Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



The Nightmare Retirement Scenario You Must Avoid

Saving for retirement is a challenging job. Unfortunately, millions of people overlook one basic fact in their retirement planning, and it can create a disastrous nightmare scenario from which it's almost impossible to recover.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks more closely at this disaster scenario that results from people overestimating how much in retirement savings they actually have. Dan notes that most people use traditional IRAs and 401(k) accounts to save for retirement, taking advantage of the tax-deferred growth that they offer. But those accounts require you to pay tax on the amounts you withdraw during retirement, and many people fail to take the tax liability into account in evaluating their retirement nest eggs. Dan notes that you can overestimate your actual after-tax retirement savings by anywhere from 10% to 40% or more, depending on how much you pay in taxes. Dan concludes that one benefit of Roth IRAs and Roth 401(k)s is that they already represent after-tax retirement savings, avoiding this mistake.

How to get even more income during retirement
Social Security can help you avoid nightmare scenarios by giving you vital income after you retire. But it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

Have general questions about Social Security? Email them to, and they might be the subject of a future video!

Read/Post Comments (7) | Recommend This Article (23)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 19, 2014, at 7:45 PM, DebbieChen wrote:

    Good tips.. It seems the biggest retirement mistakes always involve spending more than you have. Staying fit is obviously the most important as it will keep you healthy, happy, and limit healthcare costs. I would also look at limiting driving/car costs as they are a real killer in this country. You are probably spending way too much on auto insurance, first off...I would look to spend no more than $25 on car insurance (check Insurance Panda). Your gas/fuel costs are probably thru the roof too. For that, check out the GasBuddy app. It usually helps me fill up my gas tank for less than $20. The elderly aren't usually as high-tech as young people, so chances are they don't know about these services.

  • Report this Comment On April 20, 2014, at 1:53 PM, linberl wrote:

    Use turbo tax or other tax software to calculate each year how much of your IRA you can move to a Roth without increasing your tax burden. I alternate years by pushing income boosts to January from December which gives me alternating years to move funds to my Roth. By the time I have to take a RMD, I will have moved about half my Ira to Roth. This will reduce the RMD substantially and thus lower the taxes. Using tax software, I have been able to maximize my deduction and minimize the tax currently as well as for the future. Computers make this so easy to do...

  • Report this Comment On April 20, 2014, at 3:52 PM, SLTom992 wrote:

    You cannot "plan" for retirement in an atmosphere of low interest and high inflation. Neither can you make sufficient additions to your 401's without a job.

    Obama and the Democrats have been spending money we do not have. That means that they have been printing money that doesn't have any backing via and increase in the Gross National Product.

    The Federal Reserve has turned into nothing more than a political tool for the party in power and ever since Reagan has been going along with spending more than we take in in taxes. Deficit spending leads to nothing more than inflation and more inflation. And instead of reporting this properly the Federal Reserve, the party in power and the media have been reporting nothing more than lies.

    Inflation is an invisible tax on both your income and all of your savings. The government is spending not just your taxes but your savings as well.

    Why are people going along with this?

  • Report this Comment On April 20, 2014, at 5:41 PM, robertpri007 wrote:

    Years ago while in a serious financial bind, we learned the secret is not to earn more but spend less. Simple yes, but so many don't understand this. We went on a frugal budget and after financial situation improved, maintained the low spending budget for two decades. Retired quite nicely.

  • Report this Comment On April 20, 2014, at 6:54 PM, Sideways wrote:

    That was a lot of words to say "you will be taxed on your 401k when you pull out the money"...

  • Report this Comment On April 20, 2014, at 10:57 PM, ellington1 wrote:

    The best way to retire is to wait until you reach your full retirement age and than retire and keep working up until then 65 yrs.' old for most people now So retire early and you will lose a lot of your retirement money or income I think this advice works for most Americans.

  • Report this Comment On April 21, 2014, at 8:24 AM, addrienne64 wrote:

    I am retiring this year, but I am leaving the Washington, DC metropolitan area for a life in Southwest, VA. I have to make my income work for me, but it's not going to happen in the metropolitan area. I know my 401K will be taxed, but I can't worry about that now. All I do now is survive. Sometimes we have change our way of life to be comfortable.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2921073, ~/Articles/ArticleHandler.aspx, 9/2/2015 9:16:19 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated 12 hours ago Sponsored by:
DOW 16,058.35 -469.68 0.00%
S&P 500 1,913.85 -58.33 0.00%
NASD 4,636.11 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes