The real question is whether those balances are enough to support the lifestyle, tax flexibility, health care costs, inflation, and longevity risks that retirement can bring.

For many people, the answer is no.

How Much Should You Have Saved by Age?

A more useful benchmark is based on your income.

Instead of asking how your 401(k) compares to the national average, ask how your savings compare to your annual salary.

Here are the general targets discussed in the episode:

Age Retirement Savings Target
30 1x annual salary
40 3x annual salary
45 4x to 6x annual salary
50 6x to 10x annual salary
55 8x to 10x annual salary
60 to 62 $1 million to $1.5 million total savings
Retirement Around 20x annual salary

These are not perfect numbers for every person, but they give you a better sense of whether you are building toward a retirement that gives you options.

Let’s break that down.

How Much Should You Have in Your 401(k) by Age 30?

By age 30, a common goal is to have about one times your annual salary saved.

So if you earn $60,000 per year, you would ideally have around $60,000 saved for retirement by age 30.

That does not mean you have failed if you are not there. Many people start saving later because of student loans, lower early-career income, family expenses, or simply not knowing what they should be doing yet.

But age 30 is when momentum starts to matter.

The biggest advantage you have in your 20s and early 30s is time. Every dollar invested early has more years to compound. That means even modest contributions can become meaningful later.

At this stage, the most important habits are:

  • Contributing consistently.
  • Getting your employer match if one is available.
  • Increasing your contribution rate as your income rises.
  • Starting Roth contributions if they make sense for your situation.
  • Avoiding high-fee investments when lower-cost options are available.

If you are 30 and behind, do not panic. But do not ignore it either. Small changes made early can carry a lot of weight over time.

How Much Should You Have in Your 401(k) by Age 40?

By age 40, the target is roughly three times your annual salary.

If you earn $80,000 per year, that means aiming for around $240,000 in total retirement savings.

This is where the gap between averages and targets becomes more obvious.

If the average 40-year-old has around $97,000 in a 401(k), but the target for someone earning $80,000 is closer to $240,000, the average person may be less than halfway to where they should be.

Your 40s are an important decade because you still have time, but you no longer have unlimited time.

This is often when income starts rising, but so do expenses. Mortgage payments, kids, college savings, home repairs, aging parents, lifestyle upgrades, and business or career changes can all compete for cash flow.

That is why this decade requires intention.

If you are in your 40s, your goal is not just to save more. Your goal is to start organizing your retirement money more strategically.

That means looking at:

  • How much is in traditional pre-tax accounts.
  • How much is in Roth accounts.
  • Whether you have taxable brokerage savings.
  • Whether your investment allocation still matches your timeline.
  • Whether your fees are quietly eating into your returns.
  • Whether your contribution rate is high enough to close the gap.

By 40, the conversation should shift from “Am I saving?” to “Am I saving in the right way?”

How Much Should You Have in Your 401(k) by Age 50?

By age 50, the target is often six to ten times your annual salary.

If you earn $100,000 per year, that means aiming for $600,000 to $1 million in total retirement savings.

That number can feel intimidating.

But age 50 is also where an important opportunity begins: catch-up contributions.

Once you reach age 50, you can generally contribute more to your 401(k) than younger workers. That can make your 50s one of the most powerful savings decades of your life.

This is especially important for people who feel behind.

Many people assume that if they are not where they should be by 50, the game is over. That is not true.

It does mean you need a real plan.

Your 50s are often a high-earning period. Kids may be getting older. Some expenses may eventually decrease. You may have more clarity about when you want to retire and what kind of lifestyle you want.

This is the decade to get serious.

That may include maxing out your 401(k), using catch-up contributions, building Roth assets, saving into a taxable brokerage account, reducing debt, and creating a more detailed retirement income plan.

The mistake is waiting until 60 to start asking whether you are on track.

By then, you still have options, but fewer of them.

How Much Should You Have by Age 55?

By age 55, a strong target is eight to ten times your annual salary.

At this point, retirement may no longer feel like a distant idea. It may be 10 years away, maybe less.

This is also when account mix becomes increasingly important.

If most or all of your retirement savings are in a traditional 401(k), you may be building a future tax problem without realizing it.

