How To Plan For Retirement In The Face Of An Uncertain Future

This post originally appeared in Forbes as part of its Intelligent Investor series. For the original version of the post, please click here.

If the last few decades have taught us anything, it’s that planning ahead for retirement is easier said than done. In 2008, The Great Recession wiped out $16 trillion dollars in American household wealth. In 2015, a couple of lines inserted in an omnibus piece of legislation changed the rules on Social Security’s long-standing “file and suspend” strategy, and with the stroke of a pen, millions of retirees lost as much as $250,000 worth of income over their lifetimes.

Then there are the drastic changes in estate tax exemptions, which have skyrocketed from $675,000 in 2001 to $11.4 million this year—$22.8 million for married couples. While this may be great news if you have that much you want to pass tax-free to your heirs, it’s maddening if you gave away a substantial portion of your estate based on the old rules.

In other words, if you made your financial plan a few years ago, thinking you could “set it and forget it,” you were wrong. These days, everything is a moving target.

And all this is to say nothing of the changes in the tax code, which took effect in 2018 and threw a wrench into so many people’s plans for everything from property taxes and mortgage deductions to charitable giving. The latter now takes real effort to coordinate due to the increased standard deduction; last year many of my clients were ready to give the same amount to charity that they always had. I had to warn them that they’d see no tax break from their (still noble) efforts, and that bulking their gift into one big one every five years might be the best option.

You never want to find surprises when you file your return—especially the kind that reveal you’ve just paid more in taxes than you should have—which is why your strategies need to be focused and rethought often.

The Big Mistake 

When you consider all this, it’s no wonder that many people who are headed into retirement or who are already retired feel like planning ahead is almost impossible; that the rug may be pulled out from under them at any moment.

Ironically, those feelings often inspire retirees to live off as little money as possible, drawing down on their accounts only under a mandate from the government, saving every penny that’s not part of their required minimum distribution for the inevitable rainy day. I get it. We’ve seen our fair share of storms, and you want to be protected in retirement. But the irony is that notdrawing down on your accounts now could cost you.

Barring an intervention from Washington, our current tax laws are due to sunset in 2025, at which point we’ll revert back to the laws that were on the books in 2017. That means that many of my clients will jump from a 22% tax bracket back into a 35% tax bracket, and suddenly find themselves paying 13% more in taxes even though their salaries haven’t changed a dime.

In other words, the old adage of taking money out of your retirement account as sparingly and slowly as you can is completely out the window. For many people, the opposite may be true—taking out as much as you can now (while still staying in the 22% tax bracket, which is $165,000 for married filing jointly and $82,500 for singles) may be a far better option if saving money is a priority for you.

Essentially, many of us need to rethink what “saving money” really means. It may mean taking more money out of your retirement account for the next seven years and stashing it somewhere else. If you’re looking for suggestions on where that “somewhere else” might be, I’ve written about a few (see The Next Recession Is Coming: Here's How To Protect Your Portfolio) of my favorite options--see Before You Buy Long-Term-Care Insurance, Check Out These Alternatives.

Making Long-Term Plans 

So, with so many changes afoot, how do you make a plan you can feel good about? The key is knowing that no plan is a permanent cure-all. You have to reevaluate once a year, every year. Meeting with a professional financial planner is just as important as getting a regular physical from your doctor, or changing the oil in your car. What made sense one year could be a devastating mistake in the next.

At my firm, we have what we call an “annual review program,” where we catch up with our clients annually on what’s changing in their lives, and what may be evolving in the tax code. Even if there are no changes in the latter, it could be you who has evolved, which is why it’s so important to be proactive. A financial planner can help you with your personalized scenario and walk you through all your options on budgeting, withdrawals, a Roth 401(k) vs. traditional, putting money into an HSA and more. They can also advise you on how to attain maximum flexibility in retirement—and in my opinion, the only thing that affords true flexibility is cash.

Yes, these conversations can be stressful. Most people aren’t excitedly running into my office every year shouting, “Hey! Let’s talk about my future!” But avoiding it could be a disastrous mistake that could cost you hundreds of thousands of dollars—money that you’ve already worked hard to earn.