Retirement Time, Taxes, and Healthcare

Today we’re going to continue sharing thoughts from the book How to Retire by Christine Benz.

It’s a great book which I highly recommend. And as with the last article, I’ll be giving away a copy of the book at the end of this post.

We’ve already posted on this book as follows:

You may want to check these out if you missed them.

Today we’re going to cover three more chapters from the book.

Planning on What to Do in Retirement

In chapter 14 Jamie Hopkins, a “retirement planning expert,” is interviewed about being adaptable in retirement.

That said, I’ll be sharing more from the portion where they discuss planning for how to spend your time in retirement.

We’ll start with this from Jamie:

We always talk about how retirees, on average, are happier than the general population. But there are actually more people in retirement who are depressed than is the case for the general population. A lot of people go into retirement and they lose their connection point, their community, their meaning. Life is going to be different in retirement, and that can be so challenging for some people that they enter into depression.

A better way is to be proactive about what retirement will look like. I suggest that people make a calendar and write down what they’re going to do every day when they’re retired. So ask yourself, “What am I doing on Wednesdays? What am I doing on Thursdays?” If you can’t come up with anything, you have to figure out a plan for those days. Filling out a calendar gets you closer to a detailed vision for your retirement.

A lot of times when I have those conversations, people say, “I want to travel and see my kids,” or “I want to play golf,” or “I want to go fishing.” My response is, “You have just described three out of 365 days. The other 362 days appear to be empty.” Forcing someone to go through what a week looks like is a really helpful visioning exercise. Some people have a clear view, but those who don’t should write out what they want their ideal week to be.

Retirement should be filled with meaning, as should life. Life is too short to float through without doing the things that fuel our passions. A life without passion and meaning is not living. Take the time to design a retirement that is full of passion and meaning.

I think I’ve talked quite a bit about these topics, so if you want more on this, see The Top Seven Retirement Activities. If you include these in your retirement planning, you’ll do just fine.

In addition, while I don’t mind the calendar idea, I’d prefer you giving retirement a test run if you can — maybe an extended sabbatical at work — and see how things work out. You can then make adjustments based on real life.

Another option is to slowly decrease the hours you work — if you can arrange that with your employer. You could move from 40 hours a week to 32 hours for a year or so, to 24 hours the next year, and so on. This way you can create your retirement life in stages rather than having to do it all at once.

He also suggests this, which is not a bad idea:

Another suggestion is to create a calendar of your ideal retirement — how you are going to spend each day. Then put expenses against each of those days. Do this for one month. Take a step back and ask yourself: Is that schedule enjoyable and is the spending sustainable?

Whatever you do, you need a way to plan for the time side of retirement. And the closer the plan is based in reality (actually testing it out), the better IMO.

Same goes for the spending side, which is why I recommend tracking actual expenses for three to five years before retirement (then you can make adjustments and plans based on real data, not guesses.)

All I had when I retired was a general plan. I knew I had interests and I was pretty sure I could fill up my time. It worked out well, but this is not the way I’d advise people to do it (and isn’t what I’d do if I did it all over again — I’ve learned a lot in the past decade, haha.)

On the money side, I knew I had more than enough to live the life I wanted (I actually created a budget). I also knew I had several margins of safety I could use if things got tight.

We now move to a few final comments on this chapter from Christine:

I’m a big believer in phasing into retirement rather than making it an abrupt shift. Are there parts of your job that you like doing and parts that you like less well? Working part-time or on a contract basis on the tasks that you actually enjoy can allow you to shift gradually into retirement. That’s often a win from a financial and a quality-of-life perspective.

As I suggested above.

I do like the “winding down” in your job and with remote work these days, I think employers are much more open to an arrangement like this than they have been in the past.

We haven’t covered this part yet because there wasn’t a short quote I felt summarized the thinking…until now:

The best retirement income plans are adjustment-based, meaning that you spend less in weak market years and more when your investments are up. It’s helpful to think through what you could do without in a pinch, as well as what your non-negotiables are.

The point here is that you need to be flexible in your retirement plans…which means you need to build in flexibility.

If all your expenses are fixed and you barely have enough to support yourself, what happens when disaster strikes (the market drops, there’s a large, unplanned expense, etc.)? Do you have margins of safety built in? Are you flexible enough to be able to either increase income or decrease expenses?

