The saying goes, “A physician who treats himself has a fool for a patient.” Could the same warning apply to financial professionals planning their own retirement? That’s the focus in this edition of The Next Step, Financial Planning’s newest series. The series explores one simple question: What’s the single most impactful move someone can make toward a stronger retirement?
Here’s how it works: We invite Americans to share basic details about their savings, income and goals. We anonymize their data and present it to professional financial advisors, asking what one step could make the biggest difference.
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Each edition features one individual’s story and practical advice from advisors. In this installment, we heard from a 50-year-old financial services professional in Seattle, Washington. Here’s how her finances stack up against the average American her age.
The saver makes just about $150,000 a year, roughly 112% more than the median full-time worker in her age range. Currently, 20% of her income goes toward retirement savings. After taxes and withholdings, she receives $8,000 in monthly income — enough to cover her average monthly expenses of $6,000 with some leftover income.
Along with her relatively high income, the saver also has an above-average amount of debt compared to the typical American her age. The typical American between 45 and 54 years old reports a median debt figure of just over $140,000. The whole of our saver’s debt, $453,000, is in a home mortgage financed at 3% interest.
The saver has $1.3 million saved for retirement, more than 10 times the median adult in her age range. A vast majority of that savings, 80%, is in pretax retirement accounts, while the other 20% is in Roth accounts. The saver reported having none of her retirement savings in nonqualified accounts such as taxable brokerage accounts. Based on her current income and contribution rate, she saves about $2,500 every month toward retirement.
In addition to her retirement savings, she also has an emergency savings account with $46,500, enough to cover nearly eight months of her current expenses.
For the sake of simplicity, the saver only reported her own income and savings. But she said she shares a retirement strategy with her 50-year-old husband, who also contributes to their joint retirement plan.
The saver hopes to retire at 60, planning to live on slightly less each month than she does now. With a $1.3 million nest egg and ongoing contributions of $2,500 a month, FP estimated what her savings could look like by the time she reaches that goal. In the calculation, FP assumes an average inflation-adjusted return of 7%.
General savings guidelines suggested by Fidelity Investments recommend having savings equaling one year of your annual salary by age 30, with the goal of having 10 times your annual salary saved by age 67.
With savings well above Fidelity’s recommended milestones, the saver said she feels very confident in her ability to retire.
“I’ve been in financial services for almost three decades, so I’m comfortable with investing and risk/reward,” she said.
Based on the information she shared, Financial Planning asked advisors: “What single step could make the biggest difference in this person’s retirement readiness?”
Here’s what they said:
Responses have been lightly edited for length and clarity.
Limbering up with a tax-flexible retirement plan
Patrick Huey, founder of Victory Independent Planning:”The single move that could make the biggest difference is to build out (or actively increase) savings in tax-flexible and taxable investment accounts.
“Why? As someone with nearly 80% of retirement assets in pre-tax IRAs/401(k)s, you’ve captured decades of valuable tax deferral. But early retirees (before Medicare and Social Security kick in) often face what I half-jokingly call the ‘Retirement Income Jenga Tower’ — trying to stack withdrawals, Social Security timing and tax brackets for maximum after-tax income. Having too much in pre-tax accounts can mean required minimum distributions (RMDs) and higher income taxes down the road, especially if you both live long, healthy lives.
“Funneling more savings into a taxable brokerage account or increasing Roth contributions (with annual conversions or mega backdoor Roths, if available) creates a pool of money you can tap with ultimate flexibility — without worrying about tax penalties or RMDs. This flexibility lets you control your taxable income in your early 60s, navigate ACA health care subsidy cliffs and potentially ‘Roth convert’ during the low-tax, pre-RMD years. It also greatly eases legacy and survivor planning.
“As I often tell clients — especially seasoned investors like yourself — the real magic in the retirement years is not just how much you have, but where you keep it, and how easily you can access it in a tax-smart way. Given your strong savings rate and secure income, consider gradually shifting a portion of your 20% annual retirement savings from pre-tax to taxable or Roth buckets, and/or working with your CPA on a partial-Roth conversion ‘glidepath’ in the coming decade. This small tweak in your accumulation strategy could have an outsized impact on your withdrawal strategy — and your tax bill — in retirement.
“Bottom line: At this stage, adding flexibility to your retirement nest egg is the ultimate force multiplier. It’s not just about how much you accumulate, but also about laying the groundwork now to control your tax bracket in retirement and keep more of your hard-earned savings working on your terms.”
Jared Gagne, assistant vice president at Claro Advisors:”The one step that could make the biggest difference now is to balance her 401(k) contributions between pre-tax and Roth. Since she’s likely phased out of making Roth IRA contributions, the Roth option in her 401(k) is the best way to add tax-free dollars.
“By retirement, her nest egg is likely to grow past $2.6 million even without additional savings. That can easily support withdrawals of around $72,000 a year, which means she will not only meet her lifestyle needs but also have significant wealth left over. Adding more Roth dollars today gives her flexibility in how she draws income, helps reduce lifetime taxes and creates a more powerful tool for transferring wealth to the next generation.
“Under current rules, most non-spouse beneficiaries must drain inherited retirement accounts within 10 years. Inheriting a traditional IRA means those withdrawals are fully taxable, often pushing heirs into higher tax brackets, in their high-income earning years. Inheriting a Roth IRA, by contrast, allows those dollars to come out tax-free. That makes Roth contributions today one of the simplest ways to not only improve her own retirement but also maximize what her family keeps after she’s gone.
“In short, she’s already won the savings game. The next step is balancing pre-tax and Roth contributions so she wins the tax game, too — both for herself and her heirs.”
Prepare for the unexpected
Kristin Pugh, partner at Creative Planning:”For this individual, I would encourage them to start allocating more savings to a taxable brokerage. Why? If we need to pivot or perhaps retire early in the next 10 years, prior to age 60, virtually all of the assets set aside today will be encumbered with a 10% early withdrawal penalty (for distributing prior to age 59.5). This is a risk management effort, and in this ‘Age of Intelligence’ where the next 10 years are seemingly uncertain for the workforce, I find myself recommending this more.”
Dialing in on a retirement number
Austin Vanhove, insurance advisor at Balefire Wealth:”One of the most impactful steps she can take is to determine her retirement number — the specific annual income she’ll need to live on in retirement, not only for everyday expenses, but also for discretionary goals like travel, gifting to family or charities and maintaining her lifestyle. Even with strong savings and investment knowledge, the key question is whether her assets and contributions will reliably produce that income through her retirement years.
“Once her true number is clear, she can stress-test her plan against market downturns, inflation and longevity risk to see if her savings are sufficient or if adjustments are needed. In short, knowing her retirement number ensures that her plan reflects her lifestyle and values, while diversifying her savings and utilizing tax-advantaged strategies ensures she can fund it efficiently — ultimately positioning her to confidently step into retirement at age 60.”
Ready to contribute?
Financial advisors who are interested in contributing to future editions of The Next Step can submit their names and emails below, and Financial Planning will contact them when there is another opportunity to participate.
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