An 81-year-old economist spent decades giving Americans retirement advice — but she still made 2 big mistakes in her own planning. Here's what they are and how to avoid them

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Munnell possesses extensive expertise. Prior to becoming the Peter F. Drucker Professor of Management Sciences at Boston College and establishing the Center for Retirement Research, she held a 20-year position at the Federal Reserve Bank of Boston, served as the assistant secretary for economic policy and was a member of President Bill Clinton's Council of Economic Advisers.

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She occasionally admits that despite trying to make retirement more comfortable for all Americans, she still finds it hard to dedicate time to reviewing her own financial situation and even made a few errors in the process.

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She later thought she should invest the money herself, but ended up not investing a single dollar, and the check soon became a part of her usual expenses.

If she had delayed taking her pension, she explained to The Journal, her monthly payment would have been "significantly higher." Many Americans are in the same situation, and while each person is unique and their circumstances may necessitate taking the pension early, generally speaking, it's a better idea to wait.

Under a defined-contribution plan, it's up to you to handle investing, and the amount you get in retirement depends on the size of the portfolio you create. By delaying the start of withdrawals, you'll get to contribute for extra years, your investments will have more time to grow, and you'll probably be able to take out bigger withdrawals in retirement.

If you're enrolled in a defined-benefit plan, your pension administrator will handle the investments, and your payments will be calculated based on a formula that takes into account your earnings and years of service. Some of these plans may let you retire early, but they might reduce your payments for the rest of your life if you do.

Your Social Security benefit is similar to a defined benefit plan, where your income and number of years worked factor into how much you'll receive in retirement. If you retire before you reach your full retirement age, you'll get a lower benefit. Conversely, if you delay retirement until after your full retirement age, your benefit will increase up to age 70.

Pays over ten times the national average

Mistake 2: Failing to Take advantage of a Roth 401(k

Investing in a Roth 401(k) instead of a traditional 401(k). The main difference is that contributions to a traditional 401(k) are tax-deductible, whereas contributions to a Roth 401(k) are not. However, in retirement, the withdrawals from a traditional 401(k) are taxed. If she had converted her plan to a Roth 401(k), she would have likely gained a higher after-tax income in retirement since Roth 401(k) withdrawals would not be taxed as well.

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Traditional 401(k) plans require minimum distributions (RMDs) once you turn 73. Starting in 2024, Roth 401(k)s have a new advantage: they no longer have RMDs. Although both types of accounts have a joint contribution limit - in 2024, the cap was $23,000, but in 2025 it will be $23,500 - there are no income limits on contributions to a Roth 401(k).

Who can assist you in making decisions about receiving pension payments early and creating a tax plan for retirement. Advisors can be a big help, even for people who are very knowledgeable and busy.

Revised on November 5, 2024: This article has been updated to reflect the latest rules regarding Required Minimum Distributions (RMDs) for both traditional 401(k) and Roth 401(k) plans.

What to read next

• But here's how saving 2 minutes every day can save you more than $600 by the year 2025.
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This article presents information without intention to advise. It is offered without any guarantees or warranties.