What is Your Largest Expense in Retirement?

Oftentimes, the biggest surprise cost in retirement is not what people think. We hear “health care” all the time, but in this episode, we make the case that taxes are the true heavyweight and it is not close, especially if most of your savings sit in a traditional 401(k) or IRA. If you have ever looked at your balance and assumed it is all yours, we walk through why that can be a dangerous illusion and how to start thinking in after-tax dollars.

To bring it to life, we borrow a timely baseball story and break down the jaw-dropping numbers behind Juan Soto’s reported $765 million MLB contract. The headline is massive, but the estimated tax cost is even more revealing, hundreds of millions over the life of the deal. The point is not celebrity gossip. It is a clear reminder that taxes quietly shape every real-world paycheck and every retirement withdrawal, whether you are a pro athlete or a 401(k) saver.

Then we zoom out to the bigger retirement tax planning landscape: Medicare and Social Security timelines, the U.S. national debt, and why many analysts believe higher future tax rates are likely. We also dig into the Great Wealth Transfer and what happens when heirs inherit pre-tax retirement accounts under the 10-year rule, including the risk of pushing income into higher brackets during peak earning years.

Finally, we ground it in strategy with the three tax buckets taxable, tax-deferred, and tax-free and explain why tax diversification can give you more control over retirement income, Social Security taxation, and legacy planning. If you want the next step, we preview a deeper look at pre-tax vs after-tax 401(k) choices. Subscribe, share this with a friend who is nearing retirement, and leave a review so more people can plan for the part of retirement that takes the biggest bite.

Sources:

https://www.ssa.gov/oact/trsum/

https://www.jec.senate.gov/public/index.cfm/republicans/2025/12/national-debt-hits-38-40-trillion-increased-2-23-trillion-year-over-year-6-12-billion-per-day#:~:text=As%20of%20December%203%2C%202025%2C%20the%20total,$112%2C881%20per%20person%20*%20$284%2C914%20per%20household

https://finance.yahoo.com/news/great-wealth-transfer-baby-boomers-110047810.html

 https://www.mercatus.org/research/data-visualizations/us-debt-perspective

 * https://www.espn.com/mlb/story/_/id/42864917/sources-mets-land-juan-soto-15-year-765m-deal

* Note: Taxes owed mentioned in the episode are not exact, but an estimate derived from tax modeling based on a top federal income tax rate of 37%.

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Disclosure: Information contained in this podcast is for entertainment and informational purposes only, and should not be considered as financial advice. Financial Planning and Advisory Services are offered through Prosperity Capital Advisors (“PCA”), an SEC registered investment adviser.  Registration as an investment adviser does not imply a certain level of skill or training. Keystone Financial Group and PCA are separate, non- affiliated entities. PCA does not provide tax or legal advice. 

Transcript

Cold Open And April Fools

Announcer 0:00

The financial huddle does not provide tax, legal, financial, or other professional advice. Listeners are encouraged to consult with their own advisors in these areas.

Brian Minier 0:06

Alright, everybody, huddle up. Playing balls in. This is the Financial Huddle. Ready.

Ryan Fleming 0:14

Well, hello, huddlers. Welcome back to the Huddle Nation. And let me just start off by saying it is with great sadness that I am going to uh announce that this is going to be our last huddle session ever. It was a good burst of energy while it lasted. Hit you right here, man. Yep.

Ed Beemiller 0:32

I mean, we gave it a try.

Ryan Fleming 0:34

Huddlers, we love you.

Ed Beemiller 0:35

Give it the college try.

The Big Retirement Expense Question

Ryan Fleming 0:36

We love you, huddlers, for uh tuning in. And so that's why we just got to let you know, psych. Psych! April! Gotcha! You can't get rid of us that quick. We're never leaving. We're leaving. We're so immature. But in all seriousness, uh, welcome back, Huddlers. Uh, happy April Fools, wherever you are, wherever you may be listening or following us. Uh, thank you for coming back in. Brian Manier here to my right. Hello. Ed B. Miller to my left.

