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What this article covers

Financial advisors weigh the real pros, cons, and emotional complexities of reverse mortgages — and offer a practical framework for deciding whether tapping home equity is the right move for your retirement.

It can be a financial lifeline for struggling retirees.

Or it can turn out to be an expensive trap.

“It” is the reverse mortgage, first issued more than six decades ago in a bid to help a Maine widow stay in her home, and subject to periodic tinkering by Congress ever since.

If you’re a near-retiree or in your early retirement years, you may be caught in an uncomfortable situation.

Key Takeaways

1

For Many Retirees, Home Equity Is Their Largest Untapped Financial Resource

When primary residence equity is excluded, the median net worth of Americans aged 65–69 drops from roughly $394,000 to just $132,000 — enough to generate only about $5,000 annually under the 4% rule. For retirees with a significant income gap but substantial home equity, a reverse mortgage can convert an illiquid asset into usable retirement income without requiring a monthly payment.

2

A Reverse Mortgage Works Best as a Strategic Tool, Not a Distress Solution

Advisors who support reverse mortgages emphasize using them proactively — to reduce portfolio withdrawals during market downturns, delay Social Security, or create a healthcare buffer — rather than grabbing them as a last resort under financial pressure. Reactive use, when options are already limited, typically produces worse outcomes and leaves less room to weigh the tradeoffs carefully.

3

High Fees, Maintenance Requirements, and Reduced Flexibility Are the Biggest Risks

Reverse mortgages carry origination fees, closing costs, mortgage insurance premiums, and higher interest rates than standard loans. You remain responsible for property taxes, insurance, and maintenance — and failure to keep up can trigger foreclosure. If you move sooner than planned, or life circumstances change, the income stream ends and the high upfront costs will have bought you little in return.

The Retirement Income Gap That Makes Home Equity So Attractive

Here’s an illustrative example for how retirement math can work.

The average combined Social Security retirement benefit for couples where both worked is $50k. That’s about 60% of the median US household income of $84k. 

Using the common estimate that retirement income can be 20% lower than pre-retirement income, the median target retirement income should be around $67k, so if you get $50k from Social Security, you’re looking for another $17k annual income from your portfolio.

According to DQYDJ.com, the median American aged 65-69 has a net worth of $394k. Hypothetically, the 4% rule says this should translate into a $16k annual portfolio income.

Great, right? That puts you at $66k, within touching distance of the $67k “target.”

However, when you exclude primary residence equity, the median net worth drops to just $132k, dropping the estimated portfolio income to just $5k, which with the average Social Security check is still nearly 20% short of the target.

Your home may be worth far more than it was a decade ago, but that growth is trapped in your home equity, an illiquid asset that doesn’t typically provide any income. 

Worse, with the increase in home values, property taxes have also risen. According to the St. Louis Fed, property taxes have nearly tripled since 2000, of which 31% was in the last five years. Homeowner insurance has also gone up significantly, 2.6× since 2000, and nearly 30% in the last five years.

Along with these housing-related costs, inflation has pushed up the cost of food, healthcare, energy, and much more. The Consumer Price Index for all Urban consumers (CPI-U) has nearly doubled since 2000 and gone up 25% in the past five years alone.

Combine all these with ever-longer retirements, and it’s clear that coming up with sufficient retirement income is a major concern for many American seniors.

A big enough concern to make tapping home equity an attractive option, since, for some retirees, home equity may represent their largest remaining source of financial flexibility.

Why Tapping Home Equity Feels Different from Spending Other Assets

You may technically have a healthy net worth while still struggling with monthly cash flow. You may feel reluctant to withdraw heavily from investment accounts during market downturns. You may want to stay in your home for emotional and practical reasons. Yet much of your financial flexibility may be trapped in an illiquid asset.

Table 1 summarizes some of the important realities of Americans’ retirement considerations.

A table compares "Retirement Reality" to "Why It Matters," listing points on seniors’ net worth, financial flexibility, aging in place, inheritance, and portfolio withdrawals, paired with related concerns about equity and cash flow.
Table 1. U.S. retirement realities and why they matter.

With home equity comprising two thirds of the median near- and early-retiree net worth, tapping that most significant resource for retirement income can seem like a lifeline tossed to a drowning man.

This, and increased guardrails put in place by Congress, is why reverse mortgages are receiving renewed attention.

But… if one of your financial goals is to leave a legacy for your kids, tapping home equity can be emotionally difficult.

After my father passed away, I helped my mother manage her finances because Dad had always handled them. Her biggest fear wasn’t stock market volatility or inflation. It was “spending the inheritance” she hoped to leave to my sisters and me.

This, to the point that she hesitated to buy new panties until I reassured her that the money was hers, and was there for her to use.

That emotional conflict may help explain why reverse mortgages are so controversial. It isn’t just a numerical financial decision. 

It’s a deeply emotional one.

So, “Is a reverse mortgage good or bad?” isn’t the right question to ask. The better question is, “Is a reverse mortgage right for me, given my individual situation, priorities, and goals?”

What Is a Reverse Mortgage and What Does It Do?

A reverse mortgage lets senior homeowners borrow against their home equity without making monthly mortgage payments.

The most common reverse mortgage is the federally insured Home Equity Conversion Mortgage (HECM), which is regulated by the U.S. Department of Housing and Urban Development (HUD), and available only through lenders approved by the Federal Housing Administration (FHA).

FHA-insured HECMs are subject to annual lending limits. For 2026, the national lending limit is $1,249,125, while some proprietary “jumbo” reverse mortgages, not insured by the federal government, may allow borrowers to access more equity, particularly in expensive housing markets, up to several million dollars for high-value homes.

How much equity you can access through a reverse mortgage depends on several factors, including your home’s value, interest rates, available equity, and the age of the youngest borrower. In general, if both you and your spouse are older, you’ll likely qualify for larger amounts.

With regular mortgages, you make monthly payments, where each payment covers the interest that accrued since the previous payment, plus some of the loan principal, which reduces your owed balance.

Reverse mortgages, no pun intended, are (mostly) the reverse.

You make no monthly mortgage payments, so the interest keeps accruing, gradually increasing the balance of the loan. The loan gets paid off when:

  • You sell the home.
  • You move out permanently.
  • Or all borrowers pass away.

However, just as with a regular mortgage, you still own your home, and can, e.g., make any changes to it that you want, without needing lender approval.

As alluded to above, there are age and other requirements for taking out a reverse mortgage. Specifically:

  • All borrowers must be at least 62 years old.
  • The property must be your primary residence, i.e., where you live most of the year.
  • If you have any outstanding balance secured by your home, including a mortgage, a Home Equity Line of Credit (HELOC), or a home equity loan, these must be paid off no later than when you close the reverse mortgage, and the amount you can take from the reverse mortgage will be reduced by the payoff balance of these previous debts.
  • If you have any federal debt, e.g., federal income taxes owed and/or federal student loan debt, those must be paid off similar to your previous mortgage. Again, you can use part of the reverse mortgage money to pay off these federal debts.
  • If your home isn’t in acceptable shape, the lender will tell you what repairs you must make before you can get the reverse mortgage.
  • You need to have enough money, possibly using part of the reverse mortgage, to pay for property taxes, homeowner insurance, and ongoing maintenance and repair costs.
  • You must take mandatory counseling from a HUD-approved reverse mortgage counseling agency. This counseling covers your eligibility, the financial implications of the reverse mortgage, and other alternatives you may prefer.

Modern HECMs include safeguards beyond the mandatory counseling. Specifically, they’re federally insured, and there are “non-recourse protections” that generally protect you and your heirs from owing more than the home’s value when the reverse mortgage is paid off.

Reverse mortgages offer much more flexibility than a standard mortgage. You can structure them to receive:

  • A lump sum.
  • A monthly payment.
  • A line of credit.
  • A combination of the above.

Beyond not having to make a monthly mortgage payment, there’s another crucial benefit. Because the money you receive is borrowed, rather than income, it isn’t taxable.

What Costs You Still Owe with a Reverse Mortgage

Also as with a regular mortgage, you must still keep paying:

  • Your property taxes.
  • Homeowners insurance.
  • Maintenance and repairs.
  • Homeowner Association (HOA) fees, if any.
  • Any other housing-related expenses, such as utilities.

Thus, although you have no mortgage payment, you may still have significant housing costs.

Why Reverse Mortgages Have a Bad Rep

With all their benefits, reverse mortgages are best viewed with caution. Some of the bad reputation may be outdated, given newer protections, but it still pays to be cautious.

As Mike Hunsberger, ChFC®, CFP®, CCFC, Owner, Next Mission Financial Planning, says, “I find that many people still have negative views of reverse mortgage even though the industry has changed significantly. The reverse mortgage industry is fully regulated now by the Department of Housing and Urban Development. I find that most people don’t know enough about the changes and protections that are in place. While reverse mortgages aren’t right for everyone, they can be a useful tool in the right situation.”

Reverse mortgages have much higher fees than standard mortgage loans. Partially due to these higher fees, they’ve historically been marketed aggressively, even for borrowers for whom they weren’t a good fit. Also, the terms can be confusing, resulting in many borrowers not fully understanding all the implications.

This is where the mandatory counseling comes in.

If the counseling boils down to this being a good fit, and especially if your financial advisor says it’s a useful part of your overall financial plan, you can set aside the bad rep. However, you still need to consider how well the reverse mortgage, with its high cost and complexity, works in your particular situation.

The Emotional Conflict Involved in the Reverse Mortgage Decision

If you think of reverse mortgages in purely mathematical terms, you’re missing a major factor.

The deep emotional impact.

Especially for older homeowners, who may have lived in their home for decades, the home represents far more than simply a roof over their head. It may also represent:

  • Security.
  • Independence.
  • Stability.
  • Family history and memories.
  • And perhaps more importantly than many financial discussions acknowledge, a way to leave behind something meaningful to their kids.

If leaving a legacy to your kids is important to you, spending down your home equity can feel very different from spending investment returns. It can feel like you’re dismantling part of the legacy you hoped to leave your kids, which can cause major emotional distress and resistance.

From the kids’ perspective, many want their aging parents to have a comfortable retirement, even if it means less will be left behind for them once their parents pass away. However, especially for kids who struggle financially, seeing their parents “spend their inheritance” brings up negative emotions like fear and resentment.

This can shape family dynamics, even if nobody discusses it out loud.

As a result, many seniors end up reluctant to spend their own money, especially the equity in their homes, even to cover very legitimate needs, let alone to enjoy their late years. They may delay needed home repairs, avoid travel, and in general live with financial anxiety that’s beyond what their true situation warrants.

This doesn’t mean that a reverse mortgage is necessarily the right answer in all cases. However, retirees who struggle with cash flow problems should ask themselves, and their financial advisors, if protecting their home equity for their eventual heirs aligns with how they want to live in their retirement.

Where Financial Advisors See Strategic Value for Some Retirees

Even financial advisors who support reverse mortgages don’t generally see them as universally valid solutions.

Instead, they may frame them as one of many retirement income tools. And, as with all tools, they fit certain situations better than others. Ideally, they should be used strategically, as part of an overall plan, and only when they’re a good fit to the specific individual’s needs.

And preferably not reactively, when they have to be grabbed like that “lifeline” to avoid sinking.

Ben Simerly, CFP®, Founder and Financial Advisor at Lakehouse Family Wealth, cautions, “While reverse mortgages can be a Godsend for some retirees, they come with a significant set of drawbacks. Clients often get in touch with advisors to see if they are the ‘magic wand’ described by so many mortgage brokers. In reality, we only use reverse mortgages as a last-ditch resort.”

Table 2 contrasts strategic vs. distress-driven uses for reverse mortgages.

A comparison table showing differences between strategic use and distress-driven use of financial options, detailing planning, alternatives, stability, goals, and borrower understanding. Strategic is stable; distress-driven is urgent and uncertain.
Table 2. Contrasting strategic vs. distress-driven reactive use of reverse mortgages.

A reverse mortgage tends to work better when you still have other options, but there are valid reasons to prefer the reverse mortgage.

You may tap your home equity strategically to, e.g.:

  • Reduce withdrawals from your investment portfolio during market downturns.
  • Improve your retirement cash flow. 
  • Delay claiming Social Security benefits, allowing them to grow 8% a year up to age 70. 
  • Create a financial buffer for your healthcare expenses. 
  • Allow you to remain in your home without mortgage payments, if you plan to stay there for the long term. 

For near- and early retirees, sequence-of-returns risk means that a market crash in the early years of your retirement may force you to sell depressed assets, which makes it hard or even impossible for your portfolio to recover.

Having a non-portfolio source of retirement income can ease the pressure on your portfolio, significantly reducing this risk and improving your portfolio’s longevity.

If you take a portion or all of the reverse mortgage in the form of a line of credit, you have far greater flexibility, and unused portions of the credit lines can continue growing over time, potentially increasing flexibility later in retirement.

As stated before, none of this makes a reverse mortgage intrinsically “good” in all cases. It’s just that in the right circumstances, treating it as a smart part of an overall financial plan is better than treating your home equity as “untouchable.”

When Reverse Mortgages Can Become Risky

Having said all that, taking out a reverse mortgage in the wrong circumstances can be a costly mistake.

As mentioned above, even though you won’t have any mortgage payments, you’re still on the hook for property taxes, homeowners’ insurance, maintenance and repair costs, utilities, HOA dues if any, etc.

And if you can’t afford to pay these expenses, your lender can foreclose on your home.

Since reverse mortgage fees are high, ideally you want to be sure to get the benefit of the loan for as many years as possible. If you end up moving out of the house early, you’ll have paid high fees for little return.

Simerly emphasizes how changing life circumstances can create problems for retirees who expected to remain in their homes long term. “Retirement is about choice,” he noted. “When retirement gets unfriendly, it’s typically because people are out of choices. Narrowing your plan with a reverse mortgage removes choice. If you move, or life changes, or maintenance is neglected due to illness, the income stream ends, and you have little if any recourse.

“Seniors often have a difficult time completing maintenance on homes, especially older homes. Strict maintenance requirements mean that missed maintenance can end the income stream, and you may be forced into a months-long or even years-long process of fighting the reverse mortgage company for resolution.”

The high fees involved in a reverse mortgage include high origination fees and closing costs, as well as mortgage insurance premiums and servicing fees. In addition, reverse mortgage interest rates tend to be higher than those of regular mortgages, something that affects your payoff costs.

Some reasons for moving early are harder to anticipate.

For example, health changes, mobility limitations, or changes in family circumstances (e.g., grandchildren being born a few states away).

Other reasons are more likely to be known ahead of time.

These include downsizing plans, or feeling like your home is becoming too big for you to manage.

Because the loan balance of a reverse mortgage grows instead of shrinking, over time, what’s left for your heirs will decline. Especially if you stay in your home for decades of retirement, there may be nothing left of the home’s value for your heirs after the loan is paid off.

Reverse mortgages may also affect eligibility for certain government programs, e.g., Medicaid or Supplemental Security Income (SSI) if unused funds push assets above eligibility thresholds. 

Table 3 summarizes the pros and cons of reverse mortgages.

A comparison table listing pros and cons of reverse mortgages by category, such as cash flow, home equity, monthly payments, tax treatment, consumer protections, housing stability, financial impact, flexibility, healthcare support, and qualification.
Table 3. The major pros and cons of reverse mortgages.

As you can see in the table, there are many pros, but just as many cons.

The thing to be most careful of is waiting until financial stress pushes you to make a hurried decision, without having the time and emotional bandwidth to fully understand these pros and cons and how they play out in your specific situation.

Alternatives to a Reverse Mortgage Worth Comparing First

If you need to tap your home equity, there are other ways than a reverse mortgage, and any of these may be more appropriate for your personal situation.

These alternatives include:

  • Downsizing, which may be emotionally difficult and stressful. 
  • Opening a HELOC or taking out a home equity loan, however, both require monthly payments.
  • Doing a cash-out refinance, which may require income qualification, and could increase your monthly costs, especially when rates are high.
  • Taking early Social Security benefits (at the cost of permanently reducing the benefits).
  • Reducing discretionary spending. 
  • Taking on part-time work. 
  • Investing your portfolio somewhat more aggressively, which increases the risk of loss. 

As is the case with most such decisions, each option comes with its own set of pros and cons, and these play out differently for different people. That’s why financial advisors work with each client to compare multiple scenarios to find the one that best fits the needs and desires of the specific client.

Simerly doesn’t see reverse mortgages as the appropriate solution in the overwhelming majority of cases. He says, “The number one goal in retirement planning, from a broad perspective, is to build flexibility into the plan. A reverse mortgage removes much of your flexibility. When plans change, the reverse mortgage often cannot.

“So, what to do instead? Moving, if it’s possible, can be the biggest win. One of the common themes we hear is that retirees do not want to move. Unfortunately, that’s often plan A. The reality is that when a home doesn’t fit the family, it ends retirement.

“Even if a reverse mortgage feels like it’s the last possible option, selling the home to pay the down payment on a Medicaid-friendly retirement community often ends up being the better option.

“For a retirement to be a retirement, the key pieces must fit. That means functional housing for both lifestyle and budget, a healthy community around you, being close to family, functional transportation, access to helpers nearby, etc. And the home is at the heart of this. 

“So, we always advise clients to focus on retirement life, over retirement belongings. Community is more important than the state or town you’re in. And lifestyle is more important than the physical house. Going into retirement with a lifestyle-focused mindset is one of the most important things a retiree can do, and reverse mortgages tend to result in the opposite.”

Questions to Ask If You’re Considering a Reverse Mortgage

There are multiple questions you should ask if you’re considering taking out a reverse mortgage. For example:

  • What problem is this trying to solve, and is there no better solution? 
  • Do I plan to remain in this home long term? 
  • How important is preserving home equity for heirs? 
  • Would greater cash-flow flexibility improve my retirement enough to make this desirable? 
  • Can I comfortably keep paying taxes, insurance, utilities, upkeep, etc.? 