That does not mean traditional 401(k)s are bad. They can be extremely useful. Pre-tax contributions may reduce your taxable income today, and employer matches can be valuable.

But if every retirement dollar is pre-tax, you may have less flexibility later.

By your mid-50s, you should start thinking seriously about where your retirement income will come from.

  • Will withdrawals come from a traditional 401(k)?
  • A Roth IRA?
  • A Roth 401(k)?
  • A taxable brokerage account?
  • Cash reserves?
  • Social Security?
  • Business income?
  • Real estate?

The more tax buckets you have, the more flexibility you may have when it is time to create income.

How Much Should You Have by Age 60?

How Much Should You Have by Age 60?

By age 60 to 62, the target discussed in the episode is roughly $1 million to $1.5 million in total retirement savings.

For some people, that number will be too high. For others, it may not be high enough.

It depends on your lifestyle, location, health care needs, debt, retirement age, inflation assumptions, Social Security timing, and how much income you want in retirement.

But by age 60, the big questions become much more practical.

  • Can you retire when you want?
  • How much can you safely spend?
  • When should you claim Social Security?
  • How much will taxes reduce your income?
  • Do you have enough outside your 401(k)?
  • How will required minimum distributions affect you later?
  • Will your Medicare premiums increase because of your income?
  • Do you have enough flexibility to handle unexpected expenses?

At this stage, your retirement plan needs to become more specific. Broad rules of thumb are helpful, but they cannot replace actual planning.

The Real Retirement Target: Around 20x Annual Income

The episode discusses a long-term target of around 20 times your annual salary by retirement.

For example, if you earn $70,000 per year, that would mean a target of about $1.4 million.

Again, this is a general benchmark. It is not a personalized financial plan.

Some retirees need less because they have low expenses, no debt, strong Social Security benefits, or other income sources. Others need more because they want to travel, support family, retire early, live in a high-cost area, or maintain a more expensive lifestyle.

The point is not that everyone needs the exact same number.

The point is that retirement requires more than crossing your fingers and hoping your 401(k) balance is good enough.

You need a target. You need a strategy. And you need to understand how that money will actually turn into income.

Why Fees Matter More Than People Think

One of the most overlooked parts of 401(k) planning is fees.

Many people do not know what they are paying inside their retirement plan. They see investment options, choose a fund, and assume the cost is minor.

Sometimes it is. Sometimes it is not.

The transcript gives a simple example:

Two people invest $500 per month for 30 years.

Both earn the same 7% return.

One pays a 0.5% expense ratio.

The other pays a 1.5% expense ratio.

The difference over time is significant. The person paying the higher fee could end up with around $100,000 less, even though they contributed the same amount and earned the same gross return.

That is the problem with fees. They are easy to ignore because they do not usually show up as a bill in your mailbox.

You do not feel them leaving your account every month.

But they still reduce your return.

And over decades, even a 1% difference can become a very large number.

If you have not reviewed your 401(k) fees, this is one of the simplest places to start.

Look at the expense ratios on your investment options. If you are paying more than 1%, check whether your plan offers lower-cost index funds or other more efficient options.

This one change may not solve your entire retirement plan, but it can make a meaningful difference.

The Tax Problem With a Large Traditional 401(k)

A traditional 401(k) gives you a tax break today.

That can be valuable.

But the tradeoff is that you generally pay taxes later when you withdraw the money.

For many people, that sounds fine. They assume they will be in a lower tax bracket in retirement.

Sometimes that is true. But not always.

If you build a large pre-tax balance, your future withdrawals can create a large taxable income stream. Once required minimum distributions begin, the IRS can force you to take money out even if you do not need it.

That can create several problems.

  • It can push you into a higher tax bracket.
  • It can cause more of your Social Security benefits to be taxable.
  • It can increase Medicare-related costs.
  • It can reduce your flexibility in managing retirement income.

This is why a $1 million traditional 401(k) is not the same as $1 million spread across different types of accounts.

When all your money is in one tax bucket, you may have fewer levers to pull.

Why Account Mix Matters

Account mix refers to where your money is saved, not just how much you have saved.

