Category: Retirement

The Retirement Tax Strategies Most People Miss

Posted on by Brian Colvert

Most people spend decades focused on one thing when it comes to retirement: saving enough money. They contribute to their 401(k), build investment accounts, and hope that one day the numbers will finally work in their favor. But there is a major piece of retirement planning that often gets ignored until it is too late, and that is taxes.

The truth is that retirement taxes can quietly become one of the biggest expenses you face later in life. Even people who did an incredible job saving can end up paying far more in taxes than they expected simply because they never built a strategy around how they would actually withdraw their money.

That is where retirement tax strategies become incredibly important.

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

The Difference Between Saving and Keeping Wealth

The wealthy are not using secret offshore accounts or questionable loopholes to avoid taxes in retirement. In reality, most high-net-worth families are simply using the tax code strategically and planning years ahead of time. They understand how different account types are taxed, how Medicare premiums are calculated, how required minimum distributions work, and how to create tax-efficient income streams that give them more flexibility later in life.

Unfortunately, many retirees discover these strategies after key planning windows have already closed.

If you want to keep more of what you worked your entire life to build, understanding retirement tax strategies before retirement can make a significant difference.

Why Retirement Taxes Become More Complicated Than Most People Expect

During your working years, taxes tend to feel relatively predictable. You earn a paycheck, taxes are withheld, and your income generally stays within a certain range each year. Retirement changes that dynamic entirely.

Once you stop working, every withdrawal decision starts impacting multiple areas of your financial life at the same time. Pulling additional money from a retirement account can potentially increase your taxable income, push you into a higher tax bracket, increase your Medicare premiums, and cause a larger percentage of your Social Security benefits to become taxable.

Many retirees are shocked to learn that retirement income is not all treated equally.

For example, traditional IRA and 401(k) withdrawals are generally taxable as ordinary income. Capital gains may receive different tax treatment. Roth withdrawals can potentially be tax-free if structured correctly. Health savings account withdrawals used for qualified medical expenses can also be tax-free.

This creates opportunities for people who plan carefully, but it can create expensive mistakes for people who simply withdraw money without a coordinated strategy.

One of the biggest retirement tax surprises is something called IRMAA, which stands for Income Related Monthly Adjustment Amount. This is the surcharge Medicare adds to Part B and Part D premiums when your income exceeds certain thresholds. Many retirees do not realize that even seemingly harmless income increases can trigger substantially higher Medicare costs two years later.

That means retirement tax strategies are not just about reducing taxes. They are also about controlling the ripple effects that taxable income can create throughout retirement.

Roth Accounts Remain One of the Most Powerful Retirement Tax Strategies

When people think about retirement tax strategies, Roth accounts are usually one of the first tools discussed, and for good reason.

A Roth account allows money to grow tax-free, and qualified withdrawals in retirement are also tax-free. That combination can become incredibly valuable over time, especially for retirees trying to manage future tax brackets and Medicare costs.

One of the biggest misconceptions surrounding Roth accounts is that high earners cannot use them. While income limits may prevent direct Roth IRA contributions for some individuals, there are still strategies available that allow higher-income households to build Roth assets over time.

One commonly used strategy is the backdoor Roth IRA. This approach involves contributing after-tax money into a traditional IRA and then converting those funds into a Roth IRA. While the rules surrounding this strategy should always be reviewed carefully with a qualified advisor or tax professional, many high-income earners use this approach to continue building tax-free retirement assets.

Roth 401(k)s can also play a major role in retirement tax planning. Many employer-sponsored plans now allow Roth contributions, which gives individuals the opportunity to contribute significantly larger amounts compared to a Roth IRA alone.

The long-term value of Roth assets often becomes much more obvious once retirement begins. Unlike traditional retirement accounts, qualified Roth withdrawals generally do not increase taxable income. That means they typically do not increase Medicare premiums or cause additional Social Security taxation.

For retirees trying to maintain flexibility, having tax-free buckets of money can create enormous planning opportunities.

Roth Conversions Can Create Major Long-Term Tax Savings

One of the most overlooked retirement tax strategies involves Roth conversions during lower-income years.

There is often a window between retirement and age 73, when required minimum distributions begin, where taxable income may temporarily drop. For many retirees, these years can represent some of the lowest tax years of their adult lives.

That creates an opportunity.

A Roth conversion allows you to move money from a traditional IRA into a Roth IRA. The converted amount becomes taxable in the year of conversion, but future qualified growth and withdrawals become tax-free.

At first glance, intentionally creating taxable income may seem counterproductive. However, many retirees find that strategically paying taxes earlier at lower rates can help them avoid much larger tax bills later.

This becomes especially important for individuals with large traditional retirement accounts. Required minimum distributions can eventually force significant taxable withdrawals later in retirement, even if the retiree does not actually need the income.

By gradually converting portions of those accounts during lower-income years, retirees may potentially reduce future RMDs while creating larger pools of tax-free income for later years.

One common approach involves “filling the bracket.” This strategy looks at your current tax bracket and determines how much additional income could be recognized before crossing into the next tax bracket. Retirees may then choose to convert enough money to fully utilize that lower bracket without unnecessarily triggering a higher rate.

Retirement tax strategies like this require careful coordination because conversions can also impact Medicare premiums and other areas of the financial plan. However, when executed thoughtfully, Roth conversions can become one of the most valuable long-term tax planning tools available.

Understanding the IRMAA Trap

One of the most expensive retirement tax traps involves Medicare surcharges.

Many retirees assume Medicare premiums are relatively fixed, but higher-income retirees can end up paying dramatically more due to IRMAA.

What makes this especially frustrating is that the surcharge is based on income from two years earlier. By the time someone receives the notice that their premiums increased, the income event that caused it has already happened.

This is why retirement tax strategies need to consider more than just federal income taxes.

A large IRA withdrawal, a major Roth conversion, investment gains, or even municipal bond income can potentially push retirees over IRMAA thresholds.

This surprises many people because municipal bonds are often promoted as tax-efficient investments. While municipal bond interest is generally exempt from federal income tax, it can still count toward modified adjusted gross income for IRMAA calculations.

That means someone could technically avoid federal taxes on bond interest while still triggering higher Medicare premiums.

Wealthier retirees and proactive planners often focus heavily on building income sources that remain “invisible” for IRMAA purposes. Qualified Roth withdrawals and tax-free HSA reimbursements are two examples that can potentially provide income without increasing Medicare surcharges.

Understanding how all these moving parts interact is one of the key reasons retirement tax strategies should never be handled in isolation.

HSAs Are One of the Most Underrated Retirement Tax Strategies

Health savings accounts are often overlooked, but they can be one of the most tax-efficient accounts available.

In fact, many advisors refer to HSAs as triple tax-free accounts because they potentially offer three separate tax advantages.

First, contributions may be tax-deductible. Second, investments inside the account can grow tax-free. Third, withdrawals for qualified medical expenses can also be tax-free.

Very few financial tools receive all three benefits simultaneously.

Unlike flexible spending accounts, HSAs do not require you to spend the funds each year. The balance can remain invested and continue compounding over time.

This makes HSAs particularly valuable for retirement planning because healthcare expenses often become one of the largest retirement costs later in life.

Many retirees underestimate how much they may eventually spend on dental work, hearing aids, vision care, long-term healthcare expenses, and other out-of-pocket medical costs.

By allowing HSA funds to grow for many years, retirees may eventually create a dedicated pool of tax-free healthcare dollars that can help reduce pressure on taxable retirement accounts.

One important consideration is timing. Eligibility to contribute to an HSA generally ends once you enroll in Medicare, which means the accumulation window is not unlimited.

For individuals still working and enrolled in high-deductible health plans, maximizing HSA contributions can become a very effective long-term retirement tax strategy.

Cash Value Life Insurance Can Play a Specialized Role

Cash value life insurance tends to generate strong opinions, and it is important to approach this strategy carefully and realistically.

This is not a strategy that makes sense for everyone, and it should generally be evaluated only after other tax-advantaged opportunities have been fully explored.

However, in certain situations, cash value life insurance can become part of a broader retirement tax strategy.

Permanent life insurance policies such as whole life or indexed universal life may accumulate cash value over time. Policyholders can potentially borrow against that cash value later in retirement.

Because policy loans are generally treated differently than taxable income, retirees may be able to access funds without increasing taxable income or triggering IRMAA surcharges.

That said, these strategies come with complexity, costs, and risks that should not be ignored.

Poorly designed policies, excessive fees, underfunding, or improper loan management can create significant problems later. Some policies may not perform as illustrated, and policy loans can potentially create tax consequences if the policy lapses.

This is why retirement tax strategies involving insurance should be approached carefully with qualified guidance and realistic expectations.

Used appropriately in the right circumstances, cash value policies may provide additional flexibility. Used improperly, they can become expensive mistakes.

Qualified Charitable Distributions Can Reduce Retirement Taxes

For retirees who are charitably inclined, qualified charitable distributions can become an extremely effective tax strategy.

A QCD allows individuals age 70½ or older to transfer money directly from an IRA to a qualified charity. These distributions can count toward required minimum distributions while potentially avoiding taxable income treatment.

This creates several possible advantages.

First, the money donated through a QCD generally does not increase adjusted gross income the same way a normal IRA withdrawal would. That may help reduce exposure to Medicare surcharges and Social Security taxation.

Second, it allows retirees to satisfy charitable goals using pre-tax retirement dollars.

For individuals who regularly give to charities anyway, using IRA funds instead of personal checking accounts may create better overall tax efficiency.

QCDs can become especially valuable for retirees with large IRA balances who may not actually need all of their required minimum distributions for living expenses.

Instead of recognizing unnecessary taxable income and then donating after-tax dollars separately, QCDs may provide a cleaner and more tax-efficient solution.

Retirement Tax Strategies Work Best When Coordinated Together

One of the biggest mistakes retirees make is evaluating each strategy individually rather than viewing the entire financial picture together.