Your answers to these questions are far more important than any general statement about whether reverse mortgages are good or bad. Working with a fiduciary financial advisor may help improve clarity around these and other important considerations. 

The Bottom Line: A Reverse Mortgage Is a Tool, Not a Trap or a Magic Wand

Reverse mortgages are neither universally good solutions nor universally costly traps.

For some retirees, they may create flexibility, reduce financial stress, and support aging in place. For others, they may be a needlessly expensive and complex solution for a problem that’s better solved in a different way.

The main point is how you think about your home equity.

Many people spend decades building equity in their homes, then struggle emotionally with the idea of ever using it. For some, preserving that equity may align perfectly with their goals and financial situation. For others, protecting inheritance at all costs can come at the expense of retirement security and peace of mind.

Sometimes the hardest retirement decisions aren’t just about money. They’re about what that money represents.

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

Opher Ganel

About the Author

Opher Ganel, Ph.D.

My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals. Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.


Learn More About Opher

    What this article covers

    Massachusetts advisors explain how one-time income events — RSU vests, business sales, large Roth conversions — can unexpectedly trigger the state’s 4% millionaire tax surcharge, and why proactive timing is the only reliable way to avoid the damage.

    Massachusetts has one of the country’s heaviest state tax burdens. 

    According to the Tax Foundation, it ranks eighth nationally in per-capita state and local tax collections, at $9,341 per resident, more than 30% above the national average

    But even if you earn a high income, you may assume that Massachusetts millionaire tax surcharge will never affect you, because you don’t make a seven-figure salary.

    And most years, you’d be right.

    But then you complete a business sale, get a large bonus, Restricted Stock Units (RSUs) vest, or carry out a large Roth conversion. And suddenly, a year that felt financially successful now comes with a state tax bill thousands, or even tens of thousands of dollars higher than you expected.

    Worse, many of the best opportunities to reduce the damage may already be gone by the time you realize it happened.

    Key Takeaways

    1

    You Don’t Need a Seven-Figure Salary to Trigger Massachusetts’ Millionaire Tax Surcharge

    A large RSU vest, business sale, Roth conversion, or sale of appreciated assets can push an otherwise mid-six-figure earner above the 4% surtax threshold in a single year. Once that happens, a significant portion of income gets taxed at 9% or more — and most of the best opportunities to reduce the damage are already gone.

    2

    Massachusetts Tax Planning Is Not the Same as Federal Tax Planning with Different Numbers

    Massachusetts applies its own income categories, sourcing rules, and residency requirements that diverge meaningfully from the federal tax code. Short-term capital gains are taxed at 8.5%, collectibles gains at 12%, and MA-sourced income can create tax obligations even after you move. Optimizing your federal return while ignoring these rules can still produce a costly state tax surprise.

    3

    The Best MA Tax Strategy Is Proactive Income Timing, Not Moving or Loopholes

    Spreading income across tax years, sizing Roth conversions to stay under the surcharge threshold, structuring business sales as installments, and aligning charitable giving with high-income years can significantly reduce exposure. Moving to a no-income-tax state rarely solves the problem — MA taxes most income earned in the state regardless of where you live.

    Massachusetts Tax Planning Isn’t Just Federal Tax Planning with Different Numbers

    Massachusetts has its own tax rules, surcharges, income categories, sourcing rules, and residency complexities. These differ from the federal tax code in several important ways.

    For most income, Massachusetts applies a flat 5% state income tax rate. But income above the millionaire-tax threshold gets hit with an additional 4% surtax. The threshold adjusts annually for inflation and is $1,107,950 for 2026.

    Massachusetts also taxes some categories of income differently:

    • STCG is generally taxed at 8.5%.
    • Long-term gain (LTCG) from selling or trading collectibles is taxed at 12%
    • Residency and MA-sourced income rules can create tax obligations even after you move.

    All this means that you can do a good job managing federal taxes while still creating avoidable Massachusetts tax consequences.

    In many cases, the most valuable planning opportunities exist only before a major taxable event occurs. Once the event happens, most such options are gone. That’s because filing taxes correctly and planning major income events strategically are not the same thing.

    According to financial professionals who work with high-earning MA residents, the biggest opportunities usually come from proactive planning around timing, structure, and income recognition, not aggressive tax tricks.

    Joon Um, CFP®, EA, CLU®, ChFC®, of Secure Tax & Accounting, says, “One of the biggest mistakes high earners make is assuming federal tax strategies automatically work the same way in Massachusetts. For people earning over $1M, the biggest savings usually come from planning early around stock comp, business structure, residency, and timing of income, not aggressive tax tricks.”

    And this is especially important in tax years where your income is unusually high.

    Table 1 discusses common assumptions regarding tax laws and how they break down when it comes to Massachusetts state income taxes.

    A comparison table with three columns: Common assumption, MA reality, and Why it matters during high-income years, highlighting tax misconceptions and strategies in Massachusetts. Text is on a light blue background.
    Table 1. Common assumptions that could trip you up regarding MA state income taxes.

    How a Single High-Income Year Can Trigger Massachusetts’ Millionaire Tax Surcharge

    Advisors point out that Massachusetts’ high tax bite isn’t limited to the top 1% (or 0.1%) of earners who routinely exceed the millionaire-tax surcharge threshold.

    Many more people hit the threshold because one or more one-time income bumps hit in the same tax year.

    Chris Chen CFP, Wealth Strategist, Insight Financial Strategists, says, “Many people will say that they are not at $1M of income (yet). However, the sale of a business, vesting options or RSUs, a large Roth conversion, or the sale of a vacation home, among other events, can easily push someone over the threshold and result in a surprise assessment.”

    Even if you earn a mid-six-figure annual income most years, you don’t think of yourself as the intended (or likely) target of the 4% millionaire-tax surcharge. But a single, especially high-income year can cost you tens of thousands of dollars that could be mostly avoided, if you take the proper advance planning steps.

    For example:

    • A large block of RSU vests.
    • You sell a large amount of appreciated stocks, bonds, or other financial assets
    • You get an especially large bonus.
    • You decide to proactively address your eventual Required Minimum Distribution (RMD) problem by doing a Roth conversion.
    • You sell a significant short-term trading position, causing a large short-term capital gain (STCG), that’s taxed at 8.5% while also pushing you toward millionaire-tax surcharge territory.
    • You sell a business in return for a large lump sum.
    • You sell a vacation home that has appreciated in price.

    None of these moves are intrinsically bad. 

    It’s just that a combination of them can unexpectedly push you above Massachusetts’ millionaire-tax surcharge threshold, and suddenly a large portion of your income gets taxed at 9% or more.

    This shows that income timing and structure matter much more than many people realize.

    Between these, and the misconception that optimizing for federal taxes means your Massachusetts state tax mostly “takes care of itself,” come Tax Day, you could find yourself staring at a shockingly high state tax bill.

    Why Timing Matters More Than Tax Tricks

    Many online sources tout aggressive tax tips and exotic “loopholes the rich use” as ways to lower your taxes.

    These are often unrealistic and/or unlikely to survive serious scrutiny.

    Instead, what financial planners advise is planning and timing your income in the most advantageous way. This means:

    • Spreading income across multiple tax years when you can.
    • Managing Roth conversions strategically so they don’t spike your taxable income in the same year that sees other one-time income boosts.
    • Structuring business sales thoughtfully, possibly taking payments in several annual installments.
    • Batching charitable giving from several lower-income years to a single especially high-income year.
    • Understanding how your different types of income get taxed, and how they interact.

    Chen says, “One of the easier examples of planning could be to size a Roth conversion so that total income falls under the $1,107,950 threshold in 2026.”

    He also notes that some income spikes can be set up in installments to avoid the millionaire surtax, “Sometimes, these events can be planned to reduce the impact. A business owner could structure the sale of their business around their other income and the $1,107,950 threshold. For example, assuming little other income, they could plan for installments of, say, $1M, instead of taking a lump sum.”

    The goal isn’t to eliminate taxes. It’s to prevent a temporary high-income year from leading to unnecessarily large tax liability.

    For most affluent residents, that’s a far more realistic approach than making major life decisions primarily around taxes.

    Table 2 lists some of the most likely culprits that could push income high enough to result in an outsized Massachusetts state income tax bill, and how you may be able to avoid it.

    A table lists income events and related MA state tax strategies, including RSUs, stock sales, bonuses, Roth conversions, lump-sum pension, and gains from property, with advice for managing tax timing and coordination.
    Table 2. Income events that could spike your Massachusetts state income tax, and what you can do about them.

    All of these strategies require advance planning and taking tax-mitigation action proactively, rather than waiting for tax-filing season, by which point most of these opportunities have evaporated.

    What Massachusetts-Savvy Advisors Often Evaluate First

    The best tax-reduction value comes less from deductions than from sophisticated tax planning.

    As Um shares, “Usually, the first thing I review is where the income is coming from and whether planning could have been done before a major bonus, sale, or liquidity event.”

    Here’s what advisors working with affluent Massachusetts residents look at first.

    • What are your income sources and how do they get taxed?
    • Could several major taxable events stack in a single year?
    • If so, how can we improve their timing to reduce taxes?
    • How can we best align your charitable goals with high-income years?
    • Will your proposed residency assumptions, if considered, hold up under scrutiny?

    Most advisors recognize that simply moving out of state isn’t necessarily the right move.

    Chris Chen says, “The biggest mistake would be thinking that relocating to a neighboring state, often NH or FL that do not have income taxes, will fix the problem. In general, a taxpayer would still be liable for Massachusetts sourced income.”

    He adds, “Most Massachusetts residents with earned income in excess of $1M earn that money because their job or their business is in the state. Which means that moving is often not practical.”

    Um notes, “I’ve definitely seen people consider moving because of state taxes, but states are getting much more aggressive with residency audits now.”

    That’s not to say that moving never makes sense.

    It may make perfect sense for some retirees or people with highly flexible income sources, especially if community, friends, and family considerations don’t make staying the right choice.

    As Chen notes, “I know some millionaire earners who relocated due to the new millionaire tax. However, according to state data, most millionaire earners have not pulled the plug to relocate. That being said, people who have moved into retirement with that level of income are much more likely to move elsewhere.”

    But most affluent Massachusetts residents are probably better served by understanding how their income, timing, and major financial decisions interact with state tax rules before considering massive life changes.

    The Bottom Line: Massachusetts Tax Exposure Is Manageable If You Plan Before the Income Event

    As unappealing as the Massachusetts millionaire tax surcharge is for high earners in the state, it’s far less catastrophic than many online sources make it sound.

    Especially if your baseline annual income isn’t in the multiple-seven-figure range.

    However, if you’re a high earner, you may well have a few especially high-income years as a result of one-off income boosts, and face especially high state tax bills in those years. That’s if you don’t proactively plan and execute the most appropriate timing for income and offsets such as charitable giving.

    This is especially the case if you, for example:

    • Receive large amounts of stock compensation.
    • Sell a business or highly appreciated assets, especially if they make you realize STCG.
    • Carry out especially large Roth conversions.
    • Experience major one-time liquidity events.

    The most effective ways to avoid needlessly high Massachusetts state taxes aren’t about aggressive or exotic loopholes, nor about moving out of state if that doesn’t make sense from an overall-life perspective.

    It’s about understanding how MA-specific tax rules interact with your major income events, and taking appropriate action to time them optimally, before they occur.

    Because once a major taxable event already happened, the best opportunities to reduce the resulting Massachusetts tax bill have likely already evaporated.

    Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

    Opher Ganel

    About the Author

    Opher Ganel, Ph.D.

    My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals. Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.


    Learn More About Opher

      What this article covers

      Financial advisors don’t agree on whether seniors need life insurance — and that disagreement reveals something useful. Here’s a practical framework for deciding whether coverage makes sense for your situation, and what questions to ask before you buy.

      Life insurance is a tricky subject.

      It forces us to confront something most people prefer not to think about: our mortality. And as we get older, the issue feels much less theoretical.

      Still, if you’re like me and already a senior, it’s a conversation you probably need to have. Should you buy life insurance late in life?

      I asked several financial advisors.

      • One said that seniors don’t need life insurance, and if they’re told to get one, they’re being sold expensive policies they don’t need.
      • Another pointed out how the right policy can protect you from potentially devastating long-term care (LTC) costs.
      • A third explained that the real question isn’t whether life insurance is right or wrong for seniors in general, but rather that you need to ask what specific financial problem it’s trying to solve.

      As experts usually do, despite sharply disagreeing, they all sounded credible.

      So, if even the experts disagree, how are you and I supposed to decide if buying a life insurance policy late in life is a smart move or just an expensive mistake that drains our retirement income?

      This decision sits in the intersection of competing fears.

      • If I buy the coverage, would I be wasting limited retirement resources on something I don’t need? 
      • If I decline, do I leave myself and my spouse exposed to potentially catastrophic financial consequences?

      And unfortunately, there’s no universally correct answer. 

      I’ve wrestled with this personally because I bought term life insurance years ago for a very specific reason.

      What I found was that there’s a better way to think about the decision, and good questions you can ask your financial advisor or the insurance agent you work with before making the decision for you and your family.

      Key Takeaways

      1

      Most Seniors Don’t Need Life Insurance — But Some Do, for Specific Reasons

      By retirement, most people have paid off debts, raised independent children, and built savings — eliminating the primary reasons life insurance exists. But for seniors with a financially dependent spouse, an LTC funding gap, estate liquidity needs, or a temporary income shortfall, the right policy can still solve a real and costly problem.

      2

      A Permanent Policy with an LTC Rider Addresses Two Late-Life Risks at Once

      Unlike traditional long-term care insurance, which can reprice significantly over time, a permanent life insurance policy with an LTC rider locks in level premiums and pays a death benefit if the care rider goes unused. For couples worried about one spouse depleting their portfolio to cover extended care costs, this structure can protect the surviving partner’s financial stability.

      3

      The Right Question Isn’t Whether Life Insurance Is Good or Bad — It’s What Problem It Solves

      Advisors who disagree on life insurance for seniors are usually disagreeing about which risks still matter in retirement, not about whether insurance works. Before buying any policy, identify the specific financial risk you’re addressing, confirm insurance is more cost-effective than alternatives, and make sure premiums won’t meaningfully reduce your retirement cash flow.

      Why Life Insurance Decisions Get More Complicated as You Age

      There’s no doubt that life insurance needs evolve as we age.

      When we’re young, we may have minor children who depend on us financially, a large mortgage, limited savings, and decades of potential future income that our family will need to replace if we die.

      By the time you’re a senior and retired, your kids are most likely independent adults, your mortgage may be paid off, or at least paid down to a much smaller balance, and you probably saved and invested, so your spouse would have access to (hopefully sufficient) financial resources should you pass away.

      In addition, as you get older and less healthy, insurance premiums tend to rise.

      In the latter scenario, continuing to pay these increasingly high premiums can start looking like a big waste of money.

      Lawrence Pon, CPA/PFS, CFP®, of Pon & Associates, puts it bluntly, “Why are seniors buying life insurance besides providing hefty commissions to the insurance salespeople? You have to look at the person’s life insurance NEED. We usually have a high life insurance need when we are younger because we have not saved much money in retirement plans yet, still have a large mortgage, children are young and still need college funding, etc.”

      He continues, “By the time you are a senior, hopefully your mortgage is paid off, you have saved diligently for your retirement and met your financial goals. Therefore, there is usually NO life insurance need for seniors. Their premiums will be expensive since they are older, and they have picked up a few medical conditions. 

      “This is pushed by the insurance salespeople. Do not waste your time or money. If you really need life insurance, find a term policy if you can find a life insurance company willing to insure you at a reasonable price. Or go get a job that comes with Group Term Life Insurance. It is a different discussion if the senior already has a policy and deciding whether to renew or not. The answer to that – it depends.”

      David Demming, CFP®, of Demming Financial Services Corp., is also skeptical, noting that insurers are in the business of making money, not losing it, so these policies aren’t compelling, “Life insurance is not free, and we will all die someday. Yet insurance companies are not selling it because they expect to lose money all the time. 

      “Simplistically, if you can retire, your economic worth in the marketplace is now zero. Death costs are not high, unless you’re a Viking! Final expenses may require $5K-$20K. The exception is when paid by someone else or given a death sentence health call. I always remember converting a policy for a client and she lived another 15 years. Got the money back, but it was a long wait.”

      Elizabeth Kusmider, CFP®, of Kusmider Consulting, adds, “At older ages, premiums can become so high that, if the insureds live many more years, they may pay more in premiums than the policy pays out. Another common (and expensive) misunderstanding is graded benefits in some final-expense/guaranteed-issue policies: for the first year or two, benefits may be limited to a return of premium or a partial payout, not the full death benefit.”

      Kusmider also cautions that affordability alone doesn’t necessarily make coverage worthwhile, “Even if they can pay, it may not make sense when there’s no ongoing financial need: no dependent spouse, debts, or liquidity gap, when premiums meaningfully reduce retirement cash flow, or when the policy structure (high cost / graded benefit waiting period) provides poor value relative to simply earmarking savings.”

      That skepticism resonates for many retirees, and for good reason. With less risk to protect, and higher premiums, insurance offers start sounding like we’re being sold something that generates a fat commission for the agent, and that offers us something of little value.

      However, as mentioned above, some advisors see real value in life insurance coverage even late in life, especially if the price isn’t prohibitive.

      When Life Insurance Still Makes Sense for Seniors

      It’s clear that for most retirees, the primary purpose of life insurance is no longer replacing decades of future employment income. Instead, a policy needs to focus on protecting against late-life spending shocks, like expensive LTC, which may be hard to accomplish outside of a life insurance policy.

      Raman Singh, CFP®, EA, Your Personalized CFO at Singh PWM, explains, “The biggest misconception seniors often have is to treat life insurance and LTC insurance as completely separate conversations. They are not. A permanent policy with an LTC rider addresses both risks at once, with level premiums, unlike traditional LTC policies that can reprice significantly over time, and a death benefit that pays out if the LTC rider goes unused.”

      He then gives a real-world example, “I worked with a married couple in their late 60s, both retired, with a solid investment portfolio and a comfortable lifestyle. The concern that kept coming up wasn’t market risk. It was, ‘What happens if one of us needs extended care?’ Without a plan, the answer was simple and uncomfortable. They would draw down their investments to cover care costs, potentially leaving the healthy spouse with a significantly reduced portfolio and no income replacement. That is a real risk that does not show up on a balance sheet until it is too late.”

      He recommended using a permanent life insurance policy with an important rider. “Instead of self-insuring that risk with assets they had spent decades building, we structured a permanent life insurance policy with an LTC rider for the higher-risk spouse. The premium stayed level, no repricing surprises down the road. If LTC is never needed, the death benefit passes to the surviving spouse or heirs. If care is needed, the LTC rider activates and the portfolio stays intact for the spouse still living at home. That is the core of risk transfer. You aren’t eliminating the possibility of needing care. You’re making sure it doesn’t financially devastate the person left behind.”

      Other advisors expressed similar concerns.

      Derrick Alexander, Owner and Lead Advisor of Greater Works Wealth, says, “I think the biggest misconception is only seeing the premium as an expense rather than an investment. Especially using a life insurance policy with an LTC rider. 

      “We had a situation where a couple was retiring, and we saw a gap in LTC planning and replacing the spouse’s social security income in the event of a premature death. The premium may be $3,000 a year for a $250k death benefit that can also be used for long-term care. Showing the client that the $250k is another bucket of cash that we are paying a discount for. 

      “Most people, if we were planning for a 30-year retirement, and I asked if you could pay $90k to get $250k tax-free, would say yes. If we can view it as a transfer of risk from our portfolio to a contractual agreement with an insurance company. It can help.”

      Joon Um, CFP®, EA, CLU®, ChFC®, of Secure Tax & Accounting, agrees, “One of the biggest misconceptions is that life insurance for seniors never makes sense. It actually can still be very useful in your 60s and sometimes early 70s, for protecting a spouse, covering final expenses, or legacy planning. But once premiums get too high relative to retirement income, or health issues become more significant, it may simply be too expensive to justify. 

      “Generally, term policies work better for temporary needs, while permanent insurance is more appropriate for long-term legacy or estate planning goals, as long as they can still qualify medically and the premium makes financial sense. The most important thing is to make sure they truly understand the long-term cost before buying.”

      The striking thing about these responses is that the advisors weren’t disagreeing about whether insurance works.

      They were disagreeing about which risks still matter late in life, how large they are, and whether insurance is the most efficient way to handle them.

      Ultimately, what they say shows that life insurance late in life can indeed solve real financial problems. But only if it isn’t overly expensive and doesn’t try to solve something that’s more effectively addressed in other ways.

      Kusmider says she has seen this firsthand, “I’ve helped seniors in their 60s to mid-70s secure a modest, affordable death benefit while they were still relatively healthy. In those cases, coverage created immediate protection for a spouse, covering a mortgage payoff and end-of-life costs, so the surviving partner didn’t have to liquidate investments or rely on adult children.”

      The disagreement among advisors often comes down to which risks they think retirees still face, and whether insurance is the best way to manage them, as shown in Table 1.

      A chart with three columns: Viewpoint, Core Argument, Trying to Avoid, and Typical Logic. Rows are Skeptical, Risk-managed middle ground, and Nuanced middle ground, each detailing their stance on retirement insurance.
      Table 1. Competing expert viewpoints on whether life insurance can make sense for seniors.

      My Personal Experience with Life Insurance Late(r) in Life

      I had to wrestle with this issue personally.

      Years ago, I bought a term life insurance policy that expires when I turn 65. The reason was simple. If I died before our retirement nest egg became large enough, my wife would have been forced to sell the house and move someplace cheaper, and would have a hard time covering expenses with my income gone. 

      The policy didn’t need to create a large inheritance or solve every possible financial problem. It was meant to protect against a specific and temporary vulnerability.

      I didn’t need to buy a permanent policy with an LTC rider, because I already had an outstanding legacy LTC policy that provides excellent coverage at low cost, far better than anything available in the market today.

      That experience crystallized how I think about life insurance.

      I don’t think about buying life insurance in the abstract. Instead, I ask a much narrower question: What financial risk am I trying to address, and is a life insurance policy the right way to do so?

      For many retirees, the fear that drives life insurance decisions is the risk of leaving a surviving spouse financially vulnerable after decades spent building stability together.

      Table 2 lists a range of situations where life insurance may be helpful, but also suggests non-insurance alternative solutions.

      A chart outlining insurance versus non-insurance solutions for situations like protecting a spouse, LTC, estate liquidity, retirement, final expenses, and legacy goals, comparing coverage approaches and alternatives.
      Table 2. The main scenarios where a life insurance policy may make sense for seniors, along with non-insurance alternatives that may be more appropriate for some.

      How to Decide If Life Insurance Is Right for You as a Senior

      As you can see, insurance can be a helpful solution, but it’s not the only possible tool.

      Sometimes it’s the right tool, other times it isn’t.

      The right answer for you, personally, depends on the size of the risk you’re trying to address, the likelihood of it occurring, your existing resources, and whether the premium cost makes sense compared to your other options.

      The question to ask isn’t whether life insurance for seniors is universally good or bad.

      It’s deciding if, in your situation, it’s an overpriced solution to a relatively minor concern, or a possibly expensive, but still cost-effective solution to a potentially catastrophic problem, and one that’s hard to accomplish through alternate means. 

      This change in how you think about it can make the decision much less confusing.

      Before you decide to buy such insurance, answer these questions, preferably with your financial advisor, if you have one.

      1. How much will such a policy cost over time, and is this cost affordable to me?
      2. What specific financial risk would this policy address?
      3. Who would be financially impacted if I died tomorrow, and what would happen to them if I did nothing?
      4. Is this risk permanent or temporary, and if the latter, how long will it persist?
      5. Do I already have adequate protection through other means?
      6. Is insurance the most cost-effective solution to this problem or are there better alternative solutions?
      7. If I already own coverage, what changes if I keep it vs. cancel it?

      Answering these questions won’t completely eliminate uncertainty, but it should help separate financially grounded considerations from emotional factors, and make your decision much clearer.

      Singh explains, “The three factors I weigh most heavily when considering if life insurance makes sense are estate liquidity needs, LTC risk exposure, and the tax character of assets being passed to heirs. Emotional factors like legacy and not being a burden are real and valid, but they need to be grounded in an actual financial structure, otherwise the policy becomes a feel-good expense. 

      “When considering term vs. permanent policies for seniors, term rarely makes sense unless there’s a specific short-horizon need like covering a business obligation or a mortgage. In most cases I recommend permanent coverage, specifically because of the LTC rider option, the level premium structure, and the estate planning utility. The death benefit becoming a tax-free asset for heirs is a meaningful advantage when the alternative is leaving a pre-tax IRA subject to the 10-year distribution rule under the SECURE Act.”

      Kusmider agrees and suggests, “Start with the need. Who is financially impacted if you die, and by how much? Key factors are protecting a spouse’s income, paying off debts, and covering final expenses (often $15,000+, depending on location). Emotionally, many seniors want to avoid becoming a burden, but the best solution is the one that protects family without jeopardizing the senior’s own financial stability. 

      “Term policies can be ideal when the need is temporary, for example, a 10-year bridge to cover a mortgage or income gap, if the senior can qualify and the term is available at their age. Permanent options (whole life / final expense / guaranteed issue) are usually for lifetime needs like burial costs or a small legacy, but they cost more and guaranteed-issue/final-expense policies often come with graded benefit tradeoffs.”

      The Bottom Line: Life Insurance for Seniors Is a Tool, Not a Default

      Life insurance for seniors is neither universally wise nor universally wasteful.

      For some seniors, it may offer little value beyond providing reassurance, while wasting income that could make retirement more comfortable.

      As Singh says, “There are times when life insurance doesn’t make sense. If a client has ample liquid assets, no estate liquidity problem, no LTC exposure concern, and heirs who have no meaningful tax burden to manage, there’s no problem for the policy to solve. Paying premiums in that situation is just cost without purpose.”

      For other seniors, it may help protect a spouse, preserve assets during an LTC crisis, create estate liquidity, or mitigate a temporary but significant financial risk.

      Your goal shouldn’t be to maximize coverage. That can leave you paying for coverage that does little beyond generating agent commissions and insurer profits.

      Instead, you want to make sure any policy you’re considering addresses real financial risks that still matter, and does so more cost-effectively than possible alternatives.

      Kusmider shares, “I always ask folks seeking insurance, ‘Why? What brought you to this conversation?’ If they live another 10–20 years, will the total premiums still be worth the benefit? If the ‘why’ is clear and the math aligns, coverage can help. If not, it can be a costly mistake.”

      Singh agrees, “One question I wish every senior would ask is, ‘What specific financial problem does this policy solve?’ If the answer is vague, that’s a signal to pause. Life insurance is a powerful tool when there’s a clear problem. Without such a problem, it is just an expense.”

      Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

      Opher Ganel

      About the Author

      Opher Ganel, Ph.D.

      My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals. Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.


      Learn More About Opher

        What this article covers

        Financial advisors explain the subtle tax, withdrawal, Medicare, and Social Security traps that can permanently reduce retirement income and flexibility — and why avoiding them requires a more coordinated approach than most DIY investors expect.

        I’ve been a financial DIYer for decades, pretty much my entire adult life.

        And for most of those decades, it felt pretty straightforward.

        • Save as much as I can, while also enjoying life in the present.
        • Invest consistently, in a prudently aggressive manner.
        • Pick strong mutual funds to benefit from their investment management expertise and deep analyst bench.
        • Avoid panic selling during market crashes, allowing dollar-cost-averaging (DCA) to juice performance as the market recovered.
        • Let compounding work its magic.

        Now that I’m 63, the fact that I’m mostly retired is a testament to how well these habits and approaches work (especially when accompanied by a fair amount of good fortune).

        But as I approached retirement, I realized something important.

        Yes, I had the skills and temperament to succeed in accumulating a nice retirement nest egg. And yes, I have a fair bit of knowledge and understanding of basic financial planning and taxes, so I could put together a projection spreadsheet that maps a plausible retirement assets, income, and taxes trajectory.

        However, there’s one thing I had precisely zero experience with.

        Turning all those into a financially successful retirement.

        Because the skills it took to build enough wealth to get me here are not the same skills I need to go from here forward, successfully managing our retirement finances. Accumulating assets and drawing from them efficiently pose fundamentally different challenges.

        The advisors I worked with to put this article together have a diverse range of credentials, experience, and focuses. But what they all said painted a cohesive and somewhat surprising picture.

        During accumulation, picking good investments and avoiding bad ones is very helpful. However, as Warren Buffett famously said, if you don’t have the expertise or interest in picking winning investments, you can do better than most professionals by simply investing in low-cost index funds.

        But once the paychecks stop coming, although market-beating returns are still welcome when you can get them, investment selection becomes less critical to financial success than avoiding the pitfalls that can result from unintended consequences of decisions made in separate “silos.” Ones where you decide what to do in one arena, while being oblivious to the eventual implications for the rest of your financial picture.

        Let’s call these “interaction mistakes,” which can include:

        • Poor withdrawal decisions that increase taxes.
        • Poor timing or size of Roth conversions that may increase future Required Minimum Distributions (RMDs).
        • High RMDs that can lead to high Income-Related Monthly Adjustment Amount (IRMAA) Medicare surcharges.
        • Asset location in the wrong account type that may cause annual tax drag.
        • Leaving large Health Savings Account (HSA) balances to heirs leads to poor tax efficiency of the bequest.

        In other words, retirement planning, once close to or in retirement, increasingly requires a holistic and coordinated approach that benefits from education, expertise, and experience that comes from helping many retirees succeed.

        None of which I had experience with.

        And according to the advisors I interviewed, I’m far from alone in that. Many (perhaps most) retirees don’t realize how interconnected these decisions are until the consequences show up, years later, when it’s too late to address them.

        Key Takeaways

        1

        Retirement’s Biggest Risks Come from Uncoordinated Decisions, Not Market Crashes

        The most expensive retirement mistakes aren’t bad investments — they’re decisions made in isolation that trigger unintended consequences elsewhere. Roth conversions affect future RMDs; RMDs affect IRMAA Medicare surcharges; IRA withdrawals affect tax brackets; asset location affects after-tax returns. A mistake made in your 60s can cost six figures over a 20- to 30-year retirement.

        2

        The Gap Years Before RMDs Are One of Retirement’s Most Valuable Planning Windows

        The period after full-time income stops but before Social Security and Required Minimum Distributions begin offers a rare opportunity for Roth conversions at lower tax rates, capital gain harvesting, and IRMAA management. Missing this window — or being too aggressive within a single tax year — can permanently raise your lifetime tax bracket and lock in higher Medicare premiums.

        3

        The Skills That Build a Retirement Nest Egg Are Not the Same Skills That Protect It

        Accumulating wealth rewards consistent saving, disciplined investing, and ignoring volatility. Drawing it down efficiently requires coordinating taxes, withdrawal sequencing, Social Security timing, healthcare costs, and asset location across multiple decades. Many DIY investors don’t discover this gap until the consequences appear — often too late to reverse them.

        Why Retirement Decisions Can’t Be Made in Isolation

        Most retirees tend to approach major financial decisions as independent choices. For example:

        • Should I contribute to a Roth IRA or 401(k), or a traditional one?
        • Should I claim Social Security early, at full retirement age (FRA), or late?
        • Which account(s) should I pull money from to fund this year’s spending?
        • How much cash should I hold?
        • Should I prioritize investing for dividend income, or total return?

        But retirement decisions aren’t independent of each other.

        Making what seems like a reasonable or even great decision in one area, given the wrong circumstances, can bite us in another area through expensive unintended consequences.

        Marcel Miu, CFA, CFP, Founder and Lead Planner at Simplify Wealth Planning, puts it this way, “Most retirement planning focuses entirely on the wrong risks. People spend decades worrying about market volatility, but the real threats are invisible tax traps, uncoordinated decisions, and rigid mindsets. True retirement success means moving away from static math models and building a flexible, dynamic strategy that protects your lifestyle without forcing you to live like you’re broke.”

        That “uncoordinated decisions” theme came up often, and is illustrated by Table 1.

        Decision Often Viewed as Simply However, This Interacts With
        Roth conversions Tax choice IRMAA, future RMDs, Social Security taxation
        Social Security timing Income start date Longevity protection, spousal income
        IRA withdrawals Spending decision Medicare premiums, tax brackets
        Asset location “An investment is an investment” Tax drag, withdrawal efficiency, after-tax returns
        HSA withdrawals Healthcare reimbursement Tax-free retirement income, estate efficiency

        Table 1. Decisions often erroneously seen as standalone actually interact with other facets of your financial life.

        Bryant Rivera, Financial Advisor at Fiduciary Financial Advisors, offers as an example how too many investors oversimplify Roth decisions into a binary choice: “One of the most expensive retirement planning traps I see is assuming Roth contributions are always better because ‘taxes will be higher later.’ That sounds simple, but retirement tax planning is not just about paying taxes now versus later. It depends on your marginal tax rate today, your expected tax rate when distributions come out, how much taxable income you can control in retirement, deductions, credits, Social Security taxation, Medicare premiums, and required minimum distributions. 

        “A worker in a high-income year may be giving up a valuable deduction by choosing Roth when they could have contributed pre-tax, invested the tax savings, and later withdrawn or converted those dollars in a lower bracket. On the other hand, someone who builds too much in pre-tax accounts may arrive at RMD age with forced income that pushes them into higher brackets.

        He then explains how this can play out in a way that can cost you $10k-$20k or more.

        “Here’s a simplified example: if someone contributes or converts $100,000 at a 32% federal tax rate when they could have accessed a 12% or 22% bracket later, that rate mismatch alone could represent $10,000 to $20,000 in avoidable federal tax, before state taxes and other retirement tax interactions. That is why advisors do not just ask, ‘Roth or traditional?’ They map the timing of income, deductions, withdrawals, conversions, and RMDs over multiple decades.

        “The real opportunity is not choosing Roth or pre-tax blindly; it is building tax diversification and using lower-income years before RMDs to consider strategic Roth conversions.”

        That “tax diversification” matters more than many people realize.

        A retirement portfolio made up entirely of pre-tax accounts can create problems later, especially once RMDs begin forcing ever-larger taxable withdrawals, whether you need the money or not.

        That’s something I’m well aware of, since nearly 90% of our nest egg is in tax-deferred accounts, which leads me to expect our RMDs to significantly outstrip our spending needs less than a decade after RMD age.

        Nick St George, founder of St George Wealth Management, shares, “Tax planning is important. People end up stacking up assets in 401(k) plans and IRAs and have limited to no assets in taxable or Roth accounts. They now have increased Medicare premiums and a tax rate that ends up being higher than when they were working. 

        “Spreadsheets do not factor all of this in. I once met with a client who had a spreadsheet that showed there would be a $2 million tax benefit to do a Roth conversion of his entire account. That spreadsheet also had him living until 133 years old. A second set of eyes with the expertise to plan for your blindsides is worth more than any fee I could charge.”

        Jeffrey J. Smith, Founder and Managing Partner of OWL Private Wealth Advisors, expands, “One of the biggest retirement planning mistakes is waiting until RMDs to withdraw funds from your IRA. In many cases, by delaying the distributions, you will leave yourself with larger RMD amounts, and that can lead to increased Medicare IRMAA monthly costs. Filling lower brackets, Roth conversions, or simply using some of those hard-earned dollars to enjoy retirement a bit more can help manage a tax liability in the future that many DIY investors overlook.”

        As mentioned above, asset location is another often overlooked, high-impact decision. 

        Miu says, “DIYers routinely underestimate asset location and the true cost of uncoordinated choices. Broad financial industry benchmarks on advisor value demonstrate that comprehensive financial guidance can potentially add significant percentage points of value to net portfolio returns over time, driven heavily by disciplined behavioral coaching and tax-efficient account setup. Many DIYers copy and paste the same investment mix across taxable accounts, traditional IRAs, and Roth IRAs, completely missing out on tax optimization. Information is everywhere, but executing a plan across separate tax, legal, and investment silos is where DIY plans often fall apart.”

