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

Mistake 1: Taking your pension payment early

When she left the Federal Reserve at age 50, Munnell says she took the monthly payment on her pension early, figuring that it made more sense to invest the money herself. But, she didn’t invest a dime, and says the check soon became a part of her regular spending.

Had she waited, she told The Journal, her monthly payment would have been “meaningfully higher.” This is a choice that many Americans face, and while each person is different and circumstances may require you to take your pension early, it’s generally better to wait.

With a defined-contribution plan, you’re responsible for investing, and the amount you receive in retirement is based on the size of the portfolio you’ve built. By waiting to begin withdrawals, you’ll be able to contribute for additional years, your investments will have more time to grow and you’ll likely be able to make larger withdrawals in retirement.

If you’re enrolled in a defined-benefit plan, then your pension provider is responsible for investing the money and your payments will be based on a formula that usually considers your earnings and years of service. Some of these plans may allow for early retirement but could penalize you by paying reduced payments for the rest of your life.

Social Security is like a defined benefit plan in that your income and years worked can influence the size of your retirement benefit. If you retire before your full retirement age (FRA), you’ll receive a lower benefit, and if you retire after your FRA, your benefit amount will increase over time up to age 70.

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Mistake 2: Not leveraging a Roth 401(k)

The other choice Munnell admitted she regrets is not moving any money from her traditional 401(k) to a Roth 401(k). The difference between the two is that contributions to a traditional 401(k) are tax-deductible, while those to a Roth 401(k) are not. But in retirement, the withdrawals from a traditional 401(k) are taxed. Had Munnell converted, she would have likely had a higher after-tax income in retirement as the Roth 401(k) withdrawals wouldn’t be taxed.

This type of conversion makes the most sense if you believe your tax rate will be higher in retirement than at the time of the conversion. Not all employers allow you to convert, but if yours does, there’s no limit on how much you can convert. However, you’ll need to pay taxes on the conversion, which you may want to do using funds outside the plan so as to not lose out on compounding gains.

Traditional 401(k)s have required minimum distributions (RMDs) when you reach age 73. As of 2024, Roth 401(k)s have the additional advantage of no longer having RMDs. While both account types have a combined contribution limit — in 2024, the limit was set at $23,000, while in 2025 it will be $23,500 — there are no income limits on a Roth 401(k).

Munnell’s regrets serve as a cautionary tale for those faced with the same decisions. They’re also a reminder that it may be a good idea to engage a qualified adviser who can help you make decisions about taking pension payments early and tax planning for retirement. Advisers can be invaluable for busy people — even those who are highly knowledgeable.

Correction, Nov. 5, 2024: This article has been updated to reflect updated rules on RMDs for both traditional 401(k) and Roth 401(k) accounts.