For example, a Roth conversion might reduce future required minimum distributions but temporarily increase Medicare premiums. Delaying Social Security could create more room for Roth conversions during lower-income years. Using Roth withdrawals strategically may help control taxable income later while preserving flexibility.

The key is coordination.

The most effective retirement tax strategies are rarely isolated tactics. They are usually part of a larger long-term plan that considers taxes, investments, healthcare costs, estate planning, and income needs together.

This is why many wealthy families spend significant time planning not just how to accumulate wealth, but how to distribute it efficiently later.

Retirement is not only about building assets. It is about creating sustainable income while minimizing unnecessary financial drag.

Why Timing Matters So Much

One of the hardest truths about retirement tax planning is that many opportunities are time sensitive.

The best Roth conversion years may only exist for a short period. HSA contribution opportunities eventually close. Required minimum distributions eventually force taxable income whether you need it or not.

That is why retirement tax strategies work best when addressed proactively instead of reactively.

Waiting until retirement begins can limit many of your planning opportunities. For example, once RMDs begin, Roth conversion strategies often become less effective, and enrolling in Medicare may end your ability to make future HSA contributions.

The earlier someone begins thinking strategically about taxes, the more flexibility they often have later.

This does not mean you need to overhaul your entire financial plan overnight. It simply means retirement tax planning deserves the same level of attention as investment planning.

Because ultimately, it is not just about how much money you save.

It is about how much of it you actually get to keep.

Final Thoughts on Retirement Tax Strategies

Retirement taxes can quietly erode wealth if they are ignored, but thoughtful planning can create meaningful long-term advantages.

The families who tend to navigate retirement most efficiently are often the ones who understand how different income sources interact, how Medicare premiums are calculated, and how to build flexibility into their withdrawal strategies.

Retirement tax strategies like Roth conversions, HSAs, qualified charitable distributions, and careful income planning are not exotic loopholes. They are legitimate planning tools written directly into the tax code.

The challenge is that many people discover them too late.

If you are approaching retirement, already retired, or simply trying to build a more tax-efficient long-term plan, now is the time to start evaluating how taxes may impact your future income.

Because keeping more of what you worked your entire life to build may ultimately matter just as much as building it in the first place.

Next Steps

At Bonfire Financial, we believe retirement planning should be about far more than just managing investments. That is why The Bonfire Method starts with taxes first. Before making recommendations, we help clients understand how their retirement income, withdrawals, investments, Medicare costs, insurance, and estate planning all work together as one coordinated strategy.

Most advisors start by talking about returns. We start by helping you keep more of what you have already built.

If you want to learn how retirement tax strategies could potentially impact your future and explore ways to create a more tax-efficient retirement plan, we invite you to learn more about The Bonfire Method. In just 30 days, our team walks you through a coordinated financial plan designed to help you better understand your taxes, investments, retirement income, insurance, and overall financial picture.

You can learn more about The Bonfire Method and schedule a conversation with our team at Bonfire Financial.

How to Increase Your Social Security Benefits (Before It’s Too Late)

Posted on by Brian Colvert

By 2033, Social Security benefits are projected to be reduced by about 25%. That’s not speculation, that’s straight from the Social Security Administration.

And if nothing changes long term, those cuts could get even worse. That matters more than most people realize.

If you’re expecting $2,000 a month, a 25% reduction brings that down to $1,500. That’s $6,000 a year gone. For many retirees, that’s the difference between feeling stable and feeling stressed every single month.

Here’s the part most people miss: Your Social Security benefit is not fixed.

There are real, practical moves you can make right now that can increase what you receive for the rest of your life. Below are five of the most impactful strategies to help you get the most out of what you’ve earned.

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

First, How Social Security Actually Works

Before we get into the strategies, it helps to understand how your benefit is calculated.

Every paycheck you’ve earned included a 6.2% contribution to Social Security (your employer matched it). Over time, that adds up.

When it’s time to calculate your benefit, the government:

  • Adjusts your earnings for inflation
  • Takes your 35 highest earning years
  • Averages them out over 420 months
  • Runs that number through a formula to determine your monthly benefit

That final number is called your Primary Insurance Amount (PIA), which is what you receive at full retirement age.

Everything you’re about to read either increases or decreases that number.

1. Work at Least 35 Years

This is one of the most overlooked factors.

If you don’t have 35 working years, Social Security doesn’t adjust the formula. It still divides by 420 months, which means missing years show up as zeros.

Those zeros drag your average down, and that lowers your benefit permanently.

The fix doesn’t have to be extreme. Even part-time work or side income in later years can replace a zero with a real number, and that can increase your monthly benefit more than you might expect.

2. Replace Low-Earning Years

Even if you already have 35 years, you’re not done.

Your benefit is based on your highest 35 years. That means lower-earning years still bring your average down.

If you’re earning more now than you did earlier in your career, continuing to work can replace those lower-income years with higher ones.

For example, replacing a $20,000 earning year with a $100,000 year can meaningfully increase your average and your future benefit.

Before stepping back or retiring early, it’s worth understanding what that decision could cost you long term.

3. Delay Filing (If It Makes Sense)

This is one of the most powerful strategies available.

You can start collecting Social Security at age 62, but there’s a trade-off:

  • You’ll lose about 6% per year you claim early
  • That reduction is permanent

On the flip side:

  • For every year you delay past full retirement age (up to 70), your benefit increases by about 8% per year

That can add up quickly.

A benefit of $2,300 at full retirement age could grow to nearly $2,900 by waiting a few years. And since Social Security adjusts for inflation, that higher base compounds over time.

This isn’t a one-size-fits-all decision. Health, income needs, and life expectancy all matter. But if you’re able to delay, it’s often one of the most effective ways to increase your lifetime benefit.

4. Coordinate Spousal Benefits

If you’re married, this is where strategy really matters.

Social Security isn’t just an individual decision; it’s a joint one.

A lower-earning spouse can receive up to 50% of the higher earner’s benefit, but timing is critical. Claiming early reduces that amount.

There’s also an important long-term consideration:

When one spouse passes away, the surviving spouse keeps the higher of the two benefits.

That means the higher earner’s decision about when to file doesn’t just affect them, it can directly impact their spouse’s financial security for the rest of their life.

Coordinating your strategy as a couple can make a significant difference.

5. Check Your Earnings Record

This might be the most underrated strategy on the list.

The Social Security Administration has acknowledged that billions of dollars in wages have gone unmatched to the correct records.

If your earnings history is wrong, your benefit could be lower than it should be, and you may never know unless you check.

Here’s what to do:

  • Create an account at SSA.gov
  • Review your earnings history year by year
  • Compare with old W-2s or tax returns if something looks off

Fixing an error could increase your monthly benefit for the rest of your life, and it might only take 30 minutes to catch.

Why This Matters More Than Ever

Over 40% of retirees rely on Social Security as their primary source of income. Even for those with savings, it often forms the foundation of a retirement plan. Small decisions made today can have a six-figure impact over time.

The five strategies are simple:

  • Work 35 years if possible
  • Replace lower-earning years
  • Delay filing when it makes sense
  • Coordinate with your spouse
  • Check your earnings record

None of these are complicated, but they do require awareness and intentional planning.

The Bottom Line

You’ve been paying into Social Security your entire working life.

It’s worth taking the time to understand how it works and making sure you’re getting everything you’ve earned.

Most people spend more time planning a vacation than they do planning this.

That’s a mistake you can avoid.

Next Steps.

If you want to look at your specific situation and figure out the right Social Security strategy for you, that’s exactly what we do. At Bonfire Financial, we help you coordinate your taxes, investments, and income into one clear plan so you can move forward with confidence.

Before you make any decisions, grab our free Social Security Cheat Sheet with the updated 2026 numbers. It’s a quick, easy reference that breaks down when to claim, how benefits are calculated, and the key thresholds you need to know. Download it and make sure you’re not leaving money on the table.

What to Sell Before Retirement: 5 Things Most People Miss

Posted on by Brian Colvert

What to Sell Before Retirement: 5 Things Most People Miss

Here’s the truth most people don’t expect to hear: a great retirement isn’t built by adding more. In fact, many of the common retirement mistakes people make come from holding onto the wrong things. A great retirement is built by knowing what to let go of before retirement.

For decades, the focus is on accumulation. Save more. Invest more. Build more. And that’s exactly what you should be doing during your working years. But as you approach retirement, the strategy shifts. What once helped you build your life can start to quietly work against you if you carry it forward without intention.

The happiest retirees we work with at Bonfire Financial aren’t the ones with the most stuff. They’re the ones who understand the difference between what they own… and what owns them.

This isn’t about cutting back or depriving yourself. It’s about optimizing your life so retirement actually feels like freedom, not a different kind of stress.

Let’s walk through five things to seriously consider selling or letting go of before retirement that most people miss.

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

1. The Oversized House

A large home makes perfect sense during your working years. It supports a busy life, growing kids, and everything that comes with it. But before retirement, that same house often starts to feel very different.

Rooms go unused. Mortgage is expensive, and maintenance becomes more of a burden. Costs remain high, even as your lifestyle shifts.

Here’s what most people misunderstand: downsizing isn’t always about a huge financial win. In many cases, people move into a home with a similar price point. The real benefit is lifestyle.

A smaller, more intentional home often means:

  • Less maintenance
  • Lower ongoing costs
  • A space that actually fits how you live today

Before retirement, the question isn’t “How big is my house?” It’s “Does this house still serve my life?”

2. The Toys You Don’t Use

We’re talking about the extra car, the boat, the second home, the motorcycle, or anything that once made sense but now mostly sits idle.

These aren’t just possessions, they’re ongoing expenses.

Before retirement, it’s easy to hold onto these things because of what they represent. The memories. The identity. The “someday” you might use them again.

But here’s the reality: if something has become more of a chore than a joy, it’s costing you more than it’s giving you.

Every unused asset comes with:

  • Insurance
  • Maintenance
  • Taxes
  • Time and mental energy

Letting go doesn’t erase the memories. It simply frees up resources for what you actually enjoy now.

3. Financially Supporting Adult Children

This is one of the hardest, but most important, things to address before retirement.