        For example, actively managed mutual funds and high-dividend investments held in taxable accounts create ongoing tax drag, so they’re better held in tax-advantaged accounts. Index funds and ETFs, on the other hand, have low turnover and dividends, making them more tax-efficient choices for taxable accounts.

         As John Davis, CFP®, EA, Founder and Financial Planner at JKD Financial, explains, “DIY investors tend to struggle the most when managing large taxable brokerage accounts. As a taxable balance grows, it begins to create a significant annual tax drag from dividends, interest, and capital gains. This becomes incredibly difficult to manage smoothly once you overlay outside retirement income sources like Social Security, pensions, and eventual RMDs. It can often lead to analysis paralysis, where it’s hard to decipher how to safely unwind large gains to rebalance, causing the portfolio to drift away from actual risk tolerance, and at times investors start blindly selling assets without realizing the multi-layered tax cliffs they are triggering.”

        This isn’t to say that you need to become a tax expert, though having a reasonable understanding of these matters can be helpful.

        The point here is to see how most planning decisions aren’t independent of each other. They each have indirect consequences, requiring a holistic approach to retirement planning.

        The Retirement Skill Shift That Can Blindside You

        As I entered retirement, I gradually realized how big a change this is for financial decision-making.

        In our accumulation phase, the challenges are simpler (though not necessarily easy).

        Stay employed (or self-employed), increase your income, spend less than you earn, save regularly, invest consistently, ignore market noise, and let time work in your favor.

        In retirement, prudent investing is still important, but our focus has to shift and broaden to:

        • Managing sequence-of-returns risk through asset allocation.
        • Income planning.
        • Tax optimization through asset location and withdrawal sequencing.
        • Balancing flexibility and safety.
        • Making informed decisions that consider all their implications.

        And this shift affects more than just the numbers.

        As St George says, “DIYers tend to stare in the review mirror, picking best of last year. But what crushed it last year doesn’t typically lead the market the following year, so they end up buying high and selling low. Then they panic even more since they know they have issues and get too conservative because they fear losing even more.”

        Miu makes a similar point, “One major mistake is running out of financial oxygen. Without a 5-to-7-year war chest of stable income assets, retirees panic during routine market drops and sell stocks at the worst possible time, which permanently locks in losses.”

        That phrase, “financial oxygen,” captures something many retirees feel but don’t usually put a name to.

        When you’re still accumulating, you can afford to ignore volatility, because your ongoing income should cover your expenses, so market crashes are just an opportunity to buy assets “on sale” with new contributions, and within a few months or years, the market comes back, so you haven’t lost anything.

        In retirement, if you don’t plan for market crashes, keeping enough money in low-risk assets to cover your expenses until the market recovers, your margin between retirement success and failure narrows.

        That doesn’t mean you need or can afford to become ultra-conservative with your investments in retirement, since your time horizon is still many years or even several decades long.

        As Dr. Steven Crane, Founder of Financial Legacy Builders, says, “The biggest retirement mistakes usually aren’t flashy, they’re small decisions that compound over time. For example, people often hold way too much cash because they’re scared of markets.” 

        Retirement is a very different beast from the accumulation phase, as seen in Table 2, and much of what works well during accumulation can become incomplete and sometimes counterproductive, once withdrawals begin.

        Accumulation Phase Retirement Phase
        Focus on growing assets. Focus on coordinating income.
        Mistakes can often be corrected later. Some mistakes permanently reduce flexibility.
        Savings rate matters most. Tax efficiency and sequencing matter more.
        Time horizon absorbs volatility. Withdrawals magnify volatility risk.
        Portfolio growth is primary goal. Sustainable lifestyle becomes primary goal.

        Table 2. Retirement is financially different from the accumulation phase in multiple ways.

        That last row is especially important. Once you retire, maximizing portfolio size stops being the priority of financial planning.

        Instead, the goal becomes to sustain your desired lifestyle over what may be a several-decade retirement, with enough flexibility and margin to cover unforeseen and/or unplanned circumstances.

        The Retirement Planning Windows That Close Before Most People Act

        One thing that many people underappreciate is the temporary nature of some of the most significant planning opportunities.

        As Davis says, “When it comes to losing dollars in the future, the biggest mistake I see retirees make is failing to execute tax strategies while the window of opportunity is wide open. Early in retirement, specifically the ‘gap years’ before RMDs kick in, you have more flexibility to leverage strategies like Roth conversions, capital gain/loss harvesting, and charitable giving.”

        However, he warns that even good ideas can backfire if poorly executed: “Waiting too long, or conversely, being too aggressive with these moves in a single calendar year, can severely backfire in the form of higher lifetime tax brackets and steep IRMAA Medicare surcharges.”

        Miu adds, “An advisor can be of great value when you enter the golden window, which is the phase right after full-time wage income stops but before Social Security and RMDs kick in. If you aren’t considering executing partial Roth conversions during these years to clear out pre-tax balances at rock-bottom tax rates, you’re potentially missing a massive tax arbitrage window. Another sign is emotional fatigue. If watching daily market movements makes you want to alter your long-term investments, you need a professional to install real, objective guardrails.”

        Another timing-sensitive planning window has to do with Social Security claiming strategy.

        Miu says, “Claiming Social Security early at age 62 is another trap. People rely on basic life expectancy math, completely missing that delaying benefits until age 70 guarantees an 8% annual payout increase, which is the strongest government-backed insurance against longevity risk on the planet.”

        St George sees many people claim benefits too early because they fear the system may eventually become insolvent. He says, “The biggest mistake I see people make with retirement is with Social Security. Most people firmly believe the media noise that the fund is running out and take it as soon as possible, thinking that something is better than nothing. This is compounded when you factor in spousal benefits with either the husband or wife earning substantially more. This can be a $300k+ mistake due to panicking instead of planning.”

        Healthcare planning can also create ripple effects that few retirees anticipate.

        Miu explains, “Transitioning to Medicare at age 65 seems like a simple, mechanical step, but it isn’t. The government determines your premiums based on your tax returns from two years prior. High earners in their final working years get hit with massive premium surcharges, known as IRMAA, because they don’t realize they can appeal the charge with a simple form based on their new, lower retirement income.”

        A final planning window has to do with HSAs.

        Because of HSAs’ triple tax advantage of tax-deductible contributions, tax-advantaged growth, and tax-free withdrawals for qualified healthcare expenses, we fully funded our HSA, and instead of using it to cover ongoing healthcare expenses, invested our contributions for the long term, allowing them to grow.

        As a result, in retirement, we can take advantage of all the qualified healthcare expenses we had over the years and use HSA tax-free withdrawals to significantly reduce our tax liability compared to drawing the same amount from our tax-deferred accounts.

        However, once our RMDs exceed the amounts we need to cover expenses, HSA withdrawals stop reducing taxes. Worse, inherited HSAs largely lose their tax advantages. This means that we have a limited time to draw down our HSA balance, so we need to prioritize that source over Roth balances.

        As all the above shows, financial decisions in retirement often have a limited time window to implement optimal decisions, as seen in Table 3. Missing these windows risks negative consequences that are often impossible to fix.

        Planning Opportunity Most Valuable Before Why Timing Matters
        Roth conversions RMD age. Lower taxable-income years.
        Social Security optimization Claiming benefits. Permanent income impact.
        HSA optimization Large RMD years. Tax-free withdrawals become less valuable later.
        IRMAA management Medicare enrollment years. Two-year income lookback.
        Asset location fixes Large taxable gains accumulate. Repositioning becomes harder later.

        Table 3. Many planning opportunities have limited time windows.

        Miu shares another potentially irreversible mistake: “Take, for instance, a client who intends to roll their entire 401(k) balance into a traditional IRA by default. If their account contains highly appreciated company stock, a standard rollover would permanently destroy their ability to take advantage of a unique tax rule. Instead, using the right strategy, we can move the shares to a regular taxable brokerage account, allowing them to pay preferential capital gains rates on the growth instead of high ordinary income tax rates, potentially saving them thousands of dollars in unnecessary lifetime taxes.”

        He continues, “The things that are much harder to fix are permanent, structural choices. If you already claimed Social Security early or permanently ruined a corporate stock tax advantage, those mistakes often cannot be undone.”

        When a Financial Advisor Is Worth the Cost in Retirement

        You’d think that advisors, especially if they charge for assets under management (AUM) or assets under advisement (AUA), would emphasize the value of their investment management.

        But the advisors I interviewed emphasized other aspects, instead. They talked about:

        • Coordination.
        • Managing interactions.
        • Identifying blind spots.
        • Avoiding unintended consequences.
        • Helping retirees make better long-term decisions that enhance flexibility.

        And they don’t think that learning to do what they do is beyond the reach of DIYers.

        Davis puts it like this, “Hiring an advisor ultimately comes down to two variables: time and expertise. Turning the corner from the accumulation phase to the de-accumulation phase is a massive psychological and technical shift. Managing tax rules, Social Security timing, and portfolio sequencing requires a highly specialized level of expertise that most people don’t have. 

        “However, the most common catalyst I see is time. Most of the clients I partner with are highly intelligent individuals; if they wanted to commit the hours, they could likely learn the mechanics of my job. But they simply don’t want to spend their retirement doing that. They want to use their time (the one asset you can never get more of) on their hobbies and with the people they love. They hire an advisor to ‘buy back’ their time and gain the peace of mind that comes with a second set of professional eyes.”

        He then addressed whether an advisor can still provide value to a client who comes in already in retirement, “If a retiree comes to me and hasn’t yet claimed Social Security, enrolled in Medicare, or reached RMD age, there is still plenty of flexibility to execute proactive tax planning and distribution modeling. However, once a client hits RMD age, the playbook shrinks dramatically. At that stage, your baseline income floor is essentially locked in, leaving very little wiggle room to alter your tax bracket or mitigate structural income surcharges.”

        Miu expands, “If you’re already retired, we can easily optimize your withdrawal strategy. Independent retirement studies on dynamic guardrails indicate that switching to a flexible withdrawal strategy allows retirees to safely step up their initial spending rates significantly compared to rigid, old-school rules of thumb. We can also optimize your remaining low-income years with partial Roth conversions and fix your asset location. 

        “Understanding these retirement traps is critical in today’s financial landscape. With rising living costs, evolving tax laws, and high market valuations, traditional rules of thumb simply don’t hold up anymore. Retirees can no longer afford to rely on static models. Surviving and thriving in retirement today requires a dynamic, coordinated approach that treats financial planning as an ongoing evolution rather than a one-time calculation.”

        Crane agrees that being retired doesn’t mean it’s too late, “Even when someone is already retired, there’s still a lot that can be improved. Taxes can often be optimized, spending adjusted, portfolios restructured, and estate plans cleaned up. But the hardest problems to fix are usually behavioral. If someone spent decades under-saving, overspending, or avoiding planning entirely, there are limits to what math alone can solve later on.”

        He lists important things people tend to underestimate: “People underestimate taxes, overspend too early in retirement, or claim Social Security without understanding the long-term tradeoffs. I’ve also seen people pay off low-interest debt with huge chunks of retirement savings, only to create liquidity problems later. One bad decision in your 60s can cost you six figures over a 20- or 30-year retirement. 

        “One area people massively underestimate is withdrawal strategy. Most retirees think retirement is just ‘save money and start taking it out later,’ but where you pull money from matters. Taxes matter. Timing matters. The sequence of returns matters. I’ve seen situations where proper Roth conversion planning and withdrawal sequencing saved clients tens of thousands in unnecessary taxes over time.”

        Davis adds, “Many people assume that distributing and spending their money in retirement will be simple, but the reality involves many moving parts. This is especially true when a saver enters retirement holding a mix of account types, such as traditional IRAs, Roth accounts, taxable brokerage accounts, and HSAs. The exact order and sequence in which you draw from those accounts year by year directly dictates your total lifetime tax bill. Managing that distribution sequence correctly determines how much of your savings goes toward your actual retirement wishes versus Uncle Sam.”

        The Bottom Line: Retirement Success Requires Coordination, Not Just Accumulation

        Not everyone needs a financial advisor. Not even every near-retiree or someone just entering retirement.

        But there are certainly situations that justify the expense.

        In Crane’s opinion, here’s how you can tell that an advisor could be especially helpful: “The clearest sign you may benefit from an advisor is when your financial life stops being simple. Multiple accounts, pensions, stock options, business ownership, large retirement balances, aging parents, healthcare concerns, taxes, that’s where mistakes become expensive. A good advisor isn’t just there to grow money. They help people avoid avoidable damage.”

        St George suggests an even simpler test: “If you’re 10 years or less from retirement and cannot clearly explain where your monthly income will come from in retirement and tell me which accounts you will tap first. You are in desperate need of a financial plan.”

        Effective retirement planning is all about coordinating financial moves across a broad range of areas, taxes, asset allocation, asset location, healthcare expenses, withdrawal sequencing, and more. It’s about making decisions that consider indirect consequences, not just the direct results you’re trying to achieve.

        Navigating all these areas when your financial picture is already complicated makes it difficult to continue as a DIYer. That’s why I chose to hire an advisor to help dial in our plan and implement it in a way that makes the most of what we’ve been able to amass.

        To help us coordinate complex decisions without accidentally creating unexpected, expensive consequences.

        To account for how things are interconnected:

        • Withdrawal timing and sequence decisions affect taxes.
        • Roth conversions affect future RMDs.
        • RMDs may affect IRMAA Medicare surcharges.
        • Asset location affects long-term after-tax returns.
        • Social Security decisions affect spousal planning and longevity protection.
        • HSA withdrawals affect current-year taxes and bequest tax efficiency.

        It isn’t that I don’t understand these concepts or how they work. It’s that keeping everything balanced benefits from the expertise, experience, and large support team that a good advisor brings to the table.

        Even if your situation is such that hiring an advisor isn’t the right decision, you can learn from their holistic approach to retirement planning and decisions.

        Because the skills you develop through a lifetime of accumulation aren’t enough for a successful transition to retirement.

        Because in retirement, the biggest risks often arise from the unexpected side effects of decisions that seem reasonable individually, but may collide years later, but collide years later in ways that can permanently reduce flexibility, increase taxes, and narrow your options when it’s too late to fix them.

        Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

        Opher Ganel

        About the Author

        Opher Ganel, Ph.D.

        My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals. Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.


        Learn More About Opher

          What this article covers

          Financial advisors explain why the saving habits that build wealth often make retirement harder to enjoy — and how to recalibrate so you can spend with confidence without sacrificing long-term security.

          It took some doing.

          After 20+ years in academia, a notoriously underpaid career choice, followed by a brief stint as an employee in a small engineering services company, I started my own one-person consulting practice.

          That let me set my own compensation, and not worry about job security, as long as I could find customers who would pay my rates. Which I did.

          Fifteen years later, we decided our portfolio was enough to let me mostly retire, so I did.

          Key Takeaways

          1

          The Habits That Build Wealth Can Make Retirement Harder to Enjoy

          Decades of saving, delaying gratification, and optimizing for future security are exactly the habits that get you to retirement — and then make it emotionally difficult to spend once you’re there. Research from EBRI found that 38% of retirees remain anchored in a savings mindset rather than shifting to spending, often underspending to the point of limiting their own quality of life.

          2

          A 100% Monte Carlo Success Rate Often Means a 100% Chance of Underspending

          The standard retirement planning framing — higher “success rates” equal better outcomes — quietly biases retirees toward underspending by treating maximum safety as the goal. Sustainable retirement planning should balance long-term security with intentional spending that lets you enjoy the years when you’re still healthy enough to do so.

          3

          Recalibrating for Retirement Requires Intention, Not Just a New Spreadsheet

          Waiting until spending feels completely comfortable before enjoying retirement risks missing the healthiest years you saved for. Practical strategies — partial retirement income, income-producing assets, guardrails-based spending rules, and working with a financial advisor — can help bridge the emotional gap between accumulating wealth and actually using it.

          The Money Habits That Help You Build Wealth

          Beyond increasing our income by taking the solopreneurship path, here’s what helped us reach this point.

          • Consistently allocating 2/3 of new income to increase our savings rate. This was the most sustainable way to set aside a large chunk of money without pinching pennies.
          • Taking maximal advantage of tax-deferred accounts like Health Savings Accounts (HSAs), IRAs, and individual 401(k) plans.
          • Dollar-cost averaging into the market through disciplined monthly investments.
          • Investing in a prudently aggressive way, with a 90%+ allocation for equities, and a heavy weighting to the tech sector, using mutual funds to avoid having to pick individual stocks, which isn’t my strong suit.
          • Never panic-selling when the markets crashed.

          More generally, while we took advantage of opportunities to enjoy the present, we emphasized avoiding excessive spending, even when we could afford it, if it would have come at the expense of building long-term financial security.

          We were even cautious with relatively small expenses. For example, we’d buy lower-cost but still good TVs from Costco, rather than splurging on the latest and greatest big-screen experience.

          And we avoided unnecessary risk in our investments. 

          The Habits That Help You Build Wealth Can Make Retirement Harder to Enjoy

          If you’re like me, you’ve spent decades training yourself.

          • Delay gratification.
          • Save consistently.
          • Invest for the future.
          • Avoid excessive risk.
          • Prioritize future security over present spending.

          And, if you don’t come from a wealthy family, it’s those habits that can move you up the financial freedom ladder to the point that retirement is possible.

          But once you get there, those habits that were perfectly adapted for accumulating wealth, if unchanged, can make it harder to enjoy retirement.

          Because a successful retirement isn’t a game where the winner is whoever dies with the largest net worth. It’s one where winning comes from balancing future security with enjoying your life in the present.

          And as straightforward as that sounds in theory, it can be surprisingly hard to make that shift in real life.

          After spending decades getting really good at accumulating assets, it’s hard to break those habits. More accurately, what’s needed is to recalibrate those habits enough that you stop optimizing mostly for money outcomes and, instead, optimize for a balance of flexibility, long-term security, and, crucially, fun.