So be sure you build flexibility into your budget and your life, because at some point you’re probably going to need it.

We end with these questions from Christine:

How will you determine success in retirement? On the financial side, is your goal to maximize your own enjoyment of your resources or to leave a substantial sum behind for children and grandchildren? Don’t stop with the financial piece, though. What things do you want to accomplish in retirement so that you’ll consider this period of life to be successful?

Some awesome questions IMO.

I’m not sure I’ve got great answers for them.

A few years ago at one of the Millionaire Money Mentors conferences the emcee asked us what we were grappling with in our lives. I said that for me I wanted to “finish well,” meaning I wanted my last years to be meaningful and impactful.

I’m still in the process of working out what that means.

Taxes in Retirement

Chapter 15 is an interview with blogger/CPA Mike Piper. He’s an awesome resource for all things financial. He’s well-respected and I have always found his suggestions to be both practical and effective.

He specializes in complicated and technical finance topics around taxes, Social Security, and the like.

I’ve picked a few of the highlights of this chapter to share, starting with this:

I usually argue for spending from HSAs on medical expenses when you have them. A lot of people spend other dollars for medical expenses to let the HSA grow because it does get to grow tax free. That’s absolutely true, and that is a huge benefit.

The thing that a lot of people don’t know or don’t account for is that if somebody other than your spouse inherits your HSA, it’s fully taxable as income that year. There’s no stretch over ten years; it’s just-boom-taxable income, because those dollars have never been taxed. If your kids inherit it, or nieces or nephews, it would be taxable to them.

But if you took the money out now on medical expenses, it wouldn’t be taxed at all. So by never spending the money on medical expenses, it’s like you gave up this opportunity for tax-free distributions, and instead the account ended up fully taxable to your kids. That’s a pretty bad tax-planning outcome. That can very easily overwhelm the fact that yes, the account got to grow tax free for some additional years by not spending it.

See what I mean?

The standard “rule” in the FIRE community seems to be to save/invest these funds for as long as possible with a spend date of “never.”

This is what I’ve been doing — letting the monies accumulate and grow. Given the thoughts above, I think I’ll begin to use the money. I have receipts for a pretty large portion of my HSA, so I may use some of those to make withdrawals.

Christine then asked about required minimum distributions (RMDs) to which Mike responded:

Anything that makes your tax-deferred account smaller will reduce future RMDs. Contributing to Roth instead of tax-deferred accounts is a way to reduce RMDs in advance. There are also conversions and spending from tax-deferred accounts. And there’s a brief window where youre eligible for qualified charitable distributions (QCDs) but before RMDs kick in.

The magic age for QCDs is 70.5, which used to be the age when RMDs started. A QCD is when you have money sent directly from a traditional IRA to a qualifying nonprofit. It’s important that the contribution is sent directly; you can’t have a check from your IRA made out to you and then you write a check to the charity. And it does have to be a traditional IRA; a 401(k) or 403(b) won’t work.

But when you do that, the qualified charitable distribution is tax free. It’s completely left out of your gross income. Because the entity receiving it is a charity, a nonprofit that’s tax exempt, they don’t have to pay tax on it, either. If you don’t need the dollars and you’re inclined to give to charity, it’s a very tax-efficient way to do that. Of course, that’s also reducing the balance in your tax-deferred accounts, which would reduce your RMDs later on.

I wish there wasn’t an age restriction on QCDs as I’d be using them big-time right now.

That said, we’re likely to maximize QCDs when we get to 70.5 as we probably won’t need the income. This is our main plan for addressing RMDs. QCDs have a lot of the same strengths as a donor-advised fund, which we have used extensively for years.

Mike continues and highlights another one of these strengths as follows:

Whether RMDs start at 73 or 75, the other advantage of QCDs is that they count toward your RMD for the year. For anybody who doesn’t need to spend their RMD and is charitably inclined, the QCD is hard to beat. That’s because this is income that would have been taxable to you and now you just get to have it go tax free to the charity. You’re effectively converting a traditional tax-deferred dollar to a Roth dollar. There’s a dollar limit of $100,000 on it, though that amount is now indexed to inflation.

The limits have increased since this interview. Also to note, the QCDs are per person, not per household. Here’s what I got from Google:

Qualified Charitable Distributions (QCDs) are per person, not per household. Individuals aged 70½ or older can transfer up to $108,000 in 2025 ($111,000 in 2026) directly from their own IRA to a qualified charity. Married couples, if both have separate IRAs, can each make a QCD, allowing a combined total of up to $216,000 in 2025.