Every parent wants to help their kids succeed. That instinct doesn’t go away. But there’s a line where helping turns into consistently funding… and that can quietly derail your retirement.

We’ve seen it too many times:

  • $25,000 here
  • $50,000 there
  • Repeated support for lifestyle gaps or failed ventures

It adds up quickly.

Before retirement, it’s critical to shift this mindset. Your retirement savings are meant to support your life. Not to continuously subsidize someone else’s.

Letting go here doesn’t mean you stop caring. It means:

  • Setting clear boundaries
  • Protecting your future
  • Allowing your kids to grow through their own experiences

It’s a hard conversation. But it’s one of the most important ones you’ll have.

4. Your Work Identity

For many people, this is the one they never see coming.

Who you are becomes deeply tied to what you do. Your career provides structure, purpose, and a sense of identity. And then one day, it stops.

Before retirement, you need to start separating your identity from your job.

Because the question isn’t just: “When will I retire?”

It’s: “What does my life look like the day after I retire?”

The people who transition well into retirement already have answers to that. They’ve started building a life that includes:

  • Hobbies and interests
  • Social routines
  • Purpose outside of work

Without that, retirement can feel less like freedom and more like a loss of direction.

5. Lifestyle Creep and Unrealistic Upgrades

Before retirement, it’s tempting to think of this next chapter as the time to upgrade everything.

More travel. Nicer hotels. Bigger experiences. And while retirement should absolutely be enjoyed, it still needs to be grounded in reality.

A sustainable retirement isn’t about jumping to a completely new level of spending. It’s about maintaining and enjoying the lifestyle you’ve already built.

A simple way to think about it: If you’ve lived comfortably at one level your entire life, retirement isn’t the time to suddenly double your lifestyle expectations.

Before retirement, the goal is alignment:

  • Your spending matches your resources
  • Your expectations match your plan
  • Your lifestyle is sustainable long term

A Simple Framework to Use Before Retirement

As you evaluate what to keep and what to let go of before retirement, use this three-question framework:

1. Does this still serve my life going forward… or my past life?
Many things made perfect sense in a different chapter. That doesn’t mean they belong in the next one.

2. What is this actually costing me?
Not just financially, but in time, energy, and attention.

3. If I let this go, what becomes possible?
This is where the shift happens. Letting go of the right things can create space for:

  • Travel
  • Experiences
  • Flexibility
  • Peace of mind

The Real Goal Before Retirement

Retirement isn’t about having less. It’s about having the right things.

The right structure, the right priorities and the right mindset.

When you approach it this way, letting go doesn’t feel like loss. It feels like control.

You’ve spent decades building your life. Before retirement, the real opportunity is deciding what actually deserves to come with you into the next chapter.

And if you’re not sure what that looks like for your specific situation, that’s exactly the kind of conversation we have every day at Bonfire Financial.

Because the goal isn’t just to retire.

It’s to retire well.

Next Steps

If you’re getting close to retirement and want clarity on what actually makes sense for your situation, this is exactly what we do.

The Bonfire Method is a focused, step-by-step process designed to help you understand your full financial picture, identify what’s working, what’s not, and what needs to change before retirement.

If you’re ready to make smarter decisions and move into retirement with confidence, you can apply now.

Common Investing Mistakes (And How to Fix Them)

Posted on by Brian Colvert

Common Investing Mistakes (And How to Fix Them)

Most people think investing is about picking the right stock or timing the market, but that’s not what actually builds lasting wealth.

In reality, some of the biggest investing mistakes aren’t made by beginners. They’re made by high earners who are doing a lot of things right, but still feel like something is off.

They’re saving, they’re investing. They have a 401(k). On paper, everything looks solid.

And yet, there’s still uncertainty. Still hesitation. Still the question: am I actually doing this the right way?

After years of working with clients on financial planning, retirement strategy, and long-term investing, the patterns become clear. The issue usually isn’t effort. It’s structure. It’s mindset. And it’s a handful of common investing mistakes that quietly compound over time.

If you want to build real wealth and actually feel confident in your financial life, these are the mistakes worth paying attention to.

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

Mistake #1: Thinking Investing Is About Picking Winners

One of the most common investing mistakes is believing that success comes from finding the next big stock.

High earners are often smart, analytical, and used to solving problems. So naturally, they approach investing the same way. They try to outthink it. They look for the edge. The opportunity others are missing.

But investing doesn’t reward that behavior consistently.

Real wealth is not built on a few big wins. It’s built on consistency over time. It’s built on a system that works regardless of headlines, trends, or market noise.

The sooner you shift from trying to pick winners to focusing on a repeatable strategy, the sooner things start to click.

Mistake #2: Relying Too Heavily on a 401(k)

A 401(k) is a great tool, but it’s not a complete strategy.

This is one of the most common investing mistakes high earners make. They do exactly what they were told,  contribute consistently, and they take the match. And over time, they build a meaningful balance.

But then they realize most of their wealth is locked away.

That creates a lack of flexibility. If you want to retire early, invest in something outside the market, or simply have access to capital before traditional retirement age, your options become limited.

The solution isn’t to avoid a 401(k). It’s to avoid relying on it exclusively. Building wealth the right way means having multiple buckets, each serving a different purpose.

Mistake #3: Letting Too Much Cash Sit Idle

Another common investing mistake is holding excessive cash.

This often comes from a good place. It feels safe. It feels responsible. Especially for high earners who have worked hard to build what they have.

But over time, idle cash quietly loses value mostly due to inflation. It doesn’t grow. It doesn’t compound. And it doesn’t contribute to long-term wealth in any meaningful way.

The goal isn’t to eliminate cash completely. It’s to be intentional about how much you keep liquid and how much you put to work.

Mistake #4: Waiting Until Everything Feels “Perfect”

A lot of high earners delay making decisions because they want to get it right.

They want the right strategy, the right timing, the right plan.

The problem is that waiting is its own decision, and it usually costs more than getting started imperfectly.

Compounding only works if you give it time. The longer you wait, the more you give up.

You don’t need a perfect plan to start building wealth. You need a solid foundation and the willingness to move forward.

Mistake #5: Confusing Income With Financial Security

Making more money does not automatically lead to feeling secure.

This is one of the most overlooked investing mistakes. High earners often assume that as income increases, everything else will fall into place.

But without structure, higher income can actually create more complexity.

More accounts, more decisions, and more variables.

Financial confidence doesn’t come from income. It comes from clarity. It comes from knowing how everything fits together and why you’re doing what you’re doing.

Mistake #6: Ignoring the Role of Mindset

Many investing mistakes aren’t technical. They’re behavioral.

If someone grows up with a scarcity mindset, that doesn’t disappear when their income increases. It often carries forward into how they save, spend, and invest.

That can lead to hesitation, second-guessing, or an inability to enjoy what they’ve built.

On the flip side, overconfidence can lead to unnecessary risk and poor decisions.

Building wealth isn’t just about numbers. It’s about how you think about money and how that thinking shows up in your actions.

Mistake #7: Overcomplicating the Strategy

High earners are used to complexity in their professional lives, so they often assume investing needs to be complex as well.

It doesn’t.

In fact, complexity is often one of the biggest barriers to success.

The fundamentals are simple. Have a solid foundation. Invest consistently. Use the right mix of accounts. Stay disciplined over time.

It’s not flashy. But it works.

What Actually Builds Wealth Over Time

If these are the most common investing mistakes, what does the right approach look like?

It starts with a foundation.

An emergency fund that covers three to six months of expenses. No high-interest consumer debt. Stability before growth.

From there, it’s about using the tools available to you.

Taking advantage of employer matches. Building additional investment accounts that provide flexibility. Creating a structure that supports both long-term growth and short-term access.

And then, most importantly, staying consistent.

Investing month after month. Letting compounding do its job. Avoiding the temptation to constantly adjust based on what’s happening in the moment.

Why Consistency Beats Timing

Trying to time the market is one of the most common investing mistakes, even among experienced investors.

The problem is that it requires being right twice. When to get in and when to get out.

Consistency removes that pressure.

When you invest regularly over time, you smooth out the highs and lows. You participate in growth without needing to predict it.

And over the long run, that approach tends to outperform most attempts at timing.

The Difference Between Looking Wealthy and Being Wealthy

There’s a difference between looking successful and actually being financially secure.

Looking wealthy is often tied to visible things. Cars, homes, lifestyle.

Building wealth happens behind the scenes. It’s in the structure. The discipline. The decisions no one sees.

Many people who appear wealthy are financially fragile. And many people who are truly wealthy don’t feel the need to prove it.

Understanding that difference changes how you approach money.

What a Rich Life Actually Means

At some point, the definition of wealth shifts.

It moves away from accumulation and toward freedom.

The ability to make decisions without financial pressure. To spend time how you want. To create experiences with people you care about.

That’s what money is supposed to support.

Not just a number, but a life that you actually enjoy living.

Final Thoughts

Most investing mistakes don’t feel like mistakes in the moment.

They feel reasonable, they feel safe, and they feel like the right thing to do.

But over time, they add up.

The good news is that the solution isn’t complicated.

It’s about focusing on the fundamentals. Building the right structure. And staying consistent long enough for it to work.

If you can avoid the common investing mistakes high earners make and shift your approach toward clarity and simplicity, you put yourself in a completely different position.

Not just to build wealth, but to actually enjoy it.

Next Steps

Reading about investing mistakes is one thing. Fixing them in your own situation is another.

The Bonfire Method is designed to give you a clear plan across every part of your financial life, not just your investments. In 30 days, you’ll know exactly where you stand and what to do next.

If you’re ready to get out of the guesswork and into a real strategy, you can apply here.

Retiring Soon? It’s Time to Revisit Your Portfolio

Posted on by Brian Colvert

What Retiring Soon Means for Your Investment Strategy

If you are retiring soon, you are standing at the threshold of one of life’s biggest transitions. Retirement changes more than just your daily routine. It transforms how you view your investments, how you handle risk, and how you plan for the years ahead.