          And that’s especially hard to do once your non-portfolio income stops.

          Market Volatility Feels Different in Retirement

          Dr. Steven Crane, Founder of Financial Legacy Builders, put it succinctly, “DIY investors tend to underestimate the emotional side of retirement. The math is one thing. Actually living through market volatility without a paycheck is something completely different. That’s where people panic, get overly conservative, or start making emotional decisions that hurt them long term.”

          When, not if, the market crashes, but you’re still in the accumulation phase, you have the luxury of covering expenses from current, non-portfolio income, and letting your portfolio recover as the market comes back.

          In fact, by continuing to dollar-cost average into the market when it’s down, you buy more shares than you would have been able to at the pre-crash prices, so once the market recovers, you’re even further ahead.

          But once you’re retired, that opportunity is mostly gone.

          Now, you have to draw from your portfolio every month, even in bear markets. There are ways to mitigate the cost of doing that, e.g., by keeping a few years’ worth of expenses in low-risk assets.

          But selling any assets when your portfolio is down 20%, 30%, or even more, is emotionally difficult, even when the underlying math still supports the plan.

          This is a big change, as illustrated by Table 1.

          Decision Often Viewed as Simply However, This Interacts With
          Roth conversions Tax choice IRMAA, future RMDs, Social Security taxation
          Social Security timing Income start date Longevity protection, spousal income
          IRA withdrawals Spending decision Medicare premiums, tax brackets
          Asset location “An investment is an investment” Tax drag, withdrawal efficiency, after-tax returns
          HSA withdrawals Healthcare reimbursement Tax-free retirement income, estate efficiency
          Table 1. Decisions often erroneously seen as standalone actually interact with other facets of your financial life.

          For many retirees, this creates a low-grade, persistent tension.

          At the same time, many retirees are not actually in a financial crisis. A survey from the Employee Benefit Research Institute (EBRI) found that nearly 7 in 10 respondents reported maintaining the same or a higher standard of living in retirement than during their working years, and 6 in 10 felt their spending was about right for what they could afford.

          That’s part of what makes this transition so complicated emotionally. Many retirees are doing reasonably well financially in an objective sense, while still feeling uncomfortable loosening habits that helped them build financial security in the first place.

          Unless you, e.g., won the “early Bitcoin lottery,” while you may have accumulated enough to retire, by most reasonable measures, you know you’re not financially invulnerable.

          Inflation, healthcare costs, longevity, and market uncertainty are still very real concerns. Which means that caution is still rational.

          The good news is that you don’t need to flip 180 degrees from following the instincts that helped you win the accumulation phase.

          The bad news is that even the appropriate recalibration isn’t emotionally easy.

          The “Savings Mindset” Doesn’t Automatically Turn Off

          It should be a clear change when you retire. You stop saving and start spending more than your non-portfolio income brings in.

          However, the above-mentioned EBRI survey found that the fraction of retirees who retained the “savings mindset,” at 38%, was more than 3 times larger than the 11% fraction of those who managed to switch to a “spending mindset.”

          As unfortunate as that is, it’s understandable.

          People who spend decades developing, honing, and exercising habits that allow them to build wealth, such as caution, delayed gratification, optimization, and maintaining significant margins, can’t just switch all those habits off when they retire.

          For financially responsible people, decades of asset accumulation made increasing assets emotionally rewarding. That emotional pattern doesn’t go away quickly or easily.

          EBRI’s survey reflects all this. 

          They found that 64% of respondents say that saving as much as possible makes them feel happy and fulfilled, while 31% just feel better when their account balances stay high. 

          Morningstar’s Christine Benz described experiencing a similar emotional reaction after selling appreciated stock and setting aside money to pay the resulting taxes. Even though the funds were already sitting in a brokerage account specifically for that purpose, she wrote that “Taking money out feels terrible. I hate it.”

          That’s completely understandable. 

          After decades of working to keep your account balances going up, the adjustment to intentionally drawing them down is emotionally difficult and takes longer than most people expect.

          Marcel Miu, CFA, CFP, Founder and Lead Planner at Simplify Wealth Planning, sees this regularly: “The biggest mistake I see is over-optimizing for a perfect 100% success rate in financial planning software. Data from EBRI’s Spending in Retirement Surveyanalysis shows that 38% of retirees remain anchored in a strict savings mindset rather than a spending mindset. They end up severely underspending and lowering their own quality of life out of habit or vague fears.”

          This tendency is reinforced by the way retirement planning is usually framed.

          As Justin Fitzpatrick, PhD, CFP, CFA, writing for Kitces.com, points out, retirees and advisors treat higher Monte Carlo “success rates” as automatically better, but that framing biases plans toward underspending in retirement. 

          He writes, “The Monte Carlo success/failure framing, in essence, focuses only on minimizing the risk of overspending, hiding a bias towards underspending by calling it a ‘success.’ Or, put another way, a 100% probability of success is exactly a 100% probability of underspending. Which means that solving for higher probabilities of success generally necessitates underspending to the point where clients, while comfortable knowing that they almost certainly won’t run out of money, may have to significantly revise their desired expectations for their standard of living.”

          That doesn’t mean retirees should ignore risk or spend carelessly.

          But it does imply that retirement planning shouldn’t be treated as a pure financial optimization problem, where higher safety margins equal better outcomes. Instead, plans should balance long-term security and flexibility with intentional spending that lets retirees enjoy their retirement, and especially their healthiest retirement years.

          Interestingly, EBRI’s research also found that fear of running out of money was cited by fewer retirees than wanting to preserve flexibility in case of unforeseen future expenses and/or wanting to leave a larger bequest to heirs.

          In other words, underspending in retirement is often driven less by fear and more by lifelong habits of maximizing safety, flexibility, and financial comfort.

          When Wealth-Building Habits Work Against You in Retirement

          As shown above, the habits built over decades of successful wealth accumulation are difficult to “switch off” once we retire, which often pushes us to underspend, limiting our enjoyment of retirement.

          Table 2 contrasts the benefits of these habits pre-retirement with their drawbacks once we retire.

          Habit Pre-Retirement Benefit Post-Retirement Drawback
          Saving mindset and delaying gratification. Accumulating wealth. Difficulty spending intentionally. Postponing meaningful experiences until too late to enjoy them.
          Focusing on growth and maximizing safety margins Optimizing finances.
          Avoiding financial meltdown.           		Difficulty shifting toward lifestyle balance.
          Restricting acceptable spending.
          Table 2. The same habits that help build wealth get in the way of enjoying it in retirement.

          Too often, the hardest part about retirement finances is giving yourself permission to use your money.

          As I shared elsewhere, when I stepped in to help my mom manage her finances after my dad passed away, one of the most important things I did for her was to repeatedly reassure her that it was ok to spend her own money. 

          One such moment sticks in my memory most. It was when she asked me if she could buy herself some new panties.

          John Davis, CFP®, EA, Founder and Financial Planner at JKD Financial, expands, “Outside of purely monetary mistakes, the non-financial trap I see is retirees not spending enough while they are healthy. It is far more common for me to sit across from clients in their 80s who say ‘I wish I had’ rather than ‘I wish I hadn’t.’ Money is simply a tool to fund the life you want. More money is not the end goal, and I actively encourage clients to enjoy what they worked hard to save while they are physically able to do so.”

          That observation captures something many people miss. 

          As we consider retirement, we focus mostly on minimizing the danger of running out of money. 

          Less often do we ask whether fear of that outcome may cause us to underspend during the years when we’re still healthy enough to travel, pursue experiences, and enjoy the life we saved for.

          That doesn’t mean we should spend with reckless disregard for our financial reality. However, we do need to do a better job of balancing the present-day enjoyment of our retirement with maintaining appropriate margins and flexibility.

          As we grow older, temporarily putting off travel, experiences, and hobbies risks permanently missing out on some of the very things that make our lives worth living. 

          This brings to mind something our financial planner recently told me when we discussed when we want to downsize our home. He said that planners have to push back when retirees decline to do something now, preferring to plan on doing it a few years later. 

          The question they often ask is, “What do you expect to change in these few years that will make you comfortable doing something then that you aren’t comfortable doing now?”

          I didn’t have a good answer.

          Which was exactly his point.

          Many financial decisions in retirement aren’t purely about the numbers. Especially the big decisions are often driven by emotions and emotional inertia.

          So, How Do You Recalibrate for Retirement?

          Unfortunately, no switch flips automatically once you retire.

          The habits and instincts that helped you build enough assets to be able to retire don’t magically go away. They remain emotionally powerful long after you stop working for a living.

          And that isn’t necessarily all a bad thing. You still need to keep your eye on the long-term sustainability of your finances.

          However, you will benefit greatly from intentionally recalibrating them.

          When considering current spending decisions, ask yourself:

          1. What experiences am I postponing, and what will make it easier to spend on them later?
          2. What specific future risk am I trying to protect against?
          3. Am I protecting future security, or maximizing safety indefinitely?
          4. Would a reasonable middle ground still leave my retirement sustainable?
          5. If I don’t do this, would that be driven by math, habit, or discomfort?

          Several other things can also help with the necessary recalibration.

          First, and it isn’t a copout, you can reduce the emotional pressure by covering some of your expenses from non-portfolio sources.

          As Davis shared, one of his clients took on a “retirement job” earning about $70k annually. Beyond the financial benefits, arrangements like that can make retirement feel less fragile emotionally, especially during market downturns.

          This avoids the “all-or-nothing” thinking of many retirees, who go overnight from being fully employed to being fully retired.

          That’s why I call myself “mostly retired.” I still consult about 20 hours a month and write, both of which bring in nice annual amounts to supplement our portfolio income.

          This sort of arrangement creates some financial and emotional breathing room, letting you:

          • Spend more comfortably.
          • Avoid drawing as heavily from investments during bad markets.
          • Feel less anxious about everyday spending.

          Next, recognize that spending from portfolio earnings feels different from spending earned income. You’ve spent decades doing the latter but have little experience with the former.

          That’s why it feels so uncomfortable.

          Understandably so, but once you recognize why it happens, you can move past it.

          Another strategy is to tilt at least some of your portfolio to income-producing assets. Somehow, spending dividends without selling shares is often less emotionally unsettling.

          A fourth tactic is to tie spending increases to portfolio performance. That’s the basis of the Guyton Klinger “Guardrails Approach,” which has you trim spending by 10% when your portfolio balance drops by 20% from baseline during the first 15 years of retirement, and increase spending by 10% when it grows by 20%.

          Finally, working with a financial advisor can help reassure you when your spending, even if it feels unsafe, is actually on-plan.

          None of these will make spending more money feel natural and eliminate any anxiety. However, they can help you gradually recalibrate your habits and emotions from what helped you build wealth to what’s needed to appropriately and sustainably enjoy it.

          The Bottom Line: Retirement Is Won by Spending Well, Not Just Saving Well

          Even people who have successfully accumulated enough assets to retire aren’t, mostly, “home safe.” They still need to manage uncertainty and risk, which continues to require similar long-term thinking to what they exercised pre-retirement.

          The challenge is to balance competing priorities.

          • Maintaining future security and flexibility.
          • Enjoying the present while alive and relatively healthy.

          The habits of our accumulation phase, spending less than we earn, saving and investing more, avoiding major mistakes, and optimizing for building wealth, served us well in getting us to where we are.

          However, if we’re to “win” the retirement game, we need to recalibrate and adapt these habits to our new reality, so we avoid unsustainable spending but, at the same time, spend more than we’re likely emotionally comfortable with.

          That’s not something you’ll achieve from a spreadsheet.

          You need to recognize that holding off on each financial decision until it feels completely safe before allowing yourself to enjoy retirement can easily lead to later regret.

          Successful retirement is no longer about maximizing account balances. It’s more about using those balances intentionally to enjoy the life they’re meant to make possible.

          It’s about balancing long-term security and flexibility with enjoying the time you still have.

          Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

          Opher Ganel

          About the Author

          Opher Ganel, Ph.D.

          My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals. Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.


          Learn More About Opher

            What this article covers

            Financial advisors explain why recession-proofing your finances has little to do with predicting markets — and everything to do with reducing fragility, building margin, and making good decisions before economic stress arrives.

            Every once in a while, recession fears dominate headlines.

            And many people obsess over this kind of doomsday-peddling.

            However, as CNN’s David Goldman wrote recently, “Economists have been predicting or warning about a recession every single year for the past eight years, and they were only right once – kinda.”

            Even the famous yield-curve-inversion recession signal, which correctly signaled 8 out of 8 recessions since 1968, has been signaling a recession for nearly four years now, falsely, so far.

            That’s because recessions are impossible to predict reliably.

            What we do know is that there will be another recession, and another after that, and more after that one. That’s because, since the end of World War II, the US has experienced 12 recessions. Once every 6.75 years. 

            Most lasted less than a year, and the longest was 18 months. But if you make the wrong moves as a result of a recession, or because you fear one, that can impact you for years or decades.

            If you’re like most people, you probably bought into the fallacy that preparing for a recession means you have to predict the economy, so you can time the market and make a major “protective” change in your investments before everyone else starts running for the doors and crashing the market.

            That’s because the standard recession-prep advice isn’t very helpful.

            As professional financial advisors point out, the real issue isn’t forecasting the economy or the market.

            It’s addressing financial fragility.

            Dr. Steven Crane, Founder of Financial Legacy Builders, says, “I think most recession advice is worthless because it assumes the average person’s biggest problem is their portfolio. It’s usually not. The real issue is fragility. People build lives that only work if everything keeps going perfectly: stable income, rising markets, low stress, no layoffs, no health issues. A recession just exposes the cracks that were already there.”

            You can appear to be financially successful on paper, but still be one layoff, one medical emergency, or one business slowdown away from making panic-driven decisions.

            That’s financial fragility.

            Depending on a single paycheck (or both paychecks in a dual-income household), having minimal liquidity, over-concentrated investments, a budget overwhelmed by non-discretionary expenses, and a lifestyle with almost no resilience to disruption.

            As Crane says, “One of the most overlooked recession-prep moves has nothing to do with investing. It’s reducing dependency. Dependency on one paycheck, one client, one stock position, one inflated lifestyle, one economic outcome.”

            This is why financial experts recommend a completely different recession-prep framework. One that focuses less on recession predictions and headlines, and more on building resilience into your financial life, so that it can absorb stress without crumbling.

            That means you need to build up your liquidity, flexibility, and emotional discipline so that you avoid panic and forced decisions. 

            Key Takeaways

            1

            The Real Recession Risk Is Financial Fragility, Not Your Portfolio

            Most recession-prep advice focuses on investments, but financial advisors say the greater danger is a life built to work only when everything goes perfectly — one income stream, minimal liquidity, and fixed expenses that leave no margin for disruption. Recessions don’t create fragility; they expose it.

            2

            Building Financial Margin Is the Most Effective Recession Preparation

            Financial margin — the sum of savings and discretionary expenses as a share of after-tax income — is the buffer that lets you absorb job loss, take advantage of down-market opportunities, and make decisions from clarity rather than panic. Advisors target 35–40% for clients who want genuine resilience.

            3

            Your Recession Risk Depends on Your Life Stage and Income Type

            W-2 employees, business owners, RSU holders, near-retirees, and retirees each face different recession vulnerabilities — and generic advice rarely addresses the right one. The goal isn’t to predict the next downturn; it’s to identify your specific concentration risks and reduce them before economic stress forces the decision.

            The Biggest Recession Risk Usually Isn’t Your Portfolio

            When reading recession-fear headlines, many people react as if their biggest risk is how their portfolio is positioned.

            Financial advisors argue the real risks are usually elsewhere.

            Crane explains, “Honestly, I think emotional decision-making matters more than investment strategy during recessions. Most people already have decent investments. What they don’t have is psychological preparedness. They’ve never stress-tested their lifestyle, marriage, business, or emotions under financial pressure. Recessions are behavioral events disguised as economic events. The real problem is that they don’t have a system for handling fear. A recession exposes behavior, relationships, debt problems, overspending, and unrealistic lifestyles all at once. That’s why resilience matters more than prediction.”

            He continues, “The most common mistake I see is people trying to predict the economy instead of preparing for uncertainty, trying to ‘outsmart’ recessions instead of outlasting them. They panic sell, move everything to cash, freeze up, stop investing, or make huge financial changes based on headlines and fear. Then, six months later, the world hasn’t ended, and the market recovers without them, but the damage from their reaction is permanent. I’ve seen people sit out rallies for years because they emotionally froze during a downturn. What felt ‘safe’ in the moment destroyed long-term wealth. Fear makes people feel productive while they’re sabotaging themselves.”

            The real damage from recessions is caused by:

            • Losing your job and being unable to find a new job with a similar income.
            • Being over-concentrated, e.g., when a large part of your portfolio is tied to your employer, so if that employer suffers, you could lose your salary and much of your net worth at the same time.
            • Making panic-driven decisions, or on the flip side, suffering emotional paralysis that prevents you from making rational decisions.
            • Lacking liquidity, which can force you to sell assets at a loss in a bear market.

            Crane identifies the things that help survive recessions intact: “The people who survive downturns best are usually the people with margin. Multiple income streams, lower fixed expenses, manageable debt, and cash reserves that buy them time to think clearly, as well as adaptable skills, strong relationships, and the emotional ability to pivot when things get ugly. Everyone focuses on investments, but most financial stress during downturns comes from a lack of flexibility. If your lifestyle requires every dollar of income to survive, even a small disruption feels catastrophic.”

            The lesson may be uncomfortable, but it’s critical if you want to be in that group Crane describes.

            Before anything else, you need to figure out if your financial safety requires everything to work perfectly.

            Because recessions expose people’s fragility far more often than they create it.

            Stress-Test Your Financial Life Before the Economy Does It for You

            Far too often, we take financial success for granted.

            We’re so used to our current spending levels and lifestyle that we don’t realize how financially rigid and vulnerable we’ve become.

            Until something happens that shakes apart your financial life.

