🔐 Are You Saving Wrong for Retirement?

We’ve all heard the advice: “max out your retirement accounts,” but after my conversation with financial planning expert Michael Kitces on Ep #243, I realized that isn’t always the smartest move. Sometimes those savings could be better used to grow your career, create flexibility, or avoid future tax headaches, which can have a bigger impact on your long-term wealth and even your ability to retire early.

The problem with maxing out your retirement accounts is that it ignores opportunity cost. For example, if you put $2,000 into a Roth IRA it might grow to $40,000 over 40 years, but if you use that same $2,000 for a certification that boosts your salary by $1,000 a year, it could compound into hundreds of thousands over your career. As Michael says, investing in your “human capital” often delivers far better returns, especially early and mid-career.

🚀 Smarter Alternatives to Build Wealth

Retirement accounts are powerful, but putting every dollar into them isn’t always best. Sometimes investing outside those accounts can generate far bigger returns.

• Career Advancement: Spend on certifications, training, or degrees that increase your salary. Even a modest raise compounds into hundreds of thousands of dollars over your career, which is far more than what the same money might grow into in an IRA.
• Flexibility Funds: Keep liquid savings to cover relocations, job transitions, or sabbaticals. This allows you to seize opportunities that locked-up retirement dollars can’t fund.
• Entrepreneurial Bets: If you want to start a business, liquidity is key. Entrepreneurship is risky but also one of the biggest wealth drivers, and it requires accessible savings early on.

The key takeaway here is that sometimes the best investment isn’t tax-deferred; it’s in your human capital or in building financial flexibility.

🔑 Strategies to Access Savings Early

Many people assume money in retirement accounts can’t be touched until 59.5, but here are a few ways to unlock it earlier. 

• Roth Conversion Ladders: Convert traditional IRA/401(k) money into Roth during low-income years. After 5 years, those converted funds can be withdrawn tax- and penalty-free, creating a steady stream of accessible cash.
• Rule 72(t) Distributions: Take “substantially equal periodic payments” from retirement accounts without penalty. Payments must continue for at least 5 years or until 59.5, making this a good option for steady early-retirement income.

With planning, your retirement accounts can be structured to provide flexibility long before traditional retirement age.

🧾 Avoiding Common Tax Mistakes

Taxes can quietly eat away at your wealth, and here are common instances where a lot of people miss opportunities.

• Missing Low-Income Conversion Years: Use sabbaticals, career breaks, or early retirement years to convert traditional dollars into Roth at very low tax rates.
• IRA Aggregation Trap: Doing backdoor Roth contributions while holding pre-tax IRA money triggers the IRS’s pro-rata rule and creates unexpected taxes. A workaround is rolling pre-tax IRAs into a 401(k) before attempting backdoor contributions.
• Overlooking HSAs: Health Savings Accounts are the only triple tax-free account. They’re incredibly powerful for retirement because medical costs are inevitable, and receipts can even be saved and reimbursed tax-free years later.

The golden rule: pay taxes when your rate is lowest.

🚫 The Biggest Retirement Planning Mistakes

Even diligent savers often make mistakes that hurt flexibility or increase taxes later. Make sure to avoid these mistakes.

• Locking Up Too Much Money: Put too much in retirement accounts and you lose liquidity; keep too much in taxable accounts and you lose tax efficiency.
• Wasting Low-Tax Brackets: Skipping Roth conversions during low-income years leads to painful Required Minimum Distributions (RMDs) later.
• Poor Withdrawal Sequencing: Draining one account type first often backfires. A blended approach, taking from multiple buckets, smooths taxes and reduces your lifetime bill.

Retirement planning isn’t just about saving—it’s about structuring your accounts for flexibility and tax efficiency over decades.

😎 Save Smarter, Not Just More

The lesson here isn’t to stop saving for retirement. It’s to be more intentional. Sometimes the best move is investing in yourself, keeping cash flexible, or timing taxes wisely. By saving smarter, not just more, you set yourself up for both financial security and the flexibility to live life on your terms.

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