For decades, your portfolio likely sat quietly in the background. You contributed to it regularly. You watched it grow. And when markets dipped, you trusted time and future income to smooth things out.

But retirement marks a shift. When your portfolio becomes your income, the stakes feel different. Market swings become more personal. Risk feels more real. And decisions that once felt theoretical suddenly feel permanent.

That is why the year you retire, or the year before, is one of the most important times to step back and reassess how your portfolio is structured.

Today, we’ll cover why retiring soon requires a different way of thinking about risk, how portfolios should evolve as income stops, and what to review before you officially retire. Read to the end to understand how a few thoughtful adjustments can help protect both your finances and your peace of mind as you enter this next phase.

Listen Now: iTunes | Spotify | iHeartRadio | Amazon Music

Retirement Is a Financial Shift and a Psychological One

One of the most common misunderstandings about retirement is when it actually begins.

For most people, retirement does not start on their last day of work. It starts on the first day that their paycheck no longer arrives and their portfolio takes over that role.

That transition is both financial and psychological.

When you are working, market volatility tends to feel distant. If the market drops 15 or 20 percent, it may not feel good, but it does not usually change how you live your life. Your income continues. Bills get paid. Time is on your side.

When you are retiring soon, that relationship changes.

Suddenly, the value of your portfolio is no longer just a long-term number. It represents years of future spending, travel, healthcare, and lifestyle. A market decline that once felt like a temporary setback can now feel like a direct threat to your plans.

This psychological shift is often underestimated, and it is one of the biggest reasons portfolios need to be revisited before retirement rather than after.

When Your Portfolio Becomes Your Paycheck

During your working years, your portfolio’s job is relatively simple. It is there to grow.

You add to it regularly. You tolerate volatility because you have time to recover. You may even welcome downturns as buying opportunities.

But when you are retiring soon, your portfolio takes on a new role. It becomes your paycheck.

This is a fundamental change. Instead of adding money, you are now pulling money out. Instead of letting markets ride, you must consider how withdrawals interact with market performance.

This is where many people encounter what is known as sequence of returns risk. Poor market performance early in retirement, combined with withdrawals, can have an outsized impact on how long your money lasts.

The goal is no longer just growth. The goal becomes sustainability.

If you’re retiring soon, one of the most helpful first steps is understanding how much income your portfolio can realistically support. Using a retirement calculator can help.

Why Risk Feels Different Once Income Stops

Risk is not just a mathematical concept. It is emotional.

While you are working, a 20 percent market decline might show up as a percentage on a statement. In retirement, it shows up as a dollar amount tied directly to your lifestyle.

A portfolio that drops from $1 million to $800,000 feels very different when that portfolio is funding your income. People do not think in percentages at that point. They think in years of spending, missed opportunities, and lost security.

This is why we often say that risk tolerance changes whether you realize it or not when you are retiring soon.

Even people who have considered themselves aggressive investors for decades often find that their comfort level shifts once withdrawals begin. That does not mean they made a mistake earlier. It simply means their life stage has changed.

The Accumulation Phase vs the Distribution Phase

Most people spend far more time thinking about how to save than how to spend from their savings.

Accumulation is relatively straightforward. Spend less than you earn. Invest consistently. Stay disciplined.

Distribution is more complex.

When you are retiring soon, you must decide not only how much to withdraw, but where to withdraw it from, when to do so, and how those withdrawals interact with taxes, market conditions, and long-term sustainability.

This complexity is another reason portfolios often need to evolve at retirement. A structure that worked well for accumulation may not be well-suited for distribution.

There Is No One-Size-Fits-All Retirement Portfolio

Rules of thumb like “100 minus your age” or the classic 60/40 portfolio are often repeated because they are simple. But simplicity does not equal suitability. Truth is, there is no perfect “retirement age.”

When you are retiring soon, your portfolio should reflect your specific situation, not a generic formula.

Key factors include:

  • How much you have saved

  • How much income you need from your portfolio

  • Other income sources like pensions, Social Security, or real estate

  • Your spending flexibility

  • Your emotional comfort with volatility

Two people of the same age can require very different portfolios depending on these variables.

Why Many People Are Too Aggressive Heading Into Retirement

One of the most common issues we see is that people approach retirement with portfolios that are still built for growth rather than income stability.

This is understandable. Growth worked for decades. It is familiar. And markets may have performed well leading up to retirement.

But familiarity can create blind spots.

If you are retiring soon, too much exposure to volatile assets can magnify stress and increase the risk of having to sell investments at unfavorable times to fund living expenses.

This does not mean eliminating growth assets altogether. It means balancing growth with stability in a way that supports consistent withdrawals and emotional comfort.

Timing Matters More Than Market Predictions

It is important to be clear about what this conversation is not about.

Revisiting your portfolio because you are retiring soon is not about predicting market tops or bottoms. It is not about guessing what interest rates will do or which sectors will outperform.

It is about aligning your portfolio with a life change.

The best time to make adjustments is when markets are relatively strong, not after a significant decline. Once a downturn has occurred, changing risk levels often locks in losses rather than preventing them.

This is why planning ahead is so important. Waiting until after retirement, or after a market correction, can severely limit your options.

Liquidity Becomes a Bigger Priority

Another often overlooked factor when retiring soon is liquidity.

During your working years, illiquid investments may not pose much of an issue. You are not relying on them for income. Time is on your side.

In retirement, access matters.

If a portion of your portfolio is tied up in assets with limited liquidity or restricted withdrawal windows, it can complicate income planning. You may be forced to sell other assets at inopportune times to cover expenses.

Reviewing liquidity ahead of retirement allows you to plan cash flow more intentionally and avoid unnecessary stress.

Cash Flow Planning Is More Important Than Ever

When you are retiring soon, portfolio planning shifts from abstract returns to practical cash flow.

Questions become more detailed:

  • Which accounts will fund income first?

  • How do withdrawals interact with taxes?

  • How much cash should be available for short-term needs?

  • How do required distributions fit into the picture?

Answering these questions in advance helps create a smoother transition into retirement and reduces the likelihood of reactive decisions.

Managing Down Years Without Panic

No retirement portfolio avoids down years entirely.

Markets will fluctuate. Corrections will happen. The goal is not to eliminate risk, but to manage it in a way that allows you to stay invested through difficult periods.

When your portfolio is aligned with your retirement reality, down years become manageable rather than frightening. You are less likely to panic, make emotional changes, or abandon a long-term plan.

That emotional resilience is just as important as the numbers themselves.

Retirement Is a Process, Not a Single Event

One of the most helpful mindset shifts for people retiring soon is to view retirement as a process rather than a single moment.

Your portfolio does not need to be perfect on day one. It needs to be adaptable.

Your spending patterns may evolve. Your priorities may change. Your comfort with risk may continue to shift. A well-structured portfolio allows for those adjustments without requiring drastic changes.

The Value of Having the Conversation Early

Many people delay this conversation because it feels uncomfortable. While you are still working and accumulating, it can feel premature to think about pulling money out.

But this is precisely why the conversation matters before retirement, not after.

When you are retiring soon, having time on your side gives you flexibility. You can adjust gradually. You can plan thoughtfully. You can avoid rushed decisions driven by fear or urgency.

Bringing It All Together

Retirement is one of the few life events that touches every aspect of your financial life at once. Income, taxes, investments, psychology, and lifestyle all converge.

If you are retiring soon, revisiting your portfolio is not about fear or pessimism. It is about preparation.

It is about ensuring that the assets you worked so hard to build are positioned to support the life you want to live next.

If you would like help reviewing your portfolio, understanding how risk changes in retirement, or planning the transition from accumulation to income, we are always happy to have that conversation. Take a moment today to schedule a call with us to start the conversation.

You have earned this phase of life. The right planning helps you enjoy it with confidence.

RMD Questions Answered – Timing, Taxes, and Inheritance

Posted on by Brian Colvert

RMDs tend to show up quietly on the retirement timeline, and then suddenly they feel very loud. One year you are simply managing your investments. The next, the IRS is telling you that money must come out, whether you need it or not. For many people, that is where the confusion starts.

When exactly do RMDs begin? How much do you have to take? How are they taxed? And what happens if those accounts are still around when your kids inherit them?

Today we break down the most common questions we hear about RMDs and clear up the misconceptions that often lead to costly mistakes.

Listen Now: iTunes | Spotify | iHeartRadio | Amazon Music

What Are RMDs and Why Do They Exist?

RMDs, or Required Minimum Distributions, apply to retirement accounts that received a tax benefit upfront. These include traditional IRAs, 401(k)s, SEP IRAs, and SIMPLE IRAs.

The government allowed you to deduct contributions or defer taxes while the money grew. RMDs are the mechanism that eventually forces a portion of that money back onto your tax return.

A common misconception is that once RMDs begin, the entire account becomes taxable. That is not true. Only a calculated portion of the account must be distributed each year.

When Do RMDs Start?

Under current rules, RMDs generally begin at age 73. If you were born after 1960, that age increases to 75.

The year you reach your RMD age is the year the requirement starts. It does not matter if your birthday is early in the year or late in the year. That year counts.

There is one important planning nuance. Your very first RMD can be delayed until April 15 of the following year. This flexibility can be helpful, but it also creates a potential tax trap.

If you delay the first RMD, you will still need to take your second RMD by December 31 of that same year. That means two taxable distributions in one calendar year. Depending on your income, that could push you into a higher tax bracket or affect Medicare premiums.

This is why RMD timing decisions should be made intentionally, not automatically.

How Are RMDs Calculated?

RMDs are based on:

  • Your account balance on December 31 of the prior year

  • Your age

  • IRS life expectancy tables

The IRS essentially estimates how many years you have remaining and requires that a portion of the account be distributed each year. As you age, the required percentage gradually increases.

This also means that market performance matters. If your account grows, your future RMDs may increase as well, even if you are withdrawing money each year.

How Are RMDs Taxed?

RMDs are taxed as ordinary income, just like wages or business income.

If your income is $100,000 and you take a $25,000 RMD, your gross income becomes $125,000. That additional income can ripple through your entire tax picture, affecting tax brackets, Medicare premiums, and deductions or credits.