            Ryan Veldhuizen, MS, CFP, Founding Principal of Catalyze Wealth Management, advises, “If you want to become more financially resilient over the next 6 to 12 months without making drastic changes or trying to predict the market, the most useful thing you can do is build margin. I define financial margin as the sum of savings and discretionary expenses divided by net after-tax income, and I target 35–40% for my clients. 

            “While that may initially seem far too big in percentage terms, it actually looks quite reasonable since it only affects the edges of our lives. But it has a huge impact on how cluttered and stressful, or how organized and flexible our lives are. Much like standard one-inch document margins don’t look very large, despite using 37% of the page, and without this margin, the document would be cluttered and overwhelming.”

            If most of your income is “spoken for” before the month even starts, you’ve painted yourself into a corner, where even a short-term income drop can become a major problem.

            If you want to know how vulnerable your financial life is, ask yourself:

            • How concentrated are your income sources? Could you survive six months or longer if you lost a paycheck?
            • How much of your spending is non-discretionary (think mortgage or rent, utilities, health insurance, auto loan payments, and groceries) vs. discretionary (e.g., travel, gifts, donations, etc.)
            • Can you raise money in a hurry, or are your assets mostly illiquid (e.g., home equity)? 

            The answers to those three questions will tell you if you’d likely be forced into major financial decisions quickly if conditions worsen (see Table 1).

            A table compares high-margin and low-margin financial lives by cash reserves, income sources, assets, and lifestyle, highlighting differences in diversification, liquidity, flexibility, and savings duration.

            Take paying down debt.

            Even with no recession in sight, paying off high-interest debt as quickly as possible should be one of your highest financial priorities.

            As Veldhuizen says, “Debt matters more than most people realize, not primarily for the interest savings, but because every liability you eliminate lowers the floor your income has to cover.”

            However, while paying down debt and lowering your required “income floor” improves resilience, draining your cash reserves to eliminate debt also reduces your liquidity and flexibility, which can be critical if you lose your job before rebuilding your reserves.

            Veldhuizen reiterates the importance of having enough margin, saying, “A family with 35% margin can absorb extended unemployment without selling the house, invest opportunistically when others are fearful, and make a career change or weather an emergency without the most important expenses ever being in question. Those who are intentional about building margin in their finances will benefit during economic growth and during economic downturns.”

            He then adds, “Margin is built in three ways: controlling fixed expenses, maintaining meaningful cash, and diversifying away from your own income concentration.”

            Once you build that margin, you have more breathing room, adaptability, and space for emotional clarity.

            Personally, I never consciously “prepared for a recession.”  In fact, I probably leaned harder into long-term investing and less into liquidity than I should have. 

            Yet looking back, the things that protected me during downturns had nothing to do with predicting the economy or timing the market. They had more to do with maintaining my employability, preserving professional relationships, and building adaptable skills, all of which helped when my consulting business suffered an 80% loss of revenue for a year, and avoiding the sort of poor financial decisions, such as high-interest debt, that would have trapped me when my income suddenly changed.

            Build an Opportunity Fund Before You Need One

            Having a solid emergency fund is a well-known tenet of financial preparedness.

            Conventional financial advice says we should have at least 3 months’ worth of expenses in a liquid and low-risk asset, such as a high-yield savings account. 

            Depending on how stable your situation is, how strong a safety net you have, and how many responsibilities you carry, that recommendation can grow to 12 months’ worth of expenses or even more.

            Yet, the National Association of State Credit Union Supervisors (NASCUS) reports that fewer than half of Americans (47%) can cover a $1000 emergency expense.

            As Deb Meyer, Founder of WorthyNest®, says, “Whether a recession is on the horizon or not, cash is king. Most people have an emergency fund of, at best, a few thousand dollars tucked away for unexpected expenses like car repairs, home appliances, or medical bills.”

            However, she then points out that having greater liquidity results in greater optionality and more freedom. She says, “Yet very few people have a sizable opportunity fund. An opportunity fund allows you to take a mini-sabbatical between jobs, helps you start the business you’ve always dreamed of pursuing, or provides ample breathing room for the home project you’ve been meaning to do for years.”

            Meyer then expands on the importance of building such an opportunity fund, and the sooner the better: “There will always be items outside of our control. Political unrest, life-threatening weather events, and stock market movements are just a few examples of things we cannot control. However, you do have the power to control your decisions around how much money to save, spend, or give. You can also control how you will react if a recession arrives: either calm or panicked. Having a substantial cash opportunity fund provides peace during a very uncertain time. To improve your financial resilience in 2026, start an opportunity fund.”

            Indeed, having greater optionality preserves and opens up choices, and it can even help you build wealth.

            As T. Casey Loper, CFP®, Wealth Advisor at Cornerstone Wealth Management, points out, “It’s not a matter of if a recession or a market drop comes, it’s a matter of when. We teach all of our clients to expect them to come often and be prepared to take advantage when they come. Having some money in fixed accounts to buy when bargains are available will always help one go from surviving to thriving in the next downturn or recession.”

            A higher net worth doesn’t automatically provide rapid-response optionality.

            For example, if much of your net worth is trapped in your home equity, you’re caught in “cash-poor” vulnerability.

            Real estate investments can be very profitable, but they are illiquid, which can pose a challenge in difficult times.

            Meyer explains, “Many clients who achieve a certain level of financial success inevitably ask if real estate is a wise investment. And usually, my answer is no. It’s an illiquid asset that can be extremely difficult to sell, especially in a recession. One exception? If it consistently generates income and is an asset that will be passed down to the next generation.”

            “For retired clients or those nearing retirement,” Meyer adds, “I’d much rather see a diversified mix of liquid assets that can be sold at a moment’s notice if necessary. Real Estate Investment Trusts (REITs) provide a similar experience to tangible real estate ownership with greater liquidity.”

            Other risk factors that make you vulnerable in a downturn include:

            • Concentrated stock compensation that isn’t diversified as quickly as possible.
            • Highly leveraged investments that can result in a dreaded “margin call.”
            • Private business ownership, when the business is in a recession-sensitive industry.
            • A lifestyle built around a permanently high income.

            Crane warns against acting on recession fearmongering, “Recession preparation should not feel like hiding in a bunker waiting for collapse. It should feel like building a life that can absorb stress without completely falling apart.”

            He then suggests a more positive way to prepare: “If you want to become more resilient over the next year, stop obsessing over predictions and start improving adaptability. One thing I strongly encourage people to do over the next 6–12 months is to build optionality into their lives. Build cash flow flexibility. Lower unnecessary stress. Increase liquidity. Reduce unnecessary financial obligations. Improve skills or income streams. Tighten weak areas of your financial life before the economy forces you to.”

            How Recession Risk Differs for Employees, Business Owners, and Retirees

            If you read most recession-prep advice, I’m sure you’ve noticed how generic it all sounds.

            It rarely discusses how your strategy should depend on your life stage, your income type, and your existing liquidity and flexibility.

            Different people face different risks in a recession, and they often don’t even look at the right ones.

            As Jim Crider, CFP®, Founder of Intentional Living FP, says, “Most recession worry is misdirected. The W-2 employee fretting about the S&P 500 is usually overexposed to their employer’s industry, not the overall market. The business owner watching the news is concentrated in an asset that’s both their income and their nest egg. The near-retiree fixated on returns is actually exposed to sequence risk. Good prep starts by naming the real concentration, not the one that’s loudest in the headlines.”

            He then elaborates on the different risks and how to mitigate them, “Here’s how that plays out in specific situations:

            • “Business owners: Recession hits twice. Revenue drops at the same time as the business is worth less if you try to sell. The real prep isn’t trimming portfolio risk. It’s building personal liquidity outside the business so you can ride out 12 to 24 months without forced distributions or panic decisions about staffing, pricing, or your own compensation. If a 2027 sale was your retirement plan, a downturn can push it out three years and cut the price 30%. Plan to be patient by being liquid.
            • “High earners with Restricted Stock Units (RSUs) or stock options: The mistake is treating vested shares as diversified wealth. They aren’t. You’re double-concentrated in one company that also pays your salary. Recessions reveal that. The fix isn’t to predict the next downturn; it’s building a disciplined sell-at-vest schedule and a real cash bucket before you need it, so a layoff doesn’t force you to sell vested shares at a five-year low.
            • “Near-retirees: Sequence-of-returns risk is the actual enemy, not recession. Two to three years of living expenses outside the market (not just an emergency fund, actual spending cash) keeps you from being a forced seller in Year 1 of retirement. Bonus: a real downturn opens a window for Roth conversions at depressed account values, which is one of the few tax moves that gets better in a bad market.
            • “Already retired: Spending flexibility matters more than nailing the withdrawal rate. Clients who can dial back the discretionary line, the travel year, and the truck upgrade recover faster than those running a rigid budget. Build the flex in before you need it.”

            Crane agrees, “The specific advice changes dramatically depending on the person. A W-2 employee may need greater cash reserves and skill flexibility. A business owner may need to focus on reducing operational fragility and personal lifestyle creep. High earners living off RSUs and stock options often think they’re diversified when they’re actually massively concentrated, so they need to sell during liquidity events. Near-retirees need to focus heavily on sequence risk and income structure, while fully retired people usually need emotional guardrails more than aggressive portfolio changes.”

            Table 2 captures these different situations, their real recession risks, and ways to mitigate those risks.

            A table showing main recession risks and proposed mitigations for W-2 employees, business owners, RSU/options-heavy employees, near-retirees, and retirees. Mitigations include diversifying income and saving more.

            As Veldhuizen puts it, “Every client’s situation is unique, and clients are quick to remind me of this, which always makes for a great discussion during our meetings. Rules of thumb too often assume everyone has the same thumbprint. Targeting a 35–40% margin is a starting point, not a final answer. Its value is in forcing the question: where is the actual flexibility in my financial life? The answer looks different for a retiring professor than for a Series B founder, but the process of intentionally thinking it through and identifying areas to improve your financial margin will build greater financial resilience.”

            He then explains how his above-mentioned margin formula, “… sum of savings and discretionary expenses divided by net after-tax income…”  applies differently in different situations:

            • “The framework applies cleanly to W2 employees. 
            • “The framework applies to business owners, too. When distributions are strong, discretionary spending tends to rise, and using the formula might calculate an 80% margin in a good year. That number isn’t the point. The point is that the margin should be calculated on income that is repeatable and spendable, not enterprise value that hasn’t been realized, not a distribution year that tripled because the business had an exceptional quarter. If distributions compress and there’s no personal cushion, the business risk fully transfers to the household. If anything, business owners need either higher margin targets or sufficiently realistic estimates of the durability of their income during a slow year or an economic downturn.
            • “Even in cases where the formula might seem inapplicable, the principle still applies. For example, a physician finishing residency with a reasonable expectation of a 5× salary increase in two years is making the most valuable investment available to them, themselves. Maxing out qualified retirement savings on a resident’s salary would be the wrong advice. Even so, I find that discretionary expenses in this phase tend to be proportionally larger, which preserves the spirit of the framework even when one of the variables, savings rate, is likely zero.
            • “For retirees in the distribution phase, savings drop to zero, and the formula becomes discretionary expenses divided by after-tax sustainable portfolio withdrawals. Two adjustments are made to get there: savings disappear from the numerator, and the focus is on non-guaranteed income sources, which don’t include Social Security and pensions. It’s a small tweak, but a retiree drawing from their retirement portfolio can still quickly calculate their financial margin using this framework.”

            How to Improve Your Financial Resilience in the Next 12 Months

            As the financial experts quoted throughout this article repeatedly emphasize, the best recession prep is reducing fragility, increasing adaptability, and preparing yourself to make good decisions before economic stress fractures your life.

            Here are some specific ideas for each of these.

            Steps to Reduce Financial Fragility Before a Recession

            • Reduce fixed obligations and recurring expenses as much as you can, before loss of income makes them hard to cover.
            • Reduce discretionary spending before you need to and use the money that’s freed up to bulk up your emergency and opportunity funds.
            • Diversify over-concentrated investments and compensation.
            • Keep high enough liquid reserves (i.e., the above emergency and opportunity funds).
            • Pay down high-interest debt, but not to the point that you become cash-poor.
            • Take on responsibilities that directly support your supervisor’s priorities, making it less likely that your job will be among the first to be axed.

            How to Increase Your Financial Adaptability

            • Update your resume now, before you need it.
            • Network to strengthen professional relationships, especially ones outside your current employer.
            • Build marketable skills to increase your employment flexibility.
            • Consider starting a side gig to diversify your income.

            How to Make Better Financial Decisions During a Recession

            • Create financial rules and emotional guardrails for yourself, and practice them before panic arrives.
            • Avoid doomscrolling and headline-driven financial decisions. Remember that the media publishes what they think will get your attention, which is not necessarily what helps you. They also drive attention by sensationalizing and catastrophizing.
            • Recognize that fear often creates urgency that feels rational in the moment, especially when it isn’t.
            • Focus on outlasting downturns rather than trying to outsmart them.

            What to Do If Income Drops

            Mike Tyson is often (though not accurately) quoted as saying, “Everyone has a plan, until they get punched in the face.”

            In that spirit, let’s assume that despite all your planning and preparing, a recession causes the worst to happen to you, and you lose your job. The more you did beforehand along the lines of the above recommendations, the better you’re positioned to survive this. Still, there are things you can do after losing income that can help.

            • Prioritize essential obligations, like your mortgage, rent, auto loan payments, and utilities. However, contact lenders (or your landlord) and your utility providers early to explore hardship programs or temporary and/or partial forbearance.
            • To preserve liquidity, consider making minimum payments where possible and putting off payments of bills that are less likely to damage your credit. For example, if you have medical bills, reach out to the provider(s), explain the situation, and offer to make token payments until you’re employed again. Interest is expensive, but it may be the lesser evil if it’s temporary and helps maintain liquidity as a survival tool.
            • Avoid liquidating long-term investments, especially during a market crash, until and unless it becomes unavoidable. Replacing long-term investments after panic-selling them during a downturn can take years.
            • Avoid isolating yourself professionally. If anything, hard times are a reason to network more actively, not less, and staying on top of developments in your field will make it easier to get your next job (or start your own business).

            Table 3 summarizes what’s at risk due to job loss, what priority actions to take, and what to pursue as mitigation and/or solution. 

            A table listing actions for job loss: For housing/bills, contact providers and seek forbearance; for credit cards, prioritize liquidity; for long-term investments, avoid liquidation; for jobs, network and upskill for employability.

            The Bottom Line: Outlast, Don’t Outsmart

            Recessions are a normal part of the economic cycle. That’s why it isn’t a matter of if there will be a recession, just when.

            And that “when” is impossible to predict accurately.

            As Physics Nobel laureate Nils Bohr once quipped, “It’s very hard to make accurate predictions, especially about the future.”

            Given that, our job isn’t to predict the next recession. It’s to reduce our financial fragility and build enough resilience to survive it with as little damage as possible.

            And the fact that recessions are usually shorter than a year makes that doable.

            Margins and resilience have to be built ahead of time, not when the downturn already hits. At that point, what you built, or failed to build, gets revealed.

            And if you managed to build enough resilience into your finances and emotional preparedness, you’ll do well.

            As Crane puts it, “The people who usually come out strongest after difficult economic periods are not the ones who predicted everything perfectly. They’re the ones who stayed adaptable, disciplined, and emotionally steady while everyone else reacted impulsively.”

            Your goal can’t be to outsmart recessions.

            It has to be building a financial life resilient enough to outlast them.

            Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

            Opher Ganel

            About the Author

            Opher Ganel, Ph.D.

            My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals. Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.


            Learn More About Opher

              Discover financial advisors trusted by residents of Germantown, Maryland in the only local directory featuring 5-Star Certified Advisor Review™ recipients and Wealthtender Voice of the Client Award™ winners—recognition earned for exceptional client feedback. Compare fiduciary, fee-only advisors, CFP® professionals, and specialists to find the right fit for your unique financial needs.

              Whether you have lived in Germantown for years or recently moved to town, you may need help finding the right financial advisor in the community best suited for your individual needs.

              It’s important to first consider your own financial planning priorities before choosing an advisor. Here are a few quick tips to help you get started along with financial advisors in Germantown featured on Wealthtender you may want to add to your shortlist.

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              The Benefits of Hiring a Financial Advisor in Germantown

              Hiring a financial advisor can be a great move to help you build a long-term investing strategy. Advisors can help you build an investment portfolio to meet your financial goals and help you plan appropriately for retirement.

              As a resident living in Germantown, hiring a financial advisor who lives nearby and understands the local economy, cost of living, and regional employers can be quite valuable, especially if your individual circumstances are deeply tied to such factors.

              Do you work for one of the largest employers in Germantown? If so, there’s a good chance the local financial advisor you hire will also have other clients who work there. This knowledge could prove valuable if they are already familiar with your employee benefits, such as a 401(k) plan, Health Savings Accounts, and other components of your total compensation package.

              When you reach out to financial advisors you’re considering hiring, let them know where you work and ask if they are familiar with your employer’s unique benefits and compensation structure.

              Quick Tips For Hiring an Germantown Financial Advisor

              Before hiring a financial advisor in Germantown, here are a few quick tips to help you find the best advisor for you.

              1. Decide Which Services You Need

              Before hiring an advisor, determine what services you need from them. Whether it’s full-service investment management or a plan focused on a specific area of your finances, put together a list of what you’d like help with before contacting an advisor.

              Though most people use a financial planner simply to invest for retirement, this is only a small part of what many advisors offer. Here’s a quick rundown of potential services a financial advisor may offer you:

              • Budgeting and money management
              • Debt management
              • Insurance planning
              • Retirement planning
              • Other investment planning
              • Inheritance planning
              • Estate planning
              • Tax planning

              As you can see, financial advisors can help you with your entire financial picture, not just investing. As you start to plan for life’s bigger milestones, you should consider finding a financial advisor that specializes in those areas.

              Finding the right advisor can help you minimize risk, maximize gains and take advantage of tax breaks while investing for your future. They can also help you protect your assets with the right kinds of insurance and help you pass on your financial legacy with a proper estate plan.

