The Biggest Tax Mistakes People Make in Retirement

May 02, 2022

By Lisa Cappiello

Tim Speiss, EisnerAmper Personal Wealth Tax Partner, was recently interviewed on Yahoo Finance as part of its retirement segment to share some of the biggest tax mistakes people make in retirement.  

What are some of the biggest tax mistakes and the misconceptions that people have when they retire?

People’s first mistake is not funding enough for retirement. Secondly, participants are not taking advantage of all the investment education tools available to them so that they can diversify their assets. Lastly, it is important for both older and younger professionals to remember to transfer plan balances if they change jobs, since we currently work in a very mobile environment when it comes to switching jobs.

As you mentioned, half of older U.S. adults are now retired according to the Pew Research Center. If someone retired last year, perhaps they received COVID benefits. What should be on their tax checklists?

If a person has retired or changed jobs, it is important for them to continue to fund their retirement plan. They also need to consider their new access to health care, especially if a traditional corporate plan is no longer available to them. Lifestyle is another category to add to the checklist. With COVID, people across the U.S. have been relocating to new states and need to be aware of the tax rules and laws in those states.

Since COVID hit, inflation is worsening. Should someone hold off on retirement, or is there a way to limit some of the impacts on their retirement holdings?

Today’s new work environment has given people the opportunity to be mobile like never before. The pandemic has allowed us to reimagine what Americans have viewed as the traditional work style, and this is expected to continue.

How should someone come up with your retirement plan, say, in their 30s and 40s versus if they are right up against retirement, say, in their 60s?

When coming up with a retirement plan in your 30s or 40s, start accumulating assets and contributing to a deferred plan. Depending on your employment type, this could be a 401(k) or a Koegh Plan. For younger people, it is imperative to save as much as they can, get the tax benefit, and start an investment plan. Become educated about asset allocation and asset accumulation models. Your asset allocation model should focus more on equities than fixed income. If you are up against your retirement plan in your 60s, however, your asset allocation model should now focus on fixed income more than equities.

Watch the full interview here.

About Lisa Cappiello

Lisa provides tax consulting and compliance services to high net worth individuals, family offices, trusts, corporate executives and pass-through entities.