My wife has an IRA from when she worked and I have a much bigger one for my career. We’ll use these together strategically when we get to 70.5 to maximize our giving, minimize taxes/RMDs, and still provide whatever income we need/want.

Should be fun! Hahaha.

We move on to the next thought:

As far as bequests are concerned, traditional IRAs or other tax-deferred accounts are for sure the most tax-efficient way to leave money to charity. Any individual human being that you leave the money to would have to pay tax.

But if you leave it to the charity, it’s tax free to them. A charity is as happy to inherit traditional IRA dollars as Roth IRA dollars, whereas that’s definitely not the case for your kids or nieces or nephews. [Inherited Roth IRA assets are tax free, though they may be subject to estate tax.] So prioritize leaving Roth assets to human beings, prioritize leaving tax-deferred assets to charity.

See why I love Mike’s advice? This is GOOD STUFF!

This comment alone has me repositioning assets in a way to minimize taxes and maximize what goes to the kids and charity.

Here’s another comment I love, love, love:

I’ve been really trying to bang on the idea of giving sooner because statistically, by the time a person is likely to inherit something from their parents, they’re often already in their 60s, and they’re already retired, and they already have enough money accumulated to fund the standard of living they desired. They can go on some more trips, but they’re only going to spend a fraction of what they just inherited.

Giving earlier is so much more impactful. If you have grandkids who are going through college or have just finished college, helping them to pay off student loans is huge. It allows them to have cash flow, to contribute to retirement accounts; it relieves a tremendous source of stress in their life. It can be a big deal. Depending on the size of the loans and the size of the portfolio were talking about, it might only take a relatively small portion of the portfolio to make a huge difference in this young person’s life.

The same thing goes for people who are a few years older: Giving the money to help toward the down payment on their first house can be a big, big deal. Smaller gifts earlier are often way more impactful than a huge bequest later on.

This is what we’ve done. We have allowed our kids to make withdrawals from their inheritance to help them get started in life.

So far we have funded a couple home purchases (the down payments) and a new car. There’s likely more to come in the future.

Retirement Healthcare

Chapter 16 is an interview with Carolyn McClanahan, a financial advisor who was “trained as a physician.” I bet there’s an interesting story behind that transition! Hahaha.

She talks about health care and long-term care (LTC) in this chapter, from a “65 and older” perspective. In short, there’s no discussion of healthcare options for early retirees.

We begin with these thoughts:

To me there are three different buckets for healthcare over age 65. You have your regular healthcare, which is covered by Medicare and your Medigap plan. Everybody should always have a Medigap plan, which is a supplemental policy that sits alongside Medicare and covers things that wouldn’t be covered by Medicare.

I’m not a fan of Medicare Advantage. Medicare Advantage is less expensive than having a Medigap plan, but it wraps up everything and puts you with a private insurer. You’ll encounter limitations on where you can go for care. And the main issue is that once you are on a Medicare Advantage plan, if you no longer like it and it isn’t providing the care you need, you have to go through underwriting to go back on traditional Medicare. But if you can’t afford a Medigap plan, at least make sure you go on Medicare Advantage.

The second bucket is dental, vision, and hearing. Those costs aren’t covered by insurance, so people should always have an emergency fund for those things.

We’ll get to the third bucket in a minute. For now, here are some thoughts on the above:

My wife signed up for Medicare this year. We went for traditional Medicare and a Medigap policy. We can afford it and there are so many advantages over Medicare Advantage (lol — more advantages than Advantage.)
The mentors in the Millionaire Money Mentors forums are generally anti-Medicare Advantage. Many have shared horror stories from Medicare Advantage (from their parents) that will make you shudder. There’s no way we want to deal with that.
We haven’t had to use Medicare yet, so the jury is still out on what we think of it. Time will tell.

Next we have this:

And the third bucket, of course, is long-term care. People often wonder if Medicare covers long-term care, and it technically does not.

There are two types of care, skilled care and custodial care. Medicare will cover up to 100 days of skilled care. They pay for everything for the first 20 days, and after 20 days you end up having to pay the copay, which your Medigap coverage will help you with. But you must require skilled care, which means that you need physical therapy or nursing wound changes, for example, to stay in skilled care and have it be covered by Medicare. That’s not long enough in many situations, but that’s why you have long-term care insurance.