A strong retirement strategy often includes a combination of:

  • Traditional pre-tax accounts.
  • Roth accounts.
  • Taxable brokerage accounts.
  • Cash reserves.
  • Other income sources, depending on your situation.

Each account type has a different tax treatment.

  • Traditional accounts may reduce taxes today, but withdrawals are generally taxable later.
  • Roth accounts do not usually provide the same upfront tax deduction, but qualified withdrawals can be tax-free.
  • Taxable brokerage accounts may offer more flexibility and different tax treatment, depending on the investments and how long you hold them.

Having a mix of account types can give you more control.

For example, in a high-income year, you may choose to draw more from Roth or taxable accounts. In a lower-income year, you may draw more from traditional accounts. That flexibility can help you manage taxes over time.

The goal is not to avoid taxes completely. The goal is to avoid building a retirement plan where taxes control you instead of the other way around.

Roth vs. Traditional 401(k): Which Is Better?

There is no one-size-fits-all answer. A traditional 401(k) may make sense if you are in a high tax bracket today and expect to be in a lower tax bracket in retirement.

A Roth 401(k) may make sense if you expect your tax rate to be higher later, want tax-free income in retirement, or need more tax diversification.

Many people benefit from having both.

The mistake is assuming the traditional 401(k) is always the default best choice simply because it lowers taxes today.

A tax break today can feel good, but it may create a tax bill later.

On the other hand, Roth contributions can feel more expensive today because you do not get the same upfront deduction. But they may give you more flexibility in retirement.

This is where planning matters.

The right answer depends on your income, age, tax bracket, retirement timeline, savings rate, existing account balances, and long-term goals.

What If You Feel Behind?

If you feel behind, you are not alone. Almost everyone who looks seriously at retirement for the first time feels some level of panic.

That does not mean you are doomed. It means you need clarity.

The worst thing you can do is avoid the numbers because they make you uncomfortable. The numbers are not there to shame you. They are there to give you direction.

If you are behind, your next steps may include:

  • Increasing your contribution rate.
  • Capturing your full employer match.
  • Reducing high investment fees.
  • Using catch-up contributions if you are eligible.
  • Considering Roth or taxable savings.
  • Reviewing your investment allocation.
  • Creating a debt payoff strategy.
  • Running a real retirement projection.
  • Looking at your expected Social Security benefits.
  • Identifying your desired retirement lifestyle.

The gap may be smaller than it feels once you have a plan. But guessing is not a plan.

Your 50s Can Be a Powerful Catch-Up Decade

One of the most encouraging parts of the episode is the reminder that your 50s can be incredibly powerful.

If you are 50 and feel behind, you still have tools available.

Catch-up contributions allow you to save more into retirement accounts once you reach certain ages. For people with strong income and the ability to increase savings, those extra contributions can make a major difference.

The episode gives an example of someone age 50 with $300,000 saved. By maximizing contributions, using catch-up opportunities, receiving an employer match, and earning a steady return, that person could potentially grow the balance substantially by age 63.

The key lesson is not that every person will get the exact same result.

The key lesson is that the math may still work better than you think.

But you have to act.

The people who benefit most from catch-up contributions are the ones who start using them as soon as they are eligible, not the ones who wait until the last few years before retirement.

The Biggest 401(k) Mistakes to Avoid

There are several common mistakes that can hurt your retirement plan.

  1. The first is contributing too little. Many people contribute just enough to get the employer match, then stop there. That is better than doing nothing, but it may not be enough to reach your goals.
  2. The second is ignoring fees. High expense ratios can quietly reduce your long-term returns. If lower-cost options are available, it is worth reviewing them.
  3. The third is putting everything into a traditional pre-tax account. This can create a lack of tax flexibility later.
  4. The fourth is assuming average means safe. Average retirement savings numbers can make you feel better, but they may not reflect what you actually need.
  5. The fifth is waiting too long to plan. Retirement planning becomes more powerful when you start before you are forced to make decisions.
  6. The sixth is thinking a 401(k) balance equals retirement readiness. It does not. Retirement readiness includes income planning, tax planning, investment strategy, health care costs, estate planning, risk management, and lifestyle planning.

So, How Much Should You Have in Your 401(k) by Age?