One planning strategy that often gets overlooked is the Qualified Charitable Distribution, or QCD.

Once you reach age 70½, you can direct up to $100,000 per year from your IRA directly to a qualified charity. That distribution still counts toward your RMD but is not included in your taxable income.

This can be especially powerful for people who are charitably inclined but no longer itemize deductions.

Recordkeeping is critical here. Most custodians report only the total amount distributed, not how much was taxable. The burden is on you and your CPA to properly document charitable distributions.

Do Roth IRAs Have RMDs?

Roth IRAs do not have RMDs during the original owner’s lifetime.

Because taxes were paid upfront, the IRS does not require withdrawals later. This gives Roth accounts a unique level of flexibility and makes them valuable tools for both retirement income planning and estate planning.

It is also why Roth balances are often preserved for later years or passed on to heirs rather than spent early in retirement.

What Happens to Your IRA When You Pass Away?

This is where RMD planning intersects with estate planning.

If your spouse inherits your IRA, the account typically becomes theirs and is treated as their own. RMDs are then based on your spouse’s age and situation.

If the account passes to children or other non-spouse beneficiaries, the rules change significantly.

Most inherited IRAs are now subject to the 10-year rule. This means the entire account must be distributed within 10 years of the original owner’s death. Withdrawals are taxable to the beneficiary as ordinary income.

RMDs during that 10-year window, if required, are usually not enough to fully empty the account. Beneficiaries must plan additional withdrawals, often during their highest earning years.

This is why inherited IRAs frequently create unexpected tax consequences for families.

Can Roth Conversions Reduce Future RMD Issues?

In some cases, yes.

Roth conversions allow you to pay taxes now in exchange for tax-free growth later. If you expect your heirs to be in higher tax brackets than you, converting some assets to Roth during your lifetime may reduce the overall tax burden on your family.

That said, Roth conversions are not universally beneficial. They require careful analysis of current tax rates, future income, cash flow, and estate goals. Sometimes the numbers work beautifully. Other times they do not.

The key is running the analysis rather than relying on assumptions.

The Bigger Picture With RMDs

RMDs are not just a retirement rule. They are a tax planning issue, a cash flow decision, and an estate planning consideration all at once. Handled well, they can be managed smoothly and strategically. Ignored or misunderstood, they can create unnecessary taxes and stress later on.

If you want to understand how RMDs apply to your situation, how they fit into your broader plan, or whether strategies like charitable giving or Roth conversions make sense, we are happy to help.

You can listen to the full podcast episode for a deeper discussion, or reach out to our team  to talk through your specific circumstances.

Am I Ready to Retire? Risk, Returns, and Real Answers

Posted on by Brian Colvert

Retirement shouldn’t be about spreadsheets. It should be about pickleball at 10am on a Tuesday.

But enjoying that freedom starts with knowing the answer to one question:

Am I ready to retire?

It is one of the most common questions we hear from clients and is also one of the hardest to answer with a simple yes or no.

Closely followed by two others:

  • Will I run out of money?

  • What kind of returns should I realistically expect?

These questions come up whether you are five years from retirement or already there. They also tend to show up together, because retirement planning is not just about hitting a number. It is about understanding risk, income, and how your money needs to function once your paycheck stops.

In this client Q&A, we break down how to think about retirement readiness, how much risk makes sense, and how to set realistic expectations for investment returns without guessing or chasing what someone else is doing.

Listen Now: iTunes | Spotify | iHeartRadio | Amazon Music

Q: Am I On Track for Retirement?

This is a big question, and it is a loaded one. Am I Ready to Retire?

There are a lot of moving parts, which is why blanket rules and online calculators often miss the mark.

That said, there is a simple way to get a back-of-the-napkin answer that gets you most of the way there.

Start With Your Lifestyle, Not a Formula

You will often hear that people spend less in retirement. In reality, that is not always true.

What we typically see is this:

  • Early retirement spending is often the same or higher

  • Travel increases

  • Deferred experiences finally happen

  • Time, not money, becomes the constraint

Because of that, a good starting point is your current spending, not what someone says you should spend in retirement.

Look at what you actually spend on:

  • Housing

  • Food

  • Travel

  • Utilities

  • Transportation

  • Entertainment

  • Insurance

  • Everything that supports the life you want

It is usually best to look at this over a full year, since some months are naturally higher than others. December might look very different than April. Summer might be more expensive than winter. What matters is the average.

Savings contributions are different. If you are actively saving into a 401(k), Roth IRA, or HSA, those contributions can usually be removed from your retirement spending estimate.

What remains is a realistic picture of what it costs to live your life.

Identify Income That Comes In Automatically

Once you know what you spend, the next step is to identify income that comes in without you working.

Start with the basics:

  • Social Security

  • Pension income, if applicable

  • Rental income or other passive income streams

Add up everything that shows up consistently without you having to lift a finger.

At this point, you should have two numbers:

  1. What you spend

  2. What comes in automatically

If income exceeds spending, you are already in a strong position. If there is a gap, that gap needs to be filled by your investment portfolio.

Using the 4 Percent Rule as a Reality Check

This is where retirement accounts come into play.

IRAs, 401(k)s, brokerage accounts, and other invested assets are typically used to fill the gap between spending and guaranteed income.

A commonly used guideline here is the 4 percent rule.

The idea is simple:

  • Take the total value of your investment assets

  • Multiply by 4 percent

  • That is a reasonable annual withdrawal amount that historically has kept pace with inflation

This is not perfect math. It is not a guarantee. But it does get you close enough to answer the question: Am I ready to retire?

For example:

  • $1,000,000 x 4 percent = $40,000 per year

  • Combine that with Social Security and other income

  • Compare it to your annual spending

If the numbers line up, you are likely on track.

If they do not, something has to change:

  • Save more

  • Spend less

  • Work longer

  • Adjust expectations

There is no judgment in that. It is simply math.

Q: Will I Run Out of Money?

This is the biggest fear most people have going into retirement. And it is not one that disappears just because someone explains it to you.

In many cases, the fear only fades once you actually live through retirement and see that the plan works.

Why This Fear Exists

When you are working, income feels unlimited. You may change jobs, get raises, or work longer if needed.

When you retire, that changes.

Your income is no longer tied to your effort, and that psychological shift is significant. You are moving from accumulation to distribution, and that transition can be uncomfortable.

Expenses can still be unpredictable. Medical costs, inflation, and market volatility all add uncertainty.

That is why risk management matters so much in retirement.

The Risk Most Retirees Take Without Realizing It

One of the most common mistakes we see is retirees taking more risk than they actually need to.

Often this happens because:

  • Friends are doing it

  • Headlines are loud

  • Recent returns look impressive

  • The market has been strong

  • FOMO

When you are working, market swings matter less. If the market drops 30 percent and you are still earning a paycheck, you are not forced to sell investments at a bad time.

In retirement, that changes.

If you need to pull income from your portfolio and the market is down, you may be forced to sell at exactly the wrong moment. That can permanently damage a retirement plan.

Sometimes, when the game is already won, you do not need to keep playing aggressively. You may not need to dominate. You may simply need to avoid losing.

That shift in mindset is critical.

Playing to Win vs Playing Not to Lose

This is where retirement planning becomes personal.

If your biggest fear is running out of money, then your portfolio should reflect that. That often means being more conservative than you were during your working years.

If your biggest goal is maximizing growth and you have more flexibility, you may be able to take more risk.

Neither approach is inherently right or wrong. What matters is that your investment strategy matches:

  • Your goals

  • Your income needs

  • Your tolerance for volatility

  • Your actual situation, not someone else’s

Old rules like “your age equals your bond allocation” are outdated. Retirement planning today needs to be far more individualized.

Q: What Returns Should I Expect?

This is another question that we get when someone asks “Am I Ready to Retire?” is “What Returns should I expect” This often gets oversimplified.

Returns depend entirely on what you are invested in.

Stocks

For a diversified stock portfolio, long-term expectations in the range of 8 to 12 percent are reasonable. That comes with volatility, sometimes significant volatility.

Fixed Income

Fixed income investments like bonds, CDs, and Treasuries are designed for stability and income, not growth.

In recent years, expected returns here have been much lower, often in the 3 to 5 percent range.

The trade-off is reduced volatility and more predictable cash flow.

Why Comparisons Matter

One of the biggest mistakes investors make is comparing apples to oranges.

Stocks should be compared to stocks. Bonds should be compared to bonds.

If an equity-heavy portfolio is averaging 5 percent over a long period, that may be a red flag. If a conservative, income-focused portfolio is doing the same, it may be completely appropriate.

Context matters.

Understanding Alternative Investments and Liquidity

Alternatives include investments that are not traditional stocks, bonds, ETFs, or cash. Examples include:

The biggest thing you give up with alternatives is liquidity.

If you own a publicly traded stock, you can sell it and have cash quickly.

With alternatives:

  • Money may be locked up for years

  • Access may be limited to quarterly windows

  • Redemptions may be capped or delayed

Because of that, you should expect higher returns in exchange for giving up liquidity.

As a general guideline:

  • Private equity often targets higher returns than public markets

  • Private credit should pay more than traditional fixed income

  • If an illiquid investment offers the same return as a liquid one, the liquid option usually makes more sense

Liquidity is flexibility, and flexibility matters in retirement.

Why Most Advisors Focus on Diversification, Not Beating the Market

Data consistently shows that most active managers do not outperform the market over long periods.

That does not mean advisors have no value. It means their value lies in:

  • Portfolio construction

  • Risk management

  • Behavioral coaching

  • Planning integration

The goal is not to win every year. The goal is to build a portfolio that supports your life and holds up across different market environments.

Am I Ready To Retire? The Bottom Line

Retirement readiness is not about a single number or a perfect return. When you ask yourself “Am I ready to retire?” remember:

It is about alignment.

  • Does your income support your lifestyle?

  • Does your risk match your goals?

  • Are your expectations realistic?

  • Is your portfolio built for the phase of life you are in?

