Financial advice that starts with a plan.
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Key Takeaways:
- Start saving as early as possible. Time and compound growth can have a bigger impact on retirement savings than the amount you contribute later in life.
- Choose your 401(k) rollover carefully. Leaving a job is the right time to compare your options and avoid unnecessary taxes or penalties.
- Retirement planning doesn’t end when you stop working. Smart withdrawal strategies, healthcare planning, and Social Security timing all help your savings last longer.
Retirement planning isn’t a single decision you make once and forget about. It’s a string of decisions that starts the day you get your first paycheck and doesn’t end until you’re gone.
How early you start saving, what you do with your 401(k) every time you change jobs, and how you manage your money once you’ve actually stopped working shapes whether retirement ends up being the relaxed, well-funded chapter you’re picturing or a source of stress.
This guide walks through all three stages: why starting early matters so much, what to do with a 401(k) when you leave a job, and the mistakes that trip up even people who did everything right along the way.
Why Saving Early Makes Such a Big Difference
It’s easy to put off retirement savings when you’re young. Income is usually tighter early in your career, more immediate priorities compete for every dollar, and retirement itself feels far enough away that it doesn’t seem urgent.
The problem is that almost everyone falls into this trap, which is part of why the retirement savings numbers in this country are so rough. Nearly half of American families have no retirement savings at all. Even among families in their prime working years, the typical account balance is far smaller than most people would guess.
Many people plan to lean on Social Security to fill the gap. The trouble is that Social Security was designed to replace only about 40% of pre-retirement earnings, nowhere near enough to maintain most people’s lifestyles. Pensions used to help close that gap, but they’ve grown far less common as employers have shifted toward 401(k)-style plans, and the average pension benefit isn’t much higher than the average Social Security check anyway.
None of this is meant to be discouraging. It’s meant to make the case for why starting early matters so much. Consider two people. One maxes out their retirement contributions for the first ten years of their career, then never contributes another dollar. The other contributes nothing for those same ten years, then maxes out contributions every year for the following three decades.
Most people assume the second person ends up ahead, since they contributed for far longer. At typical long-run return assumptions, they’d be wrong. The first person, with compound growth working in their favor for that much longer, often ends up with more money. That’s the power of time in the market, and it’s the single biggest argument for starting to save as early as you possibly can, even if the amount feels small at first. The exact outcome depends on the return you assume, but the direction holds across a wide range of them.
Starting early also buys you flexibility later. Someone who begins saving in their twenties can contribute smaller amounts over time and still hit their goals, leaving more room in their budget for other priorities, whether that’s a house, a kid’s education, or building a real estate portfolio on the side.
Someone who starts late has to save aggressively to catch up, often at the expense of everything else. There’s a risk dimension too. A portfolio with a longer runway can ride out the market’s inevitable ups and downs, since there’s time to recover before the money is actually needed. Someone closer to retirement doesn’t have that luxury, which is exactly why a market downturn hits harder the closer you are to needing the money.
So how much should you actually be saving? That depends on a lot of moving pieces, including where you plan to live, when you want to retire, and what other financial goals you’re balancing along the way.
Two factors in particular tend to get underestimated.
The first is healthcare. Once you’re off an employer-sponsored plan and onto Medicare, healthcare costs typically rise, and estimates put the total cost of healthcare for a retiring couple well into the hundreds of thousands of dollars over the course of retirement. That number alone dwarfs what the average American has saved by the time they retire.
The second factor is longevity. People are living longer than they used to, which is good news, but it also means your money needs to last longer than it would have for previous generations. Both of these are reasons to work with a financial planner who can help you build a realistic projection of your future costs rather than guessing.
Should You Roll Over Your 401(k)?
Once you leave a job, whether by choice or otherwise, you’re left with a decision about what to do with the 401(k) you built up there. You generally have four options.
The first is to cash it out. Don’t do this. Outside of a genuine emergency, cashing out a 401(k) early triggers ordinary income tax on the full balance plus a 10% penalty if you’re under 59 and a half. It’s almost always the most expensive way to access that money.
The other three options are all tax-free moves, and choosing between them comes down to a handful of practical tradeoffs. You can leave the funds where they are in your old employer’s plan, roll them into your new employer’s 401(k), or roll them into an IRA.
There are legitimate reasons to keep your money in a 401(k), whether that’s your old plan or your new one. Some plans have low fees, particularly if they give you access to low-cost index funds through a major discount brokerage. 401(k)s also come with stronger legal protection than IRAs. They’re shielded from lawsuits and creditors in nearly all circumstances, whereas IRAs are protected only from bankruptcy claims up to a set dollar limit. And some employers let you borrow against your 401(k) balance, something you can’t do with an IRA. That’s rarely a strategy we’d recommend, but it can be a useful option to have in certain situations.
For most people, though, rolling into an IRA makes more sense, and there are several reasons why.
Investment choice is the biggest one. 401(k) plans typically limit you to a short menu of mutual funds selected by the plan administrator. An IRA opens the door to essentially any stock, bond, ETF, or fund you want, along with the option to have an advisor manage it for you.
An IRA also makes Roth conversions more straightforward. Many 401(k)s now offer a Roth contribution option, but an IRA gives you more freedom to convert traditional funds to a Roth on your own timeline and let them grow tax-free from that point forward.
IRAs generally offer more flexibility in how you name and structure beneficiaries, which can matter for estate planning. In a 401(k), federal rules usually require your spouse to be the primary beneficiary unless they formally consent otherwise. And if you’ve changed jobs several times over your career, which most people do, consolidating old 401(k)s into a single IRA can make your financial life meaningfully simpler to track and manage.