              2. Consider Your Budget and Payment Preferences

              Once you have a list of services you would like, review the fee structures financial advisors offer. Finding a balance between the services you need and the cost of those services will help narrow down the field of advisors you may want to work with.

              If you are looking for a full-service advisor to manage all of your investments, consider searching among fee-based financial advisors. If you want to manage your money yourself, consider the flat fee and monthly subscription advisors for ongoing support.

              3. Interview Multiple Financial Advisors

              Once you have chosen the services and fee structure you prefer, it’s time to contact a few advisors and interview them. Here are questions to ask financial advisors:

              • What services do you provide?
              • What are all the ways you get paid? (fee transparency)
              • What is your investment strategy?
              • How do you measure investment performance?
              • How do we communicate about my plan?

              Interview multiple advisors to get a feel for who you want to work with. A combination of fees, services, and customer service will help you determine the best fit for your financial advice.

              4. Review Financial Advisor Credentials

              Once you find an advisor (or two) you feel comfortable with, it’s always a good practice to check their credentials and the firm’s details. You can do this at the Investment Adviser Public Disclosure (IAPD) website. 

              You can check both the individual and the firm to view their background and experience details, as well as any disciplinary action taken against them or their firm.

              As licensed financial professionals, there is oversight into how financial advisors conduct business, so running a quick (free) check on them is recommended.

              For additional information about advisor credentials, read our article to learn the most popular designations held by financial advisors, as well as specialized credentials which may be important to consider if you have unique financial planning needs.

              Frequently Asked Questions & Additional Resources

              How do I know if I’m ready to hire a financial advisor?

              You should strongly consider hiring a financial advisor if you have a significant amount of money available for saving or investing. This could occur after years of making annual contributions to a retirement plan like a 401(k) through your employer or suddenly if you receive a large inheritance or sell your house for a large profit.

              But even if you don’t have a lot of money saved, many financial advisors and planners provide reasonable pricing options and valuable services you should consider, especially if you’re facing a significant life event. For example, if you’re starting a new job, getting married, starting a family, getting divorced, lost your job, starting or selling a business, or approaching retirement age, working with a trusted financial advisor or planner may prove worthwhile.

              Before I hire a new financial advisor, should I fire my current advisor?

              You don’t need to fire your current advisor before beginning your search for a new financial advisor. In fact, your new advisor can help coordinate the transition of your assets from your previous financial advisor.

              Where can I read reviews about financial advisors written by their clients to help me decide if I should hire them?

              After 60 years of regulatory prohibition of financial advisor reviews in the US, a rule issued by the Securities and Exchange Commission (SEC) became effective on May 4, 2021 that means both financial advisors and directory websites that help consumers search for a financial advisor can collect and display financial advisor reviews, an important factor worth considering when choosing who you’ll hire to manage your investments and life savings. 

              Wealthtender is the first independent advisor review platform designed to be fully compliant with the new SEC rule, and we look forward to helping you evaluate financial advisors based on reviews written by their clients.

              I’m a local financial advisor interested in being featured in this guide. How do I get started?

              Thanks for your interest. We look forward to learning more about your practice and helping you attract your ideal clients where you may be a good fit based on their individual needs and circumstances. Please click here to learn how you can join local financial advisors featured on Wealthtender.

              How Much Does a Financial Advisor Cost?

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              About the Author
              A headshot of Brian Thorp, the founder and CEO of Wealthtender

              About the Author

              Brian Thorp

              Brian is CEO and founder of Wealthtender and Editor-in-Chief. He and his wife live in Austin, Texas. With over 25 years in the financial services industry, Brian is applying his experience and passion at Wealthtender to help more people enjoy life with less money stress. Learn More about Brian

              What this article covers

              Most retirees are told to follow the 4% rule — but a lesser-known strategy called the guardrails approach lets you start with a higher withdrawal rate, spend more over the course of your retirement, and dramatically lower your chances of running out of money. This article explains how the guardrails approach works, walks through real numerical examples, and shares how financial advisors use it with clients today.

              I believe there are three main reasons we all need to be concerned about our retirement plans:

              1. Retirement has been getting longer and longer because we’re living longer.
              2. Projected market returns are significantly lower in the coming decades.
              3. Inflation is running at historically high levels [Editor’s Note: Inflation has subsided since this article was first published in 2023].

              And I feel the best way to avoid running out of money in retirement is an approach called “guardrails.”

              In this article, I offer a deep dive into the guardrails approach, a less well-known, advanced strategy to provide you with the best retirement possible at the lowest risk possible.

              Key Takeaways

              1

              The Guardrails Approach Can Slash Your Risk of Running Out of Money in Retirement

              The static 4% rule fails in roughly 13.7% of historical scenarios — meaning about 1 in 7 retirees would outlive their money. Research shows that applying a guardrails strategy reduces that failure rate to somewhere between 0.07% and 3.8%, depending on the specific parameters used.

              2

              You Can Start with a Higher Withdrawal Rate and Still Protect Your Portfolio

              Rather than locking in a fixed 4% draw for life, guardrails let you start at a higher initial rate — research examples use 4.3% to 5% — by building in automatic adjustments. When your portfolio drops significantly, you reduce your draw by 10%; when it grows substantially, you increase it, keeping withdrawals within a defined safe range.

              3

              A 10% Cut in Your Portfolio Draw Doesn’t Mean a 10% Cut in Your Lifestyle

              When guardrails trigger a reduction in your portfolio withdrawal, the hit to actual spending is cushioned on two fronts: your Social Security or pension income is unaffected, and drawing less from tax-deferred accounts lowers your taxable income — which reduces your tax bill and partially offsets the cut.

              Table of contents

              The 4-Percent Rule and How People Try to Update It

              If you’ve been reading about retirement planning, I’m confident you’ve heard of the so-called 4-percent rule.

              Published by financial advisor William Bengen in 1994, this “rule” states that if you invest your retirement nest egg in a 50/50 mix of large-cap stocks and intermediate-term Treasury bonds, withdraw 4 percent of the total in your first year of retirement, and then each year thereafter increase the number of dollars you draw by the prior year’s inflation rate, your nest egg will last for at least 30 years.

              This was based on Bengen’s analysis of historical investment returns all the way back to the Great Depression.

              More recently, Bengen said that by adding small-cap stocks, you could increase your initial draw to 4.5 percent.

              On the flip side, research from, e.g., Morningstar suggests that with lower projected returns in the future, you need to reduce your initial draw to 3.3 percent to maintain the safety level of the original 4-percent study. Their main concern is that with lower equity returns, the volatility of stocks poses a greater risk to your portfolio than it did when returns averaged 10+ percent.

              Once you start drawing money from your portfolio, if stocks crater and you still need to sell shares to cover your expenses, you’re pulling more shares out of your portfolio for the same number of dollars (i.e., selling low), which hamstrings your portfolio’s ability to recover with the market.

              Monte Carlo Simulations: Can They Solve What the 4% Rule Can’t?

              Many financial advisors use sophisticated software that runs thousands or tens of thousands of what-if scenarios based on the past behavior of different asset classes.

              They plug in assumptions for your specific case, such as:

              • Your portfolio size at retirement
              • Your asset allocation
              • Your age at retirement
              • Your age at death
              • Your proposed draw as a fraction of your portfolio

              They then say something like, “Your plan has an 85-percent likelihood of success.”

              What does that mean?

              It means that in 85 out of every 100 scenarios, you would have died before running out of money.

              How about the other 15 percent? In those scenarios, you run out of money and suffer poverty.

              So, do you feel lucky?

              The problem is, of course, that we don’t know what future investment returns will be, in what order, with what inflation, or even what life will throw at you (e.g., expensive health problems). And unless you want to gamble with your future financial well-being, even a 90-percent likelihood of success (which many professionals see as the “gold standard” of planning) may leave you anxious (it sure does me!).

              Of course, if you’re not looking to leave a big bequest to your heirs, the other direction is also not wonderful.

              Say you retire with a $1.5 million portfolio and pass away 30 years later with a $10 million portfolio. It would be fair to say in retrospect that you underspent what you could have and had a less enjoyable retirement than you could have had.

              As Zack Swad, President & Wealth Manager, Swad Wealth Management, says, “A static spending rate is a huge risk to your retirement because… you could end up broke or not living retirement to the fullest.”

              Interestingly, a recent Monte Carlo analysis of Bengen’s 4-percent rule shows that it has an 87-percent likelihood of success – not great!

              The Guardrails Approach: Adjustable Draws Allow Higher Spending with Lower Risk

              Developed by financial planner Jonathan Guyton and business professor William Klinger, the guardrails approach offers a far better, dynamic method for deciding how much you can spend each year in retirement.

              In this approach, when your investments do very well, you increase your draw, but when your portfolio value drops a lot, you cut your spending.

              Swad explains, “To implement guardrails, you first select an initial withdrawal rate. The higher this rate, the more likely you are to have to adjust your spending later. Let’s say you select 5 percent.

              “Next, you determine when to adjust your withdrawal rate (a.k.a. your guardrails). Let’s say you set your guardrails to 20 percent above and below your withdrawal rate. If your target rate is 5 percent, your lower guardrail would be 4 percent, and your upper one would be 6 percent.

              “If your withdrawal rate falls outside your guardrails (after adjusting for inflation), you’d increase or decrease your withdrawal amount by 10 percent, which should get you back into your target withdrawal range of 4-6 percent.”

              Swad then gives an example of how things could play out in a bear market.

              • “Year 1: You have a $2 million portfolio, and you draw 5 percent, or $100,000.
              • “Year 2: Inflation in Year 1 was 3 percent, and your portfolio dropped 20 percent to $1.6 million. Your inflation-adjusted withdrawal amount is $103,000 ($100,000 x 1.03). Dividing that by $1,600,000 = 6.4 percent. Since that’s higher than your 6-percent upper guardrail, you need to cut your draw, so you reduce it by 10 percent to $92,700 ($103,000 x 0.9), which is 5.8 percent of your $1.6 million current portfolio value, safely back inside your upper guardrail.
              • Repeat this check at least annually.”

              If the market has an incredibly good year instead, it might play out like this:

              • Year 1: You start out with the same $2 million portfolio and draw the same 5 percent, or $100,000.
              • Year 2: Inflation in Year 1 was 3 percent, and your portfolio soared 35 percent to $2.7 million. Your inflation-adjusted withdrawal amount is $103,000 ($100,000 x 1.03). Dividing that by $2,700,000 = 3.8 percent. Since that’s lower than your 4-percent lower guardrail, you increase your draw by 10 percent to $113,300 ($103,000 x 1.1), which is 4.2 percent of your $2.7 million current portfolio value, back over your lower guardrail.

              In a 2020 Morningstar interview, Guyton said, “…if you think about driving your car down a road, you hit a guardrail, it does two things. It puts a ding in your car, and it changes your momentum so that instead of the momentum pushing you toward the edge of the road, it now starts to shift you back toward the middle where it’s safe…”.

              He then goes on to explain that if the guardrails system tells you to cut your draw by 10 percent, that doesn’t translate to cutting your spending by 10 percent! That’s because (a) your Social Security benefits aren’t affected, and (b) drawing less out of your IRA or 401(k) (unless they’re Roth plans) means that your taxable income is lower, so your taxes are lower too.

              For example, say your draw is $50,000, your Social Security benefits are $30,000, and your taxes total $10,000. When the market tanks, you hit your upper guardrail and need to cut your draw by 10 percent, to $45,000.

              Drawing $5000 less from your portfolio, your taxes could be $1500 lower or $8500. This means that instead of having $70,000 to spend ($50,000 + $30,000 – $10,000), you have $66,500 ($45,000 + $30,000 – $8500).

              Just a 5-percent budget cut.

              Is it fun to trim nearly $300 from your $5830 monthly budget? No. But it’s no disaster either.

              Interesting, I’m thinking. But how much safer are you, and can you draw more on average than you would with the 4-percent rule?

              Swad pointed me to two research papers:

              • Guardrails to Prevent Potential Retirement Portfolio Failure (by William Klinger): Here, Swad quotes, “Simulations using the 4 percent rule with the above assumptions failed 13.7 percent of the time… If you used the withdrawal rate ratio applied to the 4 percent rule in the first 15 years (see page 51), the failure rate was only 0.07% for a withdrawal rate ratio increase of 20%.”
              • Lifetime Adjustable Income vs. the 4% Rule: Can You Spend More in Retirement with Less Risk? (by Rob Williams, CFP®, CPWA®, Managing Director Eric Tarkin, and Senior Researcher Chris Kawashima, CFP®, Senior Research Analyst): This report uses a slightly different methodology than  Klinger’s but reaches similar conclusions. For example, the initial draw could be 4.3 percent instead of 4 percent, the average annual (inflation-adjusted) draw increases from $39,000 to $49,000, and the probability of running out of money in 30 years drops from 13.2 percent to just 3.8 percent! Note that this study shows the average remaining portfolio at death (in future dollars) drops from $1.3 million to just $618,000.

              Depending on the details of how you implement your guardrails, your risk of poverty drops from over 13 percent to somewhere between 0.07 percent and 3.8 percent!

              How Financial Advisors Implement the Guardrails Approach with Clients

              I asked Swad and other financial professionals questions on how they implement the guardrails approach with their clients.

              Q: Do you implement the guardrails approach with all clients, or are there certain types of clients for whom you feel another approach is better?

              Swad says, “I implement guardrails for all clients who are in the retirement/distribution phase of life. I believe it’s a fit for all clients as it’s a better approach to helping ensure they don’t run out of money in retirement, which is almost always a top concern for retirees.

              “With that said, there are different degrees of guardrails that can be used. For example, if a client is relatively conservative and doesn’t want to have to adjust their income as much throughout retirement, we’ll use a relatively conservative income approach, which means starting with a lower withdrawal rate. Also, for clients who want to leave a legacy, we adjust the spending parameters down so they don’t spend as much throughout retirement, allowing them a better chance of leaving the legacy they desire.”

              Brandon Renfro, a financial advisor with Belonging Wealth in Longview, TX, says, “This is my single favorite approach to taking distributions from a retirement account, but I don’t implement it with every client. For some clients, the potential variability is too stressful, so we stick to a more standard withdrawal rate approach like the 4-percent rule.”

              Doug Oosterhart, founder & financial planner at Lifepoint Planning, says, “I implement guardrails with as many retirees as possible, as long as they understand that there’s a chance their income could be cut in the future. If clients are adamant that they aren’t willing to take a potential pay cut in the future, I discuss the pros and cons of a fixed withdrawal rate that is often lower than 4 percent.

              “The guardrail strategy allows for some optionality in the sense that we might be able to start with a withdrawal rate higher than 4 percent, knowing that income could change (up or down) moving forward.”

              Q: When implementing the guardrails approach, how do you work with clients to determine what their initial withdrawal rate should be?

              Swad says, “I discuss how willing and able they are to adjust spending throughout retirement and base the parameters on their answer.”

              Renfro answers a bit differently, “This is a key piece. To determine the initial withdrawal rate, we start by figuring out what they need to take to make their plan work. To gauge whether it’s an acceptable rate or not, I consider the results of their plan’s Monte Carlo analysis against the backdrop of historical research.”

              Oosterhart details, “I use a variety of software programs (primarily Income Lab). Rather than a specific starting percentage, Income Lab looks at dynamic guardrails from an actual-dollars standpoint. This makes it easier to convey to the client that if their portfolio hits a certain dollar amount (up or down relative to where we started), that’s when the guardrail change in income would happen.

              “Locking the client into a starting percentage withdrawal is often too rigid – for example, we might delay claiming social security to age 70, so their withdrawal rate might be high for a few years and then taper off once Social Security benefits start.”

              Q: Do you work with clients ahead of time to identify where in their budget they could (or should) trim if and when they need to cut 10% off their spending?

              Swad sees this as critical, “I believe understanding where a client can adjust is critically important to their plan. There are two ways to address the need to cut: 1) Determine beforehand during a budgeting conversation and exercise exactly what they are willing and able to cut, and/or 2) Consider part-time work during a tough market period. For #2, even a small part-time income will often allow someone to avoid having to cut their spending.”

              Oosterhart agrees, “Yes. We factor in baseline spending needs and then variable spending needs on top of that. We talk to clients about how it’s possible that they will spend more in the first ‘phase’ of retirement as they check off bucket list items. After that, the next phase might be a time when they spend less as they get into more of a routine. Like everything else in financial planning, there is an art and a science.”

              Renfro takes the opposite approach, “My clients typically don’t want or need this level of input from me. My role is to help you live your life the way you want to, help you withdraw in the most tax-efficient way possible, and let you know if you’re taking on too much risk. Clients decide where to cut back. However, most of my clients aren’t in a position where a 10-percent cut would be that stressful.

              “I also like to couple this strategy with a ‘floor’ approach where there’s enough Social Security or pension income to cover necessities, or that their withdrawal is simply way more than enough to cover their lifestyle, and the cuts are made to luxury or leisure spending.”

              Q: For clients using the guardrails approach, additional discipline is required, especially when the withdrawal rate has to be reduced. How do you help your clients adjust?

              Swad: “First, it’s important to understand a client’s willingness to adjust throughout retirement. If a client tells me they don’t want to have to adjust their spending, we’re going to use a much more conservative income approach with a lower withdrawal rate. I use Income Lab, a software package that uses guardrails. As part of my process, I regularly review plans with my clients and monitor them to see if they need to make adjustments.

              “We know WHEN we need to cut and WHAT we will cut from their budget (or alternative ideas to create more income that we’ve discussed, e.g., part-time work). When an adjustment is needed, I will notify them, and we’ll discuss this in our next meeting to help ensure they stay on track.”

              Oosterhart says, “It’s important to identify the client’s specific retirement spending style (i.e., are they more safety-first and prefer guarantees OR are they more probability-based and trust the market as a medium to fund their retirement).