If you can answer those questions honestly, you are already ahead of most people.

And if you cannot, that is where thoughtful planning comes in.

If you have questions about your own situation, we are always happy to talk through it with you one-on-one. Schedule a call today!

What to do with an Inherited IRA (And the Mistakes to Avoid)

Posted on by Brian Colvert

What to do with an Inherited IRA

Inheriting an IRA is very common financial event that families face, yet it is also one of the most misunderstood.

Almost everyone will deal with an inherited IRA at some point, whether from a spouse, parent, or other loved one. IRAs, 401ks, and Roth accounts are some of the most widely held assets today. And since none of us get out of here alive, these accounts almost always pass to someone else.

Yet despite how common inherited IRAs are, they remain one of the top topics we discuss with clients on a daily basis. The rules have changed. The tax implications can be significant. And the decisions you make, or fail to make, can quietly cost you hundreds of thousands of dollars over time.

The good news is this: Inheriting an IRA is a good problem to have. It means someone cared enough to leave you something meaningful. But like many good problems, it still needs to be solved thoughtfully.

Today will walk through how inherited IRAs work, the differences between Roth and traditional inherited IRAs, the 10-year rule, common mistakes to avoid, and why planning matters more than ever.

Listen Now: iTunes | Spotify | iHeartRadio | Amazon Music

Why Inherited IRAs Deserve Special Attention

For many families, an inherited IRA is not a small account. It can easily be several hundred thousand dollars or more. In some cases, it is the largest asset someone inherits. What makes inherited IRAs tricky is that the rules are very different depending on who you are, what type of account you inherited, and when the original owner passed away.

If you treat an inherited IRA like a regular investment account, you can end up with unexpected tax bills, forced distributions at the worst possible time, or missed planning opportunities.

This is why inherited IRAs are not something you want to handle on autopilot.

The Two Types of Inherited IRAs

At a high level, there are two types of inherited IRAs you can receive:

  1. An inherited Roth IRA

  2. An inherited traditional IRA or inherited 401(k)

While they share a name, they behave very differently. Understanding which one you inherited is the first and most important step.

Inherited Roth IRAs: The Simpler Side

Let’s start with inherited Roth IRAs because they are far easier to understand and manage.

How Roth IRAs Work

A Roth IRA is funded with after-tax dollars. The original account owner already paid taxes on the money that went in. As a result, the money grows tax free.

Roth IRAs are not subject to required minimum distributions during the original owner’s lifetime. That alone makes them one of the most powerful long-term planning tools available.

If You Inherit a Roth IRA as a Spouse

If you inherit a Roth IRA from your spouse, the process is simple. The account rolls into your own Roth IRA.

There are no required minimum distributions. There is no complicated rule set to follow. It becomes your account, and you can continue to let it grow tax free.

This is one of the cleanest transitions in financial planning.

If You Inherit a Roth IRA as a Non-Spouse

If you are not the spouse, which includes children, grandchildren, siblings, or anyone else, you fall under what is known as the 10-year rule. This rule requires that the inherited Roth IRA be fully depleted within 10 years of the original owner’s death.

Here is the key point. There is no required annual distribution. You can take out as much or as little as you want in any given year, as long as the account is fully emptied by the end of year 10.

A Common and Often Optimal Strategy

For most people who do not need the money immediately, the simplest strategy is to let the inherited Roth IRA grow untouched for the full 10 years.

Since the money continues to grow tax free, allowing it to compound for as long as possible often makes sense. At the end of year 10, you withdraw the entire balance and move it into an individual or joint investment account.

There is no tax bill when you do this. That is the beauty of a Roth.

If you need the money earlier, you can access it at any time without penalty or taxes. There are no restrictions forcing you to wait. This flexibility is why Roth IRAs are such a powerful asset to inherit and why we encourage people to fund Roth accounts whenever possible.

Inherited Traditional IRAs: More Moving Parts

Now let’s move to the inherited traditional IRA or inherited 401(k). This is where planning becomes critical.

How Traditional IRAs Work

Traditional IRAs and 401(k)s are funded with pre-tax dollars. The original account owner received a tax deduction when the money went in. The account then grew tax deferred.

Taxes are owed when the money comes out.

When you inherit one of these accounts, the tax bill does not disappear. It simply transfers to you.

If You Inherit a Traditional IRA as a Spouse

Just like with a Roth, if you inherit a traditional IRA from your spouse, the process is relatively simple.

The account rolls into your own IRA. From there, it follows the normal required minimum distribution rules based on your age.

This is usually straightforward and does not require special strategies beyond normal retirement planning.

If You Inherit a Traditional IRA as a Non-Spouse

This is where most mistakes happen.

As a non-spouse beneficiary, you are subject to the 10-year rule. The account must be fully depleted within 10 years.

Unlike an inherited Roth IRA, every dollar you withdraw from a traditional inherited IRA is taxed as ordinary income at your current tax rate.

This is where the real planning challenge begins.

Understanding the Tax Impact

Let’s look at a simple example.

Assume you earn $150,000 per year. You inherit a traditional IRA and decide to take out $50,000 this year.

Your taxable income is now $200,000.

That additional income could push you into a higher tax bracket, increase your state taxes, and potentially trigger other consequences like higher Medicare premiums later in life.

Now imagine inheriting a $1 million IRA.

If you wait too long and are forced to withdraw the entire balance in the final year, that million dollars is added on top of your regular income in a single year.

That is a tax bill almost no one enjoys paying.

The Mistake of Only Taking Required Minimum Distributions

If the original account owner was already subject to required minimum distributions, those RMDs continue in the inherited IRA.

Here is the issue. Taking only the RMDs does not satisfy the 10-year rule.

The math simply does not work.

You could take RMDs every year and still be left with a large balance at the end of year 10. At that point, you are forced to withdraw everything remaining, regardless of tax consequences.

This is one of the most common mistakes we see.

The “One-Tenth Per Year” Strategy and Its Limitations

Some people attempt a simple approach by withdrawing one-tenth of the account each year. While this feels logical, it has a hidden flaw.

The account is still invested. If the portfolio grows at a similar rate to your withdrawals, the balance may not meaningfully decline. You could reach year 10 and still be staring at a large taxable balance that must be distributed all at once.

This is why inherited IRAs require more than a simple formula.

Why Timing Matters More Than Amount

With inherited traditional IRAs, timing is often more important than how much you withdraw.

The goal is not just to empty the account. The goal is to do so in a way that minimizes taxes over the full 10-year period.

That may mean taking larger distributions in lower-income years. It may mean spreading withdrawals unevenly. It may mean coordinating withdrawals with retirement, a business sale, or other life events.

There is no one-size-fits-all solution.

Medicare Premiums and Other Hidden Consequences

For those approaching or already on Medicare, inherited IRA distributions can impact more than just income taxes. Higher income can increase Medicare Part B and Part D premiums through what is known as IRMAA surcharges.

These premium increases are often overlooked, but they can significantly raise healthcare costs for years. This is another reason careful planning matters.

Qualified Charitable Distributions as a Strategy

Inherited traditional IRAs still allow for qualified charitable distributions, or QCDs, once you reach age 70 and a half. A QCD allows you to donate directly from your IRA to a qualified charity. The amount donated is not included in your taxable income. This can be a powerful tool for those who are charitably inclined and in higher tax brackets.

However, eligibility depends entirely on your age when you inherit the IRA. If you inherit it earlier in life, this option may not be available. It is very much a matter of timing and circumstance.

Why You Should Not Wait Until Year 10

One of the biggest mistakes we see is inaction.

People inherit an IRA, feel overwhelmed, and decide to deal with it later. Before they know it, several years have passed. Waiting until the final year almost guarantees a painful tax outcome.

Planning early gives you flexibility. Waiting removes it.

Estate Planning and Beneficiary Designations Matter

Inherited IRAs are also a reminder of how critical beneficiary designations are. These accounts pass by beneficiary designation, not by your will.

If beneficiaries are outdated, incorrect, or incomplete, the money may not go where you intended. And once the original owner passes, there is usually nothing that can be done to change it.

We recommend reviewing beneficiaries at least annually or anytime a major life event occurs. Divorces, remarriages, births, deaths, and family changes all warrant a review. This small administrative step in your estate planning can prevent significant family conflict later.

Making a Difficult Situation Easier

Losing a loved one is already hard. Financial confusion should not add to the burden.

While inherited IRAs can feel complex, the goal of planning is simple. Make a difficult situation as easy and tax-efficient as possible.

With the right strategy, inherited IRAs can be managed thoughtfully and responsibly. Without one, they can quietly create unnecessary stress and taxes.

The Bottom Line

Inherited IRAs are common. Mishandling them is also common. Roth inherited IRAs are generally straightforward and flexible. Traditional inherited IRAs require careful, proactive planning. The 10-year rule changed the landscape, and the old strategies no longer work the way they used to. Doing nothing is rarely the right move.

If you have inherited an IRA, or expect to, this is an area where working with a financial advisor and a tax professional is not just helpful, it is essential.

If you want help evaluating your situation and building a plan that fits your life, your income, and your goals, we are always here to help. At Bonfire Financial, our goal is simple. Help you make smart decisions so you can retire the way you want, without paying more in taxes than necessary.

Give us a call today to get help with your inherited IRA.

Your Biggest Retirement Questions Answered: Client Q&A

Posted on by Brian Colvert

Retirement planning is one of the most important financial transitions you will ever navigate. It is also one of the most misunderstood. People spend decades saving money in different accounts, following rules, avoiding mistakes, and trying to do “the right thing,” but once retirement approaches, a new wave of questions always shows up.

When should I take money out?
Should I convert to a Roth?
Will I be penalized?
How much will taxes take?
How do I actually get paid when I retire?

These are not small questions. They are real concerns for real people who want to retire confidently, avoid surprises, and feel like the years of hard work were worth it.

In this extended Q&A guide, we break down the most common questions we hear from clients who are planning for retirement. Everything is based directly on real conversations, real scenarios, and real planning strategies that actually work.

Grab a coffee, settle in, and let’s dive in.