Ed Beemiller 1:05

Hello, hello.

Ryan Fleming 1:06

Let's get it done, fellas. Let's get to it. So um, you know, the title of this episode, as you guys saw, was what is your largest expense in retirement? So, Ed, what I'll I'll ask you first. What's going to be your largest expense in retirement? What do you think?

Ed Beemiller 1:24

You know, I'm gonna get one of them, you know, Lamborghinis where the you know the doors open up, you know, sideways or up or whatever, you know, and then Mr.

Ryan Fleming 1:32

Beast, you're gonna get one from Mr.

Ed Beemiller 1:34

Beast. Yeah, and then just you know, just cruise uh cruise the strip. The Lambo. I'm not sure what strip, but you're cruising some strip.

Brian Minier 1:41

That's that's must be good. Quarter mil.

Ed Beemiller 1:43

Well, by then we're selling for millions, so you know I'm re I'm retiring on retiring. You guys remember you're you are my uh we're the backup, man. You're you're you're you're a clown.

Brian Minier 1:58

I'm the old man. I'm the old man agreed. Well, I'll tell you what it feels like when you're feeling this. Two kids in college.

Ryan Fleming 2:05

In retirement, you're gonna be paying back the loans? Probably.

Brian Minier 2:08

It's not gonna allow me to retire.

Ed Beemiller 2:10

So he's confusing retirement. I'm like, I'm never gonna retire.

Brian Minier 2:14

I don't know, my daughter's talking about going to grad school, it just never ends. You blew all your money. Yeah, right.

Why Taxes Beat Health Care

Ryan Fleming 2:19

All right. Well, I hate the bust or bubble, but that's not gonna be your most expensive part, and that's not gonna be your most expensive thing. And huddlers out there, you may be thinking, like a lot of people, the most expensive part of retirement is gonna be health care. Okay, get that a lot.

Brian Minier 2:34

A lot of people say that when they ask that question.

Ryan Fleming 2:36

You get that a lot, but the answer is it's taxes, and it's not even close. So um a lot of you uh may remember when we first started, or some of you that know uh me in particular, uh, a lot of my background prior to the financial services arena was baseball. Um, I got to live my dream and I got a chance to play professional baseball. Uh, this time of year is super nostalgic to me. Um sometimes it's emotional, sometimes it's just like I said, super nostalgic. But uh MLB season kicked off a few days ago. We're off and running, the boys of summer are running around. Uh, I miss the smell of the grass, I miss putting on the uni.

Ed Beemiller 3:13

I miss the smell that leather mitt. You know, that's it. I like the leather mitt. Oh, yeah.

Juan Soto And The Tax Shock

Ryan Fleming 3:17

I like that smell. And uh you know, like hitting some uh doubles in the gap every once in a while. But I loved everything about the game of baseball. Um and uh so it got me thinking relative to this idea of taxes and how expensive the things are. A lot of people uh know Juan Soto. And if you don't know Juan Soto, he's one of the best players in the world. Yeah, um young Phenom um hopped around to a few different teams, but um a couple stats here I wanted to make sure you guys were aware of. In 2025, um good old Juan Soto signed a 15-year contract. Now, if you don't know this, uh when you sign a contract in the MLB, it's guaranteed. So if you if you snap your leg the next day, like your contract, you're gonna get paid. Okay. But Juan Soto signed a 15-year contract worth $765 million.

Ed Beemiller 4:05

Millions of dollars.

Ryan Fleming 4:07

Think about that. That's a lot of money. Including a $75 million signing bonus with no deferred money. A lot of these guys like Shohei Otani and they sign these like multiple million dollar contracts, but they defer a lot of them. He did not. He had no deferred money. But let's put this into context. So on average, he's gonna make $46 to $47 million annually. And when it's all said and done, he's gonna be expected to pay about $364 million to almost $390 million in taxes over the term of this contract. Okay, just let that breeze across your own.