              “Communication is key – some clients are on board with the guardrail approach, but others would rather use guaranteed income sources to fund their retirement. It’s important for financial planners to stay strategy-agnostic to find the best-fit strategy for each client’s ‘style’ in retirement.

              “In terms of helping clients adjust, the classic question this year has been, “Do we need to change anything?” I like my clients to keep a war chest of cash and short-term investments to make sure we don’t have to sell investments when they’re down, like in 2022.”

              Is the Guardrails Approach Right for Your Retirement?

              There are many well-known strategies to save more for retirement, invest more, build a bigger nest egg, etc. The less well-known strategies have to do with converting your portfolio into a source for a never-ending stream of income to fund your best retirement without ever running out.

              The “guardrails” approach does exactly that, and as described above, lets you spend more in retirement with a far lower risk of running out and dropping into poverty when you’re old and can’t recover.

              Ready to Work with a Retirement Financial Advisor?

              📍 Click on a pin in the map view below for a preview of financial advisors who can help you reach your money goals and retire comfortably with a personalized plan. Or choose the grid view to search our directory of financial advisors with additional filtering options.

              📍Double-click or pinch pins to view more.

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              Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

              Opher Ganel

              About the Author

              Opher Ganel, Ph.D.

              My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals. Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.


              Learn More About Opher

                What this article covers

                Firing your financial advisor doesn’t have to be complicated — but without the right preparation, it can get messy. This guide walks you through the four steps to end the relationship professionally and protect your money throughout the transition, along with tips from financial advisors on how to make the switch smoothly.

                Has your financial advisor lost you money? Maybe it’s time to lose your financial advisor. Breakups are never easy, and firing your financial advisor is no exception. But if you follow the right steps, the process can be relatively painless.

                One of the most important financial decisions we make is who we take financial advice from. This is especially important if you are paying for financial advice. What do you do if you are getting bad advice, and how do you fire a financial advisor?

                If you’re unhappy with the advice you’re receiving, it may be time to part ways. Before making any major moves, reflecting first on what may be going wrong is a good idea. The situation could be resolved by talking it over with your advisor. 

                Key Takeaways

                1

                Read Your Contract Before You Do Anything Else

                Your original advisor agreement almost certainly spells out the required termination process, notice requirements, and any exit fees — from the advisor, the funds, or both. Understanding these terms upfront prevents surprise charges and ensures the break follows the correct procedure.

                2

                Know What You’ll Do with Your Money Before You Make the Move

                Whether you plan to self-manage, hire a new fiduciary fee-only advisor, or use a robo-advisor, deciding in advance keeps your investments from sitting unsupervised during the transition. Your best path depends on your comfort with managing money and the complexity of your financial situation.

                3

                You Have More Power in This Breakup Than You Think

                Many clients don’t realize they can often remove an advisor simply by contacting the custodian directly — no difficult face-to-face conversation required. And if an advisor refuses to cooperate after written notice, filing a complaint with FINRA or a state regulator is a legitimate and effective path forward.

                Table of contents

                When You Know It’s Time to Fire Your Financial Advisor

                I recently had the chance to catch up with many people I had not seen in quite some time. During one of those conversations, the topic of money came up (as it tends to when someone is speaking with me). One person said they would love my advice on a financial problem that has been stressing them out.

                “How do I fire my financial advisor?”

                This person did not want to know if they “should” fire their financial advisor. They were quite clear on the fact that the advisor needed to be fired. What they wanted to know was “how” to do it. They were looking for a step-by-step on how to fire their financial advisor and what to do with their money afterward.

                I had to admit that I have no experience with the issue as I always have self-managed my finances. The more I thought about it, the more I realized why this is a stressful issue for people.

                The power dynamic in an advisor-advisee relationship is tilted heavily toward the advisor. The advisor is the expert on financial matters, that is why you people hire them. This can make it very difficult for some people to challenge their advisors or even ask questions about what the advisor is doing with their money.

                “People generally look to avoid confrontation, and firing your advisor can be very uncomfortable,” said Erik Nero, CFP – Founder and President of First Step Wealth Planning. “Most advisor relationships die of neglect rather than failure. It is difficult to break up with someone that the client may have used for years, that they may generally like and feel has done a good job. But if the advisor is no longer proactively exploring for what is relevant to the client, the risk of maintaining the relationship could outweigh keeping it.”  

                Before making any major moves, reflecting first on what may be going wrong is a good idea. The situation could be resolved by talking it over with your advisor. 

                “Think about why you are unhappy with your adviser. Is it poor performance, irregular communication, high fees, or a misunderstanding? Most advisers want happy clients, so explaining why you are unhappy may easily fix the problem.” said Rob Lloyd, CFA – President at Lloyds Intrepid Wealth Management. 

                “A good financial advisor should have a clear understanding of your needs and be working proactively to meet them,” said David Edmisten, CFP and Founder of Next Phase Financial Planning.

                “They should be anticipating changes and providing advice to help you make informed decisions,” he added. “They should be able to clearly articulate the value they provide and demonstrate this value to you on an ongoing basis throughout your relationship. If your current advisor is not meeting your needs and is not able to provide the service you expect, you are always free to look for a new advisor.”

                If you are sure it’s time to move on, wait no longer. This is an important issue, and providing a detailed answer would provide tremendous value to my readers. I’ve been researching this question for the past several weeks, and I am pleased to present this brief guide to firing your financial advisor.

                The 4-Step Process for Firing Your Financial Advisor

                There are four steps you need to take before actually firing your advisor.

                Step 1: Review Your Contract for Exit Terms and Fees

                When you first hired your financial advisor, you likely had to sign a bunch of paperwork. Read through these documents carefully. There is likely a clause about how to terminate the relationship with the advisor.

                If you can’t find the contract, ask your advisor or their administrative assistant for a copy of your contract. There are two particularly important sections of that contract.

                1. Instructions on how to terminate the relationship. Often, you are required to provide the advisor with a signed letter formally terminating the relationship (more on that soon).
                2. Fees. Often, a termination fee or other fees are involved in terminating your relationship with the advisor and pulling your money out. These fees may be charged by the advisor themselves, the investment funds they have you in, or both. It’s critical to ensure you are aware of what those fees are before you fire your advisor.

                Step 2: Decide What to Do with Your Money After Firing Your Advisor

                Before you fire your advisor, knowing what you will do with your money going forward is a good idea.

                You have three options to consider.

                1. DIY. If you are comfortable managing your own money, you could transfer investments to an online broker and handle things yourself.
                2. Find a new advisor. If you want someone to guide you through the process, you’ll want to find a new financial advisor you can trust. I suggest looking at a fiduciary “fee-only” financial advisor. Fee-only advisors charge a predetermined price to provide you with financial advice. This is the best way to get unbiased advice, as fee-only advisors do not have a financial incentive to put your money in a certain fund or sell you insurance.
                3. Robo-advisors. These are a good alternative for people who aren’t quite comfortable managing their investments themselves but aren’t in a position to pay the costs of a fee-only advisor.

                Do your homework and choose the path you are most comfortable with moving forward.

                Step 3: Request a Copy of Your Investment Records

                The final step before firing your advisor is to request a copy of your investment records. You have a right to these files, which have valuable information on your investing history.

                How To Fire Your Financial Advisor story

                Step 4: How to Officially Fire Your Financial Advisor

                It’s finally time to fire your advisor. Refer back to your contract with your advisor, as it likely details the exact process that must be followed to terminate the relationship. Odds are you will be required to provide the advisor with a signed letter. You have two options to deliver this letter.

                1. If you are working with a new advisor. Let the new advisor handle the uncomfortable part of firing your previous advisor. They will likely provide you with a few forms to sign and might be able to handle the rest with your old advisor.
                2. If you’re handling your finances moving forward. Be sure to follow the termination instructions in your contract. Include all the necessary information in a letter to your advisor, but keep it brief and professional. You don’t owe them a lengthy explanation, and a quick, clean break is in everyone’s best interest.

                If you have a financial salesperson rather than an advisor, be prepared for them to try and talk you out of leaving. Do not feel compelled to engage in a “retention pitch.”

                Make it clear your decision is final and stick to the business at hand, the transfer of your assets, and all the necessary paperwork.

                There are some steps you can take if the advisor tries to hold on to you. 

                “Threaten to file a complaint with the compliance department or state regulator. That always gets people’s attention,” said Lloyd.

                Breakups are never easy. Situations involving the heart or the wallet can be very stressful and emotionally draining. It’s essential to do your homework so that you can make the break as clean and painless as possible.

                Ready to Find a New Financial Advisor?

                📍 Click on a pin in the map view below for a preview of financial advisors who can help you reach your money goals with a personalized plan. Or choose the grid view to search our directory of financial advisors with additional filtering options.

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                How to Switch Financial Advisors: Tips from the Experts

                For additional insights, we invited financial advisors in the Wealthtender community to offer their tips for people thinking about switching to a new advisor. Here’s what they said:

                Headshot of Hazel Secco, CFP®, CDFA®
                Hazel Secco, CFP®, CDFA® Make work optional. Strategic retirement planning for executive women.

                My tips for Switching to a New Financial Advisor:

                1. Acknowledge it as a Professional Relationship: Recognize that your relationship with your financial advisor is professional. If you feel that your current advisor isn’t meeting your needs, it’s okay to explore other options. Trust your instincts and prioritize your financial well-being.
                2. Seek a Good Fit: Look for a financial advisor who aligns with your personality and expertise requirements. Ensure they understand your financial goals and are equipped to guide you effectively. A strong rapport and shared understanding are crucial for a successful partnership.
                3. Initiate Conversation: Once you’ve identified a potential advisor who seems like a good fit, reach out to them for a conversation. Use this opportunity to discuss your financial goals, concerns, and expectations. If you feel comfortable and confident in their abilities, express your interest in working together.
                4. Trust Your Instincts: Trust your intuition when deciding to switch advisors. If you feel a genuine connection and trust with the new advisor, proceed with the transition. Remember that the account transfer process, especially for investment management, is typically seamless and managed by the new advisor.
                5. Embrace the Change: Embrace the opportunity to work with a new advisor who is better suited to support your financial journey. Be open to building a trusting relationship and collaborating with them to achieve your financial goals. Enjoy the fresh perspective and guidance they bring to your financial planning.

                For additional insights, check out this article with relevant tips.

                Show more

                Hazel Secco, CFP®, CDFA® | Align Financial Solutions LLC

                🔗 Website | Wealthtender Profile

                Headshot of Stephanie McCullough
                Stephanie McCullough Dedicated to women on their own who want a true partner in $$ decision-making.

                What should people do if they are unhappy with their current financial advisor?

                Definitely shop around. You really want to be clear what you want to get out of working with an advisor, because advisors work in many different ways and can offer a wide range of services – or merely do investments. Know that there are advisors who specialize in serving people with specific financial circumstances, for example women on their own, or young families, or people with equity compensation.

                Is it best to move straight on to another advisor or wait for a cooling off period before scouting around again?

                I think it depends on what your current advisor is doing. If they are employing a very active investment strategy with lots of changes, it might be best NOT to have your accounts unsupervised for a while – markets could change without someone adjusting. If it’s a broadly-diversified allocation of funds that don’t change much, I think it’s fine to fire your current advisor before you find someone new.

                Perhaps some people are best suited to going it alone with their finances?

                This is true – it depends what you’re hoping the advisor can do for you. If you feel OK doing your own investments or using a roboadvisor, you can hire a financial planner on an hourly basis to help with specific questions as-needed.

                It seems plenty of people would like to fire their financial advisor, but are afraid to. THIS IS TRUE! Why are people often intimidated by their financial advisors? I DON’T KNOW – IT IS A SHAME. Is there an imbalance in the power dynamic here?

                For one thing, people often don’t know they CAN fire their advisors! AND you don’t even have to speak with the advisor to do so. You can just leave. If your accounts are at a large custodian like Fidelity or TD Ameritrade, you can simply call that company and ask that your advisor be removed from the accounts. Your advisor will find out and likely contact you, but don’t feel obligated to answer!

                If you’re nervous to have the conversation with your advisor, that might be a signal that it’s time to leave! Remember – it’s your money! You should feel comfortable talking about anything with your advisor (in my opinion).

                What should one do if the financial advisor tries to talk you out of leaving or does not politely comply with you after you’ve sent them a written notice that you wish to terminate your fiduciary relationship?

                You can initiate a transfer without your current advisor’s consent – in most cases I’ve seen, the current advisor does not have veto power over whether you can leave of not!

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                Stephanie McCullough | Sofia Financial

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                Headshot of Zack Swad, CFP®, CWS®, BFA™, AWMA®, AAMS®, RLP®
                Zack Swad, CFP®, CWS®, BFA™, AWMA®, AAMS®, RLP® Retirement Planning for People Age 50+

                What should people do if they are unhappy with their current financial advisor?

                First, think about why you are unhappy. Was it something the advisor could have done better or was it something out of their control (e.g. market fluctuation)? If it was poor service or bad advice, then a conversation with your advisor about what you are unhappy about is called for. If after that call, you still are unhappy, then it is time to start searching for a new advisor.

                Is it best to move straight on to another advisor or wait for a cooling off period before scouting around again? Perhaps some people are best suited to going it alone with their finances?

                If you want a professional to help guide you through tumultuous markets and provide you advice, then it is best to search for another advisor. If you have the time, will, skill, and emotional fortitude to handle market swings, then by all means, do-it-yourself.

                DALBAR has shown that on average, stock mutual fund investors return about 3-4% less per year than the S&P 500 with “investing and savings behavior” being the #1 reason why. That can make or break someone’s financial plan, which is why I believe having a good financial advisor on your side is well worth the fee.

                Vanguard has also done a study that shows that an advisor can add up to 3% returns for a client per year.

                It seems plenty of people would like to fire their financial advisor, but are afraid to. Why are people often intimidated by their financial advisors? Is there an imbalance in the power dynamic here?

                I think this is human nature. Financial advisors are typically in the relationship business. Their clients know, like, and trust them (well, maybe trusted them before they wanted to fire…). It feels bad for a client to fire their advisor they have been working with for years. It’s kind of like changing doctors after a misdiagnosis even though that doctor may have been helping you for years.

                What should one do if the financial advisor tries to talk you out of leaving or does not politely comply with you after you’ve sent them a written notice that you wish to terminate your fiduciary relationship?

                I believe that the client should speak with their advisor about their unhappiness. Try to see if they can make things right. If they can’t and they persist, that is completely unprofessional of the advisor. I would simply block their email address and phone number.

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                Zack Swad, CFP®, CWS®, BFA™, AWMA®, AAMS®, RLP® | Swad Wealth Management

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                Headshot of Rob Lloyd, CFA
                Rob Lloyd, CFA 30+ yrs Investing Experience Helping People Plan Wisely To Protect Their Family

                What should you do if you’re unhappy with your financial advisor?

                Think about why you are unhappy with your adviser. Is it poor performance, irregular communication, high fees, or a misunderstanding? Most advisers want happy clients, so explaining why you are unhappy may easily fix the problem.

                Best to move to another adviser?

                It depends. Are you confidant you can manage all the portfolio decisions? If so, you are a candidate to self-manage your account. If you are not sure what you are doing, begin shopping for an advisor before leaving your old adviser. Still not sure? Here is an article I wrote about working with advisers: Why Work With An Adviser? (lloydsintrepid.com). There is a checklist for what to look for in a new adviser.

                Don’t be afraid of you adviser. You are the customer, and the customer is always…

                Dealing with difficult advisers:

                Threaten to file a complaint with the compliance department or state regulator. That always gets people’s attention. Your new adviser can move all your account holdings to a different broker-dealer without any contact to the existing adviser. This process is helpful to avoid a difficult “break-up” meeting.

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                Rob Lloyd, CFA | Lloyds Intrepid Wealth Management

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                Headshot of Nathan Mueller, MBA, CFP®
                Nathan Mueller, MBA, CFP® We Help People of All Income Levels Accelerate Their Financial Prosperity!

                If you are unhappy with your financial advisor I recommend communicating with your financial advisor about it if you think the situation can be improved. A tough conversation but that might be easier than having to find and move over to a new advisor.

                If you just don’t jive with your financial advisor or for one reason or another the situation isn’t mendable then it’s time to move on.

                When moving on from a financial advisor most will be professional about it. If the advisor after giving written notice and reasonable time to take action does not comply your next step should be filing a FINRA complaint. Then you will walk through their dispute resolution process.

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                Nathan Mueller, MBA, CFP® | Blackbird Finance

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                Headshot of Erik Nero, CFP®, RICP®
                Erik Nero, CFP®, RICP® Financial guidance & investment management for those near and in retirement.

                An excellent advisor provides their clients with guidance on how to create their vision of an ideal financial future and how to take the steps needed to achieve it. This is achieved by constantly providing relevant value. If that cannot be offered, then a change may be necessary. It is best to communicate first with the existing advisor regarding to see if the current relationship can be improved.

                People generally look to avoid confrontation and firing your advisor can be very uncomfortable. Most advisor relationships die of neglect rather than failure. It is difficult to break up with someone that the client may have used for years, that they generally like and feel as though has done a good job. But if the advisor is no longer proactively exploring for what is relevant to the client, the risk of maintaining the relationship could outweigh keeping it. Especially when the existing advisor may be only focused on narrow aspects of a client’s life. There is much more to someone’s financial life than just investments and insurance.

                If an advisor becomes an obstacle in a client making a change, this is evidence that the change needed to occur. This underscores the advisor’s focus on themselves rather than the client’s. Manipulation should never be part of any relationship.

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                Erik Nero, CFP®, RICP® | First Step Wealth Planning, LLC

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                About the Author

                Ben Le Fort

                Ben Le Fort is a personal finance writer and creator of the online publication “Making of a Millionaire.” He has been passionate about personal finance ever since graduating University with $50,000+ in debt.

                In the eight years following graduation, he paid off all of the debt and built a seven-figure net worth. Ben holds a Bachelor’s degree in economics from Acadia University and a Master’s degree in Economics & Finance from The University of Guelph.

                Ben lives in Waterloo, Ontario, with his wife, son, and cat named Trixie.