Custodial care helps with people’s daily living activities- bathing, dressing, and so on. Medicare doesn’t cover that type of care, unless you have a need for skilled care at the same time.

I’ve covered LTC in many other posts, so if you want more on that, check out these:

Christine now asks about dental, vision, and hearing costs:

It’s so situation dependent. Teeth, unfortunately, age with us. A lot of times people end up needing dentures or they need implants. We had a client who just had $30,000 worth of dental work. It can be very, very expensive. So first off, take care of your teeth; they’re part of your health, too.

Second, those big dental expenditures come in a big bucket. Usually you have something bad happen; it’s a big chunk of money and then you’re done. So if you need implants, it’s usually a big one-time expense. If you have a lot of your natural teeth, you might need a lot of root canals, which could be about $1,000 a pop. I like to plan for emergency expenses like that, just like any other bucket. We keep a cushion of $10,000 to $I5,000 a year for clients for all unexpected expenses— for air conditioners, teeth blowups, hearing aids.

My thoughts:

We have a dental plan with a local dentist’s office. It’s not great, but it’s a decent deal with ok benefits. We also take pretty good care of our teeth and have for decades.
We have a large emergency fund…for things like this as well as (mostly) a large market decline.
For eye appointments we simply pay out of pocket. Glasses and contacts are purchased at Costco or elsewhere online.
We haven’t had any hearing issues so far. Plus my wife was an audiologist, so that’s helpful if we need it.

We next move to keeping your brain healthy with Christine asking about cognitive decline. The response:

You can’t predict the future. That’s why you need to make sure you have a lot of little resiliency plans in place. Physical activity is important. Social engagement is important. Keeping your brain active with good problem-solving is important. Avoid toxic substances like too much alcohol. None of it is 100% guaranteed. If you do all those things, it doesn’t mean you won’t get dementia. But it does decrease your risk.

My thoughts:

Physical activity, social engagement, keeping your mind sharp, etc. Sound familiar?
I swim 6 times a week, walk a 3-mile track every day, and lift weights three times a week.
We have our kids over every week (at least once a week) and we have visits from family members as we are centrally located. I also have many friends/acquaintances at the gym plus a HUGE group of online friends.
I play many mind-challenging games every day (NY Times games, chess puzzles, LinkedIn games, etc.), write a blog, and run a membership site. All of these help to keep me sharp (I hope).
We don’t drink alcohol, thankfully.

But as she’s says, you never know. You do all you can and hope for the best.

And finally, we’ll close with this:

Where you live may have an impact on the type of healthcare and providers that are available to you, so it’s wise to bear it in mind as a factor when you’re deciding where to live later in life.

I found this out the hard way.

In Colorado I had a great doctor who I had an awesome working relationship with.

When we moved to Florida, I thought it would be somewhat easy to find at least a decent doctor. It was not. Many established doctors were not accepting new patients and the ones who were had questionable reviews.

In North Carolina, we are still looking for a good primary care physician. We had one, but he changed offices to one that was pretty far away from us. So we’re still searching.

My recommendation is to look into healthcare options before you move to make sure you can get the type and quality of care you want/need.

By the way, we actually found an eye doctor, dentist, and dermatologist (three different doctors, of course) in Florida that we liked better than what we had in Colorado, so our issue was just with our primary care physician.

That’s it for today. We are down to the last four chapters in this series, so stay tuned as I’ll be covering them soon.

——————————————

As I said above, I’m giving away a copy of How to Retire on every post I do about the book. Here’s how to you can enter:

Leave a comment below telling me what you liked best about this post, what you think you can use, or something you learned from it. Basically just share anything meaningful related to the content above (note: “please enter me to win” and similar comments will not be considered out of pure weakness! At least put a bit of effort into it!) This should be fun!
Be sure to leave your email address when you leave the comment so I will know how to reach you if you win (the email address will not be visible to anyone other than me).
The winners will be selected by me at random a few days after this post goes live. I’ll announce who wins in my own comment.
I’ll email the winner, get their address, and send them a book from Amazon.

As with most giveaways, there are rules. Here they are.

Good luck!!!!

Planning on What to Do in Retirement

Taxes in Retirement

Retirement Healthcare

Don’t Miss a Post

Leave a Reply Cancel reply