There’s no universal right answer here. It depends on the specific plan you’re leaving, the fees involved, and what you’re trying to accomplish. If you’re not sure which path makes sense for your situation, that’s exactly the kind of decision worth working through with a financial advisor before you act, since the choice can compound significantly over the decades between now and when you actually retire.
Financial Mistakes to Avoid Once You’re Retired
Getting to retirement with a solid nest egg is only half the job. What you do once you’re actually retired matters just as much, and there are a handful of mistakes that recur.
Claiming Social Security too early. Most people are eligible to start receiving Social Security at 62, but claiming that early comes at a cost. Your benefit is based on your 35 highest-earning years, and it’s reduced for every month you claim before your full retirement age, which is 67 for anyone born after 1960. Wait until full retirement age, or even later, up to age 70, and your monthly benefit goes up meaningfully. If you have other sources of income to lean on in the meantime, whether that’s continuing to work part-time or drawing from other savings, delaying Social Security is often one of the highest-value financial decisions available to a retiree.
Underestimating healthcare costs. This is one of the most common and most expensive miscalculations in retirement planning. People tend to assume their healthcare costs will look roughly the same as they did while working, but that’s rarely the case once an employer-sponsored plan is no longer part of the picture. On top of the sheer dollar amount, there’s a timing trap too. Once you turn 65, you have a specific enrollment window for Medicare Parts B and D, and missing it can result in permanent penalties and higher premiums for the rest of your life. Do your homework on Medicare well before you turn 65, and make sure your retirement budget actually accounts for what healthcare is likely to cost.
Getting the portfolio allocation wrong. A common instinct in retirement is to shift everything into bonds for safety. That instinct is understandable, but it usually isn’t the right move. Given how long a retirement portfolio may need to last, a mix that still includes a meaningful allocation to stocks tends to outperform an all-bond portfolio over the long run, even accounting for short-term volatility. The right balance depends on your specific timeline and risk tolerance, but going too conservative too early is its own kind of risk.
Overspending in the first few years. The first couple of years of retirement are often when people spend the most, whether that’s on travel, home renovations, or simply enjoying the freedom of a wide-open schedule. That’s completely natural, but it can create real problems later if it isn’t grounded in a realistic budget. Before you retire, you should have a clear picture of your actual expenses and whether your portfolio can support them. If there’s a gap, it’s better to know that going in and adjust expectations than to find out the hard way a decade into retirement.
Withdrawing too aggressively. The old rule of thumb of withdrawing 4% of your portfolio a year doesn’t apply evenly to everyone. Depending on your specific portfolio, your other income sources like Social Security or real estate, and how long you’re likely to need the money to last, a sustainable withdrawal rate could be higher or lower than that. This is another area where a one-size-fits-all rule can lead you astray, and where working through your specific numbers with an advisor pays off.
Frequently Asked Questions
1. How much should I be saving for retirement?
There’s no flat percentage that works for everyone. It depends on when you want to retire, where you plan to live, and what your other financial goals look like along the way. A good starting point is to save as much as you reasonably can during your prime earning years, then work with a financial planner to build a real projection based on your expenses, including healthcare, so you’re not guessing.
2. Is it too late to start saving if I’m in my 40s or 50s?
No. Starting later means you’ll likely need to save a larger share of your income to catch up, since you’ve lost some of the compound growth that comes with an early start, but it’s far better to start now than to keep waiting. Catch-up contributions to retirement accounts also become available once you turn 50, which can help close the gap.
3. Do I have to roll over my 401(k) when I leave a job?
No, you’re not required to. You can leave the money in your old employer’s plan as long as the balance meets the plan’s minimum, or move it into your new employer’s 401(k) or an IRA. Whether it makes sense to leave it or move it depends on fees, investment options, and what you’re trying to accomplish.
4. Will I owe taxes if I roll over my 401(k)?
Not if it’s done correctly. A direct rollover, where the funds move straight from one retirement account to another without passing through your hands, isn’t a taxable event. Taxes only come into play if you cash out the account instead of rolling it over, or if you’re converting funds from a traditional account into a Roth account, which is a separate decision with its own tax consequences.
5. What happens if I cash out my 401(k) instead of rolling it over?
You’ll owe ordinary income tax on the full amount, and if you’re under 59 and a half, a 10% early withdrawal penalty on top of that. It’s one of the most expensive ways to access retirement money and generally worth avoiding outside of a genuine emergency.
6. When should I start claiming Social Security?
It depends on your income needs and your other resources, but claiming as early as possible, at 62, permanently reduces your monthly benefit. Waiting until your full retirement age, or even later, up to 70, increases the benefit. If you can afford to wait, whether through part-time work or other savings, delaying often pays off over the long run.
7. How much should I plan to spend on healthcare in retirement?
More than most people expect. Once you’re off an employer-sponsored health plan, costs tend to rise, and a retiring couple should plan for a substantial sum over the course of retirement, often into the hundreds of thousands of dollars. It’s worth building this into your retirement budget early rather than treating it as an afterthought.
8. Is the 4% withdrawal rule still a good guideline?
It’s a reasonable starting point, but it isn’t one-size-fits-all. How much you can safely withdraw each year depends on your specific portfolio, how long your money needs to last, and any other income you receive from sources like Social Security or real estate. It’s worth running your own numbers rather than assuming the standard rule applies to your situation.
Where Bull Oak Fits In
Getting all of this right on your own is a lot to manage, and the cost of getting any one piece wrong tends to show up years later, when it’s much harder to fix. That’s where a second set of eyes earns its keep.
Bull Oak works with people approaching retirement and those already in it, the stretch where these decisions carry the most weight: timing your Social Security, handling a 401(k) rollover, setting a withdrawal strategy your portfolio can actually support, and planning for healthcare costs before they arrive. If you’re closing in on that transition, we can help you build a plan around it.