Listen Now: iTunes | Spotify | iHeartRadio | Amazon Music

Retirement Questions We Hear Most Often from Clients

Q: What exactly is a Roth conversion, and when does it make sense?

A:  Roth conversion is the process of taking money from an account that grows tax deferred, like a traditional IRA or traditional 401k, and moving it into a Roth IRA. After it moves, the money grows tax free.

To convert it, you pay ordinary income tax on whatever amount you move over. There is no penalty, but the conversion itself counts as taxable income.

So when does it make sense?

For many people, the sweet spot tends to be around the mid fifties to early sixties. That time period is often ideal for three reasons.

First, you have a long time horizon before age 73 or 75, which is when Required Minimum Distributions begin. Once RMDs begin, the government forces you to take out a percentage of your IRA each year, whether you need the money or not. This can push people into higher tax brackets later in life.

Second, in these years you are often in control of your income. You might have retired early, switched careers, slowed down, or otherwise entered a stage where your taxable income is lower than it will be in your seventies. Lower income means lower tax cost for the conversion.

Third, Medicare has not begun yet. Once you turn 65, your Medicare premiums can increase based on your income. This is called IRMAA, which stands for Income Related Monthly Adjustment Amount. A big Roth conversion after age 65 can cause a spike in your premiums two years later due to the Medicare lookback rule. Doing conversions before you hit Medicare avoids a lot of that stress.

For someone in their mid fifties to early sixties who has not yet started Medicare and who has a window of lower income, a Roth conversion can be incredibly smart.

Q: Why do people get surprised by taxes in retirement?

A: There is a common belief that you will be in a lower tax bracket when you retire. It sounds reasonable. You are no longer working. You are not earning a full salary. Your expenses might be lower.

But for a lot of people, that is not what actually happens.

People often enter retirement with seven figure IRAs, real estate income, Social Security, pensions, interest income, and dividends. Once RMDs begin at 73 or 75, they are required to pull out a large chunk of money each year and pay taxes on it. Combined with other sources of income, this sometimes pushes retirees into the same or even higher tax brackets than they were in during their working years.

This is the opposite of what many people were told when they first started contributing to their IRAs decades ago. Back then, the message was simple. Save pre tax money now, enjoy a deduction today, and pay lower taxes in retirement.

For many high income professionals, business owners, and diligent savers with strong investment portfolios, that message simply did not play out as promised.

This is why Roth conversions have become such a powerful planning strategy. They help you control the tax impact before RMDs begin. This gives you more freedom later.

Q: How do Roth conversions affect Medicare?

A: This is a very common retirement question and a very important one.  Medicare premiums are influenced by your income. The higher your income, the more you pay. This is what IRMAA refers to.

Here is the catch. Medicare looks back two years at your income. That means if you do a Roth conversion at age 67, Medicare will look back to your income from age 65 and adjust your premiums.

Clients are often surprised by this. They retire, believe their income will drop, and then suddenly their Medicare premiums jump by two hundred or three hundred dollars a month. That adds up quickly.

This is why doing conversions before 65 can be very helpful. It completely avoids IRMAA and ensures you do not get surprised once Medicare starts.

For people already on Medicare, conversions may still make sense, but it depends heavily on your cash flow, tolerance for temporarily higher premiums, and long term goals. It requires thoughtful planning and precise math.

Q: Can a poorly timed Roth conversion push me into a higher tax bracket?

A: Absolutely. This is one of the biggest risks.

If you are in the 32 percent bracket, for example, and you convert too much, you may cross into the 35 percent bracket. That means the portion of your conversion that crosses the line gets taxed at a higher rate. That is usually not ideal.

The goal with Roth conversions is to fill your tax bracket, not blow past it. Think of it like carefully filling a bucket of water. You want to stop right before it spills over the edge.

This is why end of year planning is so important. By November or December, you know your income for the year. You know where your tax bracket will land. At that point, you can decide exactly how much room you have left to convert without going into a higher bracket.

That kind of intentional planning can save thousands of dollars.

Q: Should I contribute to a Roth 401k or a traditional 401k?

A: This is another very common retirement question.

Most employers now offer a Roth option inside their 401k, although some still do not. The main difference is this:

A traditional 401k uses pre tax dollars. This lowers your taxable income for the year. The money grows tax deferred. You pay taxes when you take it out later in life.

A Roth 401k uses after tax dollars. You do not get a deduction this year. The money grows tax free. Withdrawals are tax free in retirement.

So which one is better?

For many people, especially younger individuals or anyone in their thirties, forties, or even early fifties, the Roth 401k is incredibly attractive. You are likely in a lower tax bracket right now than you will be later in life. You also get decades of tax free growth.

For high income earners, the Roth 401k is also powerful because there are no income limits. Even if you earn too much to contribute to a traditional Roth IRA, you can still contribute to a Roth 401k through your employer plan. The contribution limits are much higher as well.

The only time a traditional 401k may make more sense is when cash flow is very tight. Because Roth contributions are after tax, they can slightly reduce take home pay compared to traditional contributions. If that reduction causes stress or prevents someone from saving at all, then a traditional 401k is the better fit.

You can also split your contributions. Many people do a 50 50 split so they can enjoy some tax savings now while also building tax free money for later.

Q: If I retire, how do I actually get my money?

A: This might be the most common question we hear from new retirees. For decades, clients have received a paycheck on a set schedule. Money shows up in the bank account like clockwork. Bills get paid. Life stays predictable.

Once you retire, the paycheck stops. That is understandably unsettling.

So how do you replace it?

Here is how we coach clients through this transition.

We recreate the paycheck.

We set up an automatic ACH transfer from your investment accounts to your bank account. You choose how often you want to be paid. Weekly, twice a month, monthly. You choose the amount. It might be five thousand dollars. It might be twenty thousand dollars. Whatever fits your lifestyle and plan.

The money flows in on a schedule that feels familiar. Your bills get covered. Your life continues smoothly.

Behind the scenes, the investments fund this income stream. Sometimes the money comes from interest on bonds or private credit. Sometimes it comes from dividends. Other times we sell a small portion of investments that have grown well.

This is where a diversified portfolio becomes very important. Markets rise and fall. Some investments might be down while others are up. A diversified strategy gives us choices. If stocks are down, we can pull from income producing investments instead of selling at a low. If stocks are up, we might trim gains.

Once retirees experience this system, the anxiety usually fades. The predictability of the paycheck returns. The only difference is that you are now the one paying yourself from your own money.

It is empowering once you become comfortable with it.

Q: What if I want six months of income upfront instead of monthly payments?

A: Some people believe they would prefer to take several months of income at once. Maybe ten thousand dollars a month feels uncomfortable, so they want sixty thousand dollars all at once.

What we have consistently seen is that this approach creates more stress, not less.

Large withdrawals make bank balances rise and fall dramatically. People begin worrying about calling for more money. They wonder if it is a good time in the market. They hesitate because the number in their investment account drops. They wait too long. Then they need another large withdrawal. Then they worry again. The cycle repeats.

A regular monthly income smooths all of that out. It recreates the working life rhythm people are used to. It keeps anxiety lower. It keeps planning simple.

There is no need to constantly ask for money, question timing, or wonder whether you are making a mistake. The system runs automatically.

Q: What role does diversification play in retirement income?

A: Diversification is the quiet workhorse of a good retirement plan. You want assets that move in different ways so you are not forced to pull money from something that is temporarily down.

When the market is strong, you may use gains from equities to fund your monthly income. When the market is weak or volatile, you may rely more on interest from bonds, CDs, private credit, or dividend paying investments.

Diversification protects you from making the worst possible mistake, which is selling something at a loss just to free up cash for living expenses. A well built portfolio gives you options at any point in time.

It keeps your long term plan intact even when short term conditions are unpredictable.

Q: How do I know how much I can safely take out in retirement?

A: This is one of the biggest fears retirees face. No matter how much money someone has, the thought is often the same.

Will I run out?
Will we be okay?
Will our lifestyle hold up?

This is incredibly common and completely normal.

The goal of retirement planning is to run the numbers ahead of time. We assess income sources, pension amounts, Social Security timing, investment balances, medical costs, spending patterns, and inflation. We create scenarios for normal markets, good markets, and difficult markets.

When clients see the full picture, confidence increases. The fear begins to fade. They understand how their income gets funded, why it is sustainable, and what guardrails are in place.

Retirement becomes less about worry and more about living.

Q: Is retirement income planning really that personal?

A: Yes. Retirement planning is not one size fits all. It is shaped by your income, your tax bracket, your assets, your health, your values, your spending habits, and your vision for life after work.

Two people with the exact same portfolio balance can have completely different answers to every question on this list.

This is why running the numbers matters. This is why understanding RMDs, Roth conversions, income timing, tax brackets, and Medicare impacts is so important.

Guidance based on general rules is helpful, but guidance based on your exact situation is powerful.

Q: What is the most important takeaway from all of this?

A: Retirement planning is all about timing and strategy. Small decisions made years before retirement can have a massive impact later. It is good to start asking your retiement questiosns as early as possible.

Knowing when to convert, when to save, how to file, when to claim Social Security, and how to structure your income matters more than most people realize.

With the right plan, retirement becomes clear, predictable, and surprisingly simple. Without a plan, retirement becomes a maze of questions, penalties, tax bills, and surprises that could have been avoided.

A good plan builds confidence. A great plan builds freedom.

Final Thoughts

These are the retirement questions people ask us every day. They are real concerns from hardworking people who simply want to retire with clarity.

If you have similar questions and want to run your own numbers, explore scenarios, or create a retirement income plan that actually fits your life, reach out to us today. We help people walk into retirement with confidence, not confusion.

And as always, if this guide was helpful, feel free to share it with someone who might benefit.

Should I Pay Off My Mortgage Before Retirement

Posted on by Brian Colvert

Should I Pay Off My Mortgage Before Retirement?

For generations, owning your home outright has been considered the hallmark of financial success. The American Dream, after all, often ends with a white picket fence and a paid-off house. But as retirement approaches, one big question often comes up: Should I pay off my mortgage before retirement?

