Roth Conversions, Pensions, and Early Retirement Goals

Every family approaches retirement planning with unique circumstances, but the themes are remarkably similar: how much to save, when to retire, and how to balance taxes with long-term security. Recently, I spoke with two couples Pam and Jim, and Matt and his wife who are navigating these exact questions. Their stories highlight the challenges and opportunities many of us face on the path to retirement.

Pam and Jim are both 41 years old, earning $260,000 annually in the 24% tax bracket. They’ve already saved $600,000 and continue to put away $70,000 a year, primarily in Roth accounts. Their home is worth $425,000 with a $210,000 mortgage locked in at 2.75%. Jim also has a military pension and a potential lump-sum payout of $750,000 if he works until 62. Their goal is to retire at 59 and 62, spending $144,000 per year in retirement. With disciplined savings and pension income, they’re building a strong foundation but their strategy requires careful coordination between Roth conversions, pension options, and withdrawal planning.

Matt and his wife, both 39, also want to retire early around age 57. They’ve built $600,000 in retirement accounts, $130,000 in a brokerage account, and save $90,000 per year, including 529 contributions for their three daughters. Their target retirement lifestyle costs $160,000 annually, which could require roughly $5 million in savings. They’re already fully funding retirement accounts and using backdoor Roth contributions, showing just how aggressive high-income earners must be when planning for early retirement.

For both couples, several lessons stand out. First, sustainable withdrawal rates matter. A safe withdrawal rate of around 3% is often used, but inflation can erode buying power if spending isn’t adjusted over time. Social Security, pensions, and part-time work can help reduce the strain on portfolios.

Second, Roth conversions can be a powerful tool. Both couples are in the 24% bracket, and converting about $100,000 annually allows them to shift funds from tax-deferred accounts to tax-free Roth IRAs. This strategy minimizes the impact of Required Minimum Distributions (RMDs) later in life and helps keep them from being pushed into higher brackets in retirement.

Third, pension options require thoughtful consideration. Pam and Jim, for example, will have over $200,000 in combined pension income. Choosing between single-life or survivor benefits is not just about maximizing current income it’s about protecting the surviving spouse and ensuring long-term security.

Fourth, capital gains taxation plays a role for high earners. With $350,000 of ordinary income and $300,000 of long-term capital gains, part of those gains may be taxed at 15%, while amounts above thresholds get hit at 20%. Add in the 3.8% net investment income tax, and the effective tax rate climbs even higher. Proper planning can help reduce the tax drag, whether through timing sales, managing income levels, or using Roth accounts strategically.

Finally, the biggest lesson of all: money doesn’t buy happiness, but it does buy options. Some retirees thrive with modest savings and pensions, while others need multi-million-dollar portfolios to feel secure. What matters most is knowing your spending needs, setting realistic targets, and staying flexible. Retirement is less about chasing a magic number and more about aligning your finances with the lifestyle you want.

Pam, Jim, and Matt’s stories remind us that retirement anxiety is normal but planning, discipline, and smart strategies can turn uncertainty into confidence. With the right mix of savings, Roth conversions, pension planning, and tax strategy, early retirement is possible and sustainable.

Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

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• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.