Here is a simple recap:

  • By age 30, aim for one times your annual salary.
  • By age 40, aim for three times your annual salary.
  • By age 45, aim for four to six times your annual salary.
  • By age 50, aim for six to ten times your annual salary.
  • By age 55, aim for eight to ten times your annual salary.
  • By age 60 to 62, aim for roughly $1 million to $1.5 million in total retirement savings, depending on your income and goals.
  • By retirement, a broader target may be around 20 times your annual income.

But remember, the number is only part of the story.

A strong retirement plan also considers:

  • Taxes.
  • Fees.
  • Account mix.
  • Withdrawal flexibility.
  • Roth versus traditional savings.
  • Required minimum distributions.
  • Social Security.
  • Medicare costs.
  • Inflation.
  • Longevity.
  • Your actual lifestyle goals.

That is why the best retirement plans are not built around one account. They are built around a coordinated strategy.

Final Thoughts

Your 401(k) is important. It may be one of the most valuable wealth-building tools available to you. But your 401(k) is not, by itself, a complete retirement plan.

The real goal is not just to build the biggest balance possible. The real goal is to build a retirement strategy that gives you flexibility, control, and confidence when you actually need to use the money.

  • That means knowing your target number.
  • It means understanding whether you are on track.
  • It means checking your fees.
  • It means thinking carefully about taxes.
  • It means building the right mix of traditional, Roth, and taxable assets.
  • And most importantly, it means having a plan that is specific to your life, not just based on averages.

If your numbers feel behind, do not ignore them. Start there. Get clear. Look at what you have, what you need, and what changes could help close the gap.

Because the sooner you understand where you stand, the more options you may have. And in retirement, options matter.

Next Steps: Build a Retirement Plan, Not Just a 401(k)

Knowing how much you should have in your 401(k) by age is a helpful starting point, but it is not the full plan. The real question is whether your savings are structured in a way that gives you flexibility, tax efficiency, and confidence in retirement.

That is where the Bonfire Method comes in.

At Bonfire Financial, we take a planning-first approach that looks at your full picture: savings, investments, taxes, income needs, account mix, and long-term goals. Then we help you build a retirement strategy designed around your life, not just a generic benchmark.

Because a strong retirement is not just about how much you have saved. It is about having the right money, in the right places, with the right plan behind it.

Ready to stop guessing? Schedule a call with Bonfire Financial to see how the Bonfire Method can help you build a retirement plan that actually works.

8 Retirement Assets Wealthy Retirees Avoid

Posted on by Brian Colvert

The Most Overrated Retirement Assets

When most people think about building wealth in retirement, they focus on buying more assets. More real estate, more investments, more financial products. More “opportunities.” But wealthy retirees often think very differently. Instead of chasing every investment idea that gets pitched to them, they focus heavily on simplicity, cash flow, flexibility, and avoiding unnecessary financial drag.

That distinction matters.

Some retirement assets look impressive on paper but quietly create stress, reduce liquidity, increase fees, or slowly eat away at retirement income over time. Others are sold aggressively because they generate commissions for someone else, not because they are necessarily the best fit for your situation.

We regularly meet retirees who own assets they barely understand, properties that lose money every month, or financial products that sounded great in the sales presentation but became frustrating later. The goal is not to say every one of these retirement assets is automatically bad. In some cases, they can absolutely make sense. The key is understanding whether the asset truly supports your retirement lifestyle and long-term financial goals.

Here are eight retirement assets wealthy retirees often avoid, or at the very least approach with much more caution.

Keep reading, or if you prefer to listen or watch… check out the Podcast or full YouTube video.

1. Investment Real Estate That Does Not Cash Flow

Real estate can absolutely be a fantastic investment. Many wealthy individuals have built substantial wealth through real estate ownership.

But there is a major difference between owning productive real estate and owning a property that consistently drains your cash flow.

One of the most common retirement asset mistakes people make is buying investment properties that lose money every month while convincing themselves the appreciation will eventually make it worthwhile. Often the justification becomes:

“It’ll be paid off someday.”

The problem is that retirement is about cash flow now, not just theoretical future equity decades later.

If a property requires constant subsidizing, expensive maintenance, ongoing repairs, rising insurance premiums, and unpredictable tenant issues, it may not actually be serving your retirement lifestyle the way you think it is.

That does not mean every property must generate massive profits immediately. Some investors intentionally pursue appreciation-focused strategies. But wealthy retirees usually understand exactly why they own a property, what role it serves, and whether it is helping or hurting their financial picture.

The key question is simple:

Is this retirement asset improving your life and strengthening your finances, or is it becoming a burden?

2. Complex Financial Products You Do Not Understand

One thing wealthy retirees often avoid is unnecessary complexity.

Many financial products sound incredibly appealing because they promise downside protection, enhanced income, or sophisticated strategies unavailable to average investors. Structured notes and highly engineered financial products are often marketed this way.

The issue is not necessarily that these products are always bad. Some can absolutely serve a purpose in certain situations.

The problem is when people buy retirement assets they do not truly understand.

If you cannot clearly explain:

  • How the investment works
  • What risks exist
  • When you can access your money
  • How returns are generated
  • What the fees are

then you probably should not own it.

Wealthy retirees who sleep well at night often prioritize clarity over complexity. They know where their money is, what it is doing, and why they own it. That level of simplicity becomes incredibly valuable in retirement.

3. Timeshares

Timeshares are one of the most heavily sold retirement assets on the market.

The sales presentations are designed to feel emotional and exciting. Beautiful resorts, family memories, beachfront views, luxury vacations, and the promise of saving money long-term can make timeshares sound extremely appealing in the moment.

But the reality often looks very different later.

Many retirees eventually realize they committed themselves to:

  • Long-term contracts
  • Ongoing maintenance fees
  • Limited flexibility
  • Rising costs
  • Difficult resale markets

Life changes over time. Health changes. Travel preferences change. Family dynamics change.

A vacation property that seemed perfect ten years ago may no longer fit your lifestyle today.

Wealthy retirees often value flexibility more than people realize. Instead of locking themselves into long-term vacation commitments, many prefer the freedom to travel wherever they want, when they want, without ongoing contractual obligations.

The issue is not necessarily the vacation itself. The issue is becoming financially trapped by an asset that no longer serves your lifestyle.

4. Whole Life Insurance as an Investment

Insurance is incredibly important.

But insurance and investing are not always the same thing.

One of the more controversial retirement assets is whole life insurance used primarily as an investment vehicle. These policies are often marketed as:

  • Forced savings
  • Tax advantages
  • Borrowing opportunities
  • Stable growth
  • Wealth-building tools

And while there are situations where whole life insurance absolutely makes sense, many retirees end up purchasing expensive policies that may not align with their actual needs.

One major issue is cost.

Whole life insurance policies can involve:

  • High premiums
  • Significant commissions
  • Slow early growth
  • Complex structures
  • Lower long-term returns compared to other investments

That does not automatically make them bad. But wealthy retirees typically understand exactly why they are purchasing a policy before committing to one.

If the primary need is protecting a spouse or family financially, there may be simpler and more efficient ways to accomplish that goal.

This is why many retirees should approach whole life insurance carefully rather than assuming it is automatically a strong investment.

5. High-Fee Annuities

Annuities are another retirement asset that can create strong opinions.

The truth is, annuities are not inherently bad. In fact, some retirees benefit tremendously from them.

At their core, annuities function somewhat like personal pensions by providing guaranteed income streams.

That can be extremely valuable in retirement.

However, many retirees buy annuities without fully understanding:

  • The fees
  • Liquidity restrictions
  • Tax implications
  • Surrender periods
  • Income limitations

Some annuities contain fees that quietly reduce returns year after year. Others lock up money for extended periods, making access difficult without penalties. This becomes especially problematic when retirees need flexibility later.

Wealthy retirees often avoid retirement assets that unnecessarily trap capital or create confusion. If they use annuities, it is usually because the product fits a very specific need within an overall retirement strategy.

Not because it was aggressively sold as a one-size-fits-all solution.

6. Vacation Homes That Become Financial Burdens

Vacation homes sound amazing in theory.

And for some wealthy retirees, they absolutely can be.

But there is an important difference between enjoying a second home and becoming financially overextended because of one.