Brian Minier 4:45

Give that figure one more time.

Ryan Fleming 4:47

Yeah, so over the course of his contract, a 15-year contract, he's gonna be expected to pay, estimated to pay, $364 million to almost $390 million in taxes over the 15 years, which represents 47, uh just under 50% of his contract being paid out in taxes. I mean, that makes me want to vomit. That's all okay.

Ed Beemiller 5:12

Well, I I don't feel really bad for for Juan because he'll still be okay. Even paying that amount, you know, half of what did you say, 765 million was the contract?

Ryan Fleming 5:22

Yeah, he'll be okay. I think he can live on it. He'll be all right. His kids will be okay. He can get by. But a lot of people probably out there that are listening kind of feel like they're getting paying half of their money in taxes and things like this. And and this isn't so, and this isn't even counting the maybe four or five percent he pays Scott Boris as uh agent, right? So my my point about this is Huddlers, is that um this $765 million that he signed for, it's not all his. It's not all his money. And millions of people and the people that are listening and watching us here today, um, it's gonna be really hard for our clients to plan for retirement when they don't really know how much of their own money is actually theirs versus the partner they have in this called Uncle Sam. So, for example, a lot of people on this uh podcast here that are listening might have eventually one day maybe may have half a million to a million dollars or more in a traditional tax deferred 401k, uh, but that's not all their money. And they're gonna have a partner the rest of their life unless they do something about it and get off the tracks now or later. And um, if taxes are gonna go up in the future, um every year that goes by, the government gets to vote on how much more of your profits and how much more of your account or your money they get to the chance to keep. So uh, you know, we want to make sure we understand that because we're all gonna be tied to this monster our entire life.

Ed Beemiller 6:42

It's a topic you cannot ignore.

Ryan Fleming 6:44

Yeah. What do you say? You pay taxes and die. And die.

Ed Beemiller 6:47

Death and taxes.

Medicare Social Security And Debt

Ryan Fleming 6:49

So I thought maybe what we could do is bring this home a little bit and talk about well, if if I'm gonna be tied to this tax monster my whole life, what's the status, uh, status of the union here as far as like taxes and the environment? When how much am I gonna pay?

Brian Minier 7:02

What time is it? It is stat time. Stat time. We need a button, we need a little bell or something. So as you talk about taxes, and we don't have a crystal ball. We don't know exactly where taxes are gonna go. However, most people, when you ask the question, where are taxes gonna go? Most people, if you say, are they gonna go down? Probably not. They're gonna go up. So here's some stats, here's some information that we would say is evidence that taxes probably do have to increase in the future. All right. Let's talk number one about Medicare. The Medicare Hospital Insurance Trust Fund is projected to be unable to pay full scheduled benefits by 2033. That's not too far in the future.

Ryan Fleming 7:45

Yeah, that's negative.

Brian Minier 7:46

And so if that runs out, it could cover only about 89% of scheduled A part A benefits that we're just talking about schedule, schedule part A benefits for Medicare. So that's Medicare, which millions and millions of people rely on that for their healthcare.

Ed Beemiller 8:02

Once you hit 65, that's right.

Brian Minier 8:04

Game on. Game on. Okay. Let's talk about Social Security. If you've uh looked at your statements, you know there's some language in that statement that talks about the shortfall. So the Social Security Old Age and Survivor's Trust Fund, the OASI, which is basically the bank account for Social Security, is projected to be exhausted surprise, surprise, around the same time, 2033. Okay. Which benefits would be cut to roughly 77 to 80 percent of the scheduled benefits or benefits needed for people that have filed.

Ryan Fleming 8:37

And we've said this in the past, all there's that that doesn't mean Social Security is going away. Your benefit might get reduced a little bit based on that math.