Like many financial questions, the answer isn’t one size fits all. It depends on your interest rate, your cash flow, your investments, and just as importantly, your peace of mind. Let’s unpack the numbers, the psychology, and the modern realities behind this age-old debate.

Listen Now: iTunes | Spotify | iHeartRadio | Amazon Music 

The Traditional View: A Paid-Off Home Equals Freedom

For decades, financial advice was straightforward: work hard, buy a house, pay it off, and retire mortgage free. The reasoning made sense. If you own your home outright, that’s one less bill in retirement. Without a mortgage, your monthly expenses drop, freeing up cash for travel, hobbies, or simply living with less financial stress.

And there’s no denying the appeal. Having a home that’s 100% yours can provide a strong sense of security. There’s pride in knowing the roof over your head can’t be taken by a bank or lender.

But the financial landscape has shifted. Low interest rates, rising home values, and new investment opportunities have changed the equation. What once was a clear-cut goal is now a nuanced decision that deserves a closer look.

The Reality: Paid Off Doesn’t Mean Free

Even if you’ve paid off your mortgage, homeownership still comes with ongoing costs. Property taxes, insurance, and maintenance don’t disappear once the bank is out of the picture. In fact, they often increase over time.

Property taxes: As home values rise, so do property tax bills. Many retirees are surprised by how much their annual taxes climb, especially in fast-growing areas.

Insurance: Natural disasters, inflation, and rebuilding costs have driven insurance premiums higher across the country.

Maintenance: From replacing the roof to fixing the HVAC, repairs don’t stop just because the mortgage is gone.

A paid-off home certainly reduces your expenses, but it doesn’t eliminate them. That’s an important distinction when calculating how much income you’ll actually need in retirement.

The Numbers: When It Makes and Doesn’t Make Financial Sense

Let’s look at the math. Suppose you have a $250,000 mortgage at 3% interest, and you’re debating whether to pay it off using part of your investment portfolio, which averages 8 to 10% annual returns.

If you use your portfolio to pay off the mortgage, you’ll save 3% in interest, but you’ll give up the potential to earn 8 to 10% on that same money. That’s a 7% opportunity cost every year.

In simple terms, paying off your mortgage early might give you peace of mind, but it could cost you significantly in long-term growth.

Example:
Mortgage balance: $250,000
Interest rate: 3%
Investment return: 10%

By keeping your mortgage and investing your savings instead, you could earn roughly $70,000 per year in growth (10% of $700,000, for example), while only paying about $7,500 per year in interest. That’s a strong case for not rushing to pay it off.

Of course, this assumes your investments continue to perform well. Markets fluctuate, and returns aren’t guaranteed. That’s why the decision isn’t purely mathematical, it’s also emotional and strategic.

The Psychology: Mind vs. Math

When we talk to clients about this topic, there’s usually a turning point in the conversation: the difference between what feels right and what makes sense on paper.

Some clients say, “I just can’t sleep knowing I owe money.” Others say, “I’d rather have my investments working for me.” Neither mindset is wrong.

Here’s how we break it down:

Mindset-Driven Decision: Paying off the mortgage gives emotional relief and a sense of accomplishment. If eliminating debt provides peace and doesn’t threaten your overall financial health, it can absolutely be worth it.

Math-Driven Decision: Keeping a low-interest mortgage while investing your money elsewhere can lead to higher long-term wealth, especially if your mortgage rate is under 4%.

The key is to align your financial plan with both your numbers and your comfort level. Money decisions are as emotional as they are logical. You can’t separate the two.

Understanding Arbitrage: When Borrowing Is Smart

The word arbitrage simply means taking advantage of the difference between two financial opportunities. In this case, it’s the spread between your mortgage interest rate and your investment return.

If your investments are earning more than your mortgage costs you, you’re effectively making money by keeping the mortgage. For instance:

Mortgage rate: 3%
Investment return: 8%
Net gain: 5%

That’s a win, mathematically speaking. Your money is working harder than the cost of your debt.

This is especially true for homeowners who refinanced during the years of record-low interest rates between 2008 and 2022. Many borrowers locked in mortgages around 2.5% to 3.5%. Paying those off early rarely makes financial sense when your portfolio can reasonably outperform that.

The Tax Angle: Mortgage Interest and Deductions

While the 2017 Tax Cuts and Jobs Act limited some deductions, mortgage interest is still tax deductible for many households. If you itemize deductions, the ability to write off mortgage interest can lower your taxable income, effectively reducing your true borrowing cost even further.

For example, if your mortgage rate is 3.5% but your effective tax benefit brings that down to 2.8%, paying it off early becomes even less compelling financially.

However, tax rules can change, and not everyone benefits equally. It’s best to consult with a financial planner or CPA to see how this impacts your specific situation.

When Paying Off the Mortgage Makes Sense

Despite all the math, there are situations where paying off your home is the smarter move. It comes down to your goals, risk tolerance, and stage of life.

1. High-Interest Mortgage
If your mortgage rate is above 6% or 7%, the math starts to shift. The guaranteed return of eliminating that interest cost may outweigh potential market gains.

2. Lack of Investment Discipline
If you’re unlikely to actually invest the money you would’ve used to pay down your mortgage and would instead let it sit idle, then paying it off can be a productive use of funds.

3. Approaching Retirement with Limited Income Sources
If your pension, Social Security, or savings provide just enough to cover expenses, removing your largest bill can add valuable breathing room.

4. Peace of Mind and Simplicity
Some people simply feel more comfortable owning their home outright. If that emotional security outweighs potential gains, then paying it off can absolutely be the right call.

When It Doesn’t Make Sense

1. You Have a Low Interest Rate
If your mortgage is under 4%, and your investments can reasonably earn more, keeping the loan is usually the better play.

2. You’d Need to Drain Investments
Using a large portion of your retirement savings to pay off a mortgage can weaken your liquidity and reduce your ability to generate income.

3. You’re Early in the Loan Term
Most of your early payments go toward interest, not principal. Accelerating payments doesn’t save as much as you might think unless you’re closer to the end of the loan.

4. Your Portfolio Is Growing Strongly
If your investment accounts are compounding steadily, you’re better off keeping that money in the market rather than locking it into illiquid home equity.

The Hidden Cost of Home Equity

Many retirees proudly say, “We have a million dollars in home equity.” That sounds impressive, but what can you actually do with that equity?

Unless you sell your house or borrow against it, that money is trapped. It doesn’t produce income. It doesn’t pay bills. You can’t use it for groceries, travel, or healthcare expenses.

If you sell your home, you’ll need to buy another one or rent somewhere else, which eats into those proceeds. If you borrow against your equity, you’re right back to having a mortgage payment.

So while home equity absolutely contributes to your net worth, it’s not the same as liquid wealth that can fund your retirement lifestyle. It’s an asset, but not one that easily generates cash flow.

The Downsizing Myth

Another common assumption is that you can just downsize when you retire and live off the difference.

In theory, it sounds great. In reality, it rarely works that way. Most retirees who sell a larger home and buy a smaller one end up spending just as much or more on the new home. Why? They often choose better locations, newer builds, or communities with desirable amenities.

Downsizing may simplify your life, but it doesn’t always free up the financial cushion you might expect.

The Real Question: What’s Best for Your Plan

The goal isn’t simply to own your home. It’s to build a retirement plan that provides security, flexibility, and long-term sustainability.

When deciding whether to pay off your mortgage, consider the following:

  1. Interest Rate vs. Investment Return – What’s the spread between your mortgage rate and your portfolio’s performance

  2. Tax Implications – Are you getting a deduction that reduces your effective interest rate

  3. Cash Flow Needs – Would paying off your home free up significant monthly income

  4. Liquidity – Will you still have accessible funds for emergencies or opportunities

  5. Emotional Satisfaction – Would being debt free improve your peace of mind enough to outweigh any mathematical downside

A good financial plan blends both head and heart. The numbers should make sense, but so should how you feel about them.

Planning for Cash Flow in Retirement

If you enter retirement with a mortgage, the key is ensuring your income sources can comfortably support it. That might mean adjusting withdrawal strategies, timing Social Security benefits strategically, or balancing which accounts you draw from first.

At Bonfire, we run cash flow projections that show how different choices, like paying off a mortgage early versus keeping it, affect your retirement readiness over time. Sometimes, just seeing the numbers on paper brings clarity.

What most clients discover is this: having a mortgage in retirement isn’t a deal breaker. It’s simply another line item to plan around.

The Bottom Line

So, should you pay off your mortgage before retirement?

If you have a low interest rate, strong investment returns, and solid cash flow, keeping your mortgage can make good financial sense. It allows your money to stay invested and growing, giving you more flexibility in the long run.

If your mortgage rate is high or being debt free gives you genuine peace of mind, then paying it off can be equally valid. What matters most is that the decision fits your broader retirement plan, not just a cultural ideal.

Final Thoughts

The dream of a mortgage-free retirement is still alive for many Americans, but it’s no longer the default definition of financial success. The real measure is whether your plan supports the life you want.

A house is part of your story, but it’s not the whole story.

At Bonfire Financial, we help clients look beyond the headlines and build customized strategies that balance math, mindset, and meaning. Whether your goal is a paid-off home, stronger cash flow, or simply a confident retirement, we’ll help you find the right path forward.

Need help deciding whether to pay off your mortgage before retirement?

Schedule a call with our team to run your personalized retirement plan and see what makes the most sense for your future.

Thank You For Your Subscription

You’re in! Thanks for subscribing to our monthly newsletter. We will be sending you market updates, financial insights and inspiring travel ideas soon but in the meantime check out our blog, join us on Instagram or pop over to Pinterest.

Your Appointment Request has been Received

Thank you for reaching out! We are excited to learn more about you. Someone from our team will be in touch shortly.

Sign up now

Join us around the fire for monthly market updates, financial insights and inspiring travel ideas.

.

Sign up now

Receive tips

Give us a call

(719) 394.3900
(844) 295.0069
[email protected]