Many retirees underestimate the true cost of owning multiple properties. Beyond the mortgage itself, there are:

  • Taxes
  • Insurance
  • Maintenance
  • Utilities
  • Repairs
  • Furnishing costs
  • HOA fees
  • Travel expenses

In some cases, retirees discover they spend more time maintaining the property than actually enjoying it.

Instead of feeling like a relaxing escape, the property slowly becomes another responsibility.

Wealthy retirees tend to evaluate retirement assets based on lifestyle value, not just emotional appeal. If a second home genuinely improves quality of life and fits comfortably within the financial plan, that is one thing.

But if it is creating stress, adding too many expenses, reducing flexibility, or draining cash flow, it may no longer be serving its intended purpose.

Sometimes renting luxury vacations when desired creates far more freedom than owning another home full-time.

7. High-Fee Actively Managed Mutual Funds

Many retirees assume actively managed mutual funds must be superior because professional managers are selecting investments on their behalf.

But statistics consistently show that many actively managed funds underperform their benchmarks over long periods of time, especially after fees.

This becomes one of the biggest hidden problems with certain retirement assets.

Fees matter enormously over time.

Even small percentage differences can compound into substantial reductions in long-term wealth over decades.

Wealthy retirees often focus heavily on:

  • Low costs
  • Tax efficiency
  • Diversification
  • Simplicity
  • Long-term consistency

That is one reason index investing has become increasingly popular.

The issue is not that every actively managed fund is bad. Some managers absolutely outperform. The challenge is identifying them consistently in advance.

Many retirees end up paying high fees for performance that ultimately fails to justify the added cost.

8. Oversized Homes

A home is not automatically a bad retirement asset.

But oversized homes can quietly become major financial drains in retirement.

Many retirees remain in houses far larger than what they realistically use because of emotional attachment or habit. Meanwhile, the ongoing costs continue rising:

  • Property taxes
  • Insurance
  • Utilities
  • Repairs
  • Landscaping
  • Cleaning
  • Maintenance

A large home can also create physical stress as people age.

Wealthy retirees often prioritize functionality and lifestyle over simply owning the biggest house possible. They understand that reducing unnecessary overhead can significantly improve retirement flexibility and reduce financial pressure.

This does not mean everyone should downsize immediately. But retirees should honestly evaluate whether their current home still serves their life today or whether it is simply consuming resources unnecessarily.

Sometimes simplifying housing creates one of the biggest quality-of-life improvements in retirement.

The Common Theme Behind These Retirement Assets

Every retirement asset on this list shares something in common.

They often:

  • Look impressive initially
  • Are heavily sold
  • Sound financially sophisticated
  • Create hidden costs
  • Reduce flexibility
  • Add complexity
  • Slowly transfer value away from the owner

Wealthy retirees who feel financially secure often approach retirement differently.

They tend to value:

  • Cash flow
  • Simplicity
  • Liquidity
  • Flexibility
  • Low fees
  • Clear understanding
  • Lifestyle alignment

They know exactly what their money is doing and why they own each asset.

That level of clarity becomes incredibly important in retirement because complexity often creates stress, confusion, and hidden financial inefficiencies.

Simplicity Often Wins in Retirement

One of the biggest misconceptions about wealth is that wealthy retirees own the most complicated portfolios or sophisticated financial products.

In reality, many financially successful retirees keep things surprisingly simple.

They focus on:

Retirement should ideally create freedom, not additional stress.

The goal is not accumulating impressive-sounding retirement assets. The goal is building a financial life that supports your lifestyle, protects your long-term security, and gives you confidence moving forward.

Final Thoughts

Not every retirement asset is automatically good or bad.

The real question is whether the asset aligns with your goals, cash flow needs, risk tolerance, and retirement lifestyle.

Many retirement products are marketed aggressively because they generate commissions, fees, or long-term contracts. That does not mean they are wrong for everyone. But it does mean retirees should approach them carefully and fully understand what they are buying before committing.

At Bonfire Financial, we believe retirement planning works best when people clearly understand how every piece of their financial picture fits together. If you want help evaluating your retirement assets and building a coordinated retirement strategy, learn more about The Bonfire Method and schedule a conversation with our team.

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