Brian Minier 8:43

Yeah, because FICA taxes are still gonna be taken out of your if you go to your space stub and you look at it, FICA taxes are still gonna be taken out for for income. But but what is being used to pay the difference of their shortfall now is that fund, and that fund will be exhausted. Okay. Let's talk a little bit about the U.S. national debt. As of 2025, the gross national debt has surpassed 38. Let me see that pinky ed. But this time this time's trillion. Trillion. We skipped billion. It wasn't me. It wasn't billion, right? Trillion. 38 trillion dollars. When we say that, like we really have no we can't fathom how much we just blank out.

Ed Beemiller 9:30

It's monopoly money, right? I mean, it's like 38 trillion.

Ryan Fleming 9:33

What here's a good stat, real quick. Uh Huddlers. Uh anything with the word trillion in it is followed by do you know how many zeros? A lot. Twelve. Twelve zeros after a trillion. Okay, there we go.

Brian Minier 9:47

Now, I know Ryan, you follow uh Lawrence, and you can help me with this. Lawrence Kotlikoff. Yes, he is a very well-known economist.

Ryan Fleming 9:55

Yeah, Boston University.

Brian Minier 9:56

Boston University, and he actually talks about the scheduled unfunded obligations, could estimate around $200 trillion.

Ryan Fleming 10:05

Yeah, and and Hullers, what he's what uh Lawrence Kotlikoff's talking about is this when you add up everything that's unfunded with like Social Security, Medicare, Medicaid, the interest on the national debt, he's actually trying to calculate the true national debt that we have, the true hole that we're in, not just the 38%.

Brian Minier 10:21

Yeah, not just what we owe now, but what we're going to owe because of the interest of the city. Yeah, interest carriations. Have rates been going up. Yeah, they have. Yeah, yeah.

Ryan Fleming 10:29

It's called fiscal gap accounting. Right.

Brian Minier 10:31

The the last thing that I want to talk about that people don't think about when it pertains to taxes and the increase in taxes is what's called the great wealth transfer. You guys ever hear about this? Oh, yeah. The great wealth transfer. And what this is referring to is all those retirement accounts that people are not going to spend down before they they pass. And what are they more than likely going to do with those? Pass those on to legacy planning. Wikipedia estimates there's going to be $84 trillion by 2045. Now think about that. We've been doing this a long time. Most of those are in the form of what kind of assets? Stocks. But most are they pre-taxed. So we've talked about this in the past. When you inherit an IRA or a 401k, what do you have to do with those? Spend them down in 10 years.

Ed Beemiller 11:26

Unless you're this direct spouse. That's right.

Brian Minier 11:28

But for most, if it's if it's a child and you pass that down to your adult child, that adult child at that point in their career is probably in the very sweet spot of their earnings. Which means what? They have to spend it down in 10 years. Ultimately, they have to pay the taxes, which more than likely is going to put them in the next highest tax bracket.

Ryan Fleming 11:46

Yeah, and that's if taxes remain the exact same that they are today. And, you know, Hudlers, we may have you may remember we talked about this gentleman named uh David Walker, who was the former U.S. Comptroller General of the U.S., who basically was the CPA for America. He knows all the math that we're talking about. He knows kind of the math about what Lawrence Kotlikov's talking about. And uh the the point I'm gonna get across to everybody that's listening is that you know the fact that we are in this situation and the fact that the evidence is really pointing to potentially much higher taxes, or what David Walker says, maybe doubling of taxes in the future, just kind of brings to light more about why we want to talk about this. So therefore, if taxes truly are the biggest biggest expense in our lifetime, when do we want to get off the railroad tracks basically? When do we want to get off that business partnership with the IRS and uh pay the taxes now versus later? You know, that's yeah, it it's important to think through.

Ed Beemiller 12:39

Yeah, and and that's where you know we as financial professionals when we're sitting down with our our clients, if if you know that this potential significant increase is coming and that it could once again be your largest expense in retirement in your lifetime. Do you think you should talk about it?

Ryan Fleming 13:01

I think it should be at the forefront of all conversations.

Ed Beemiller 13:04

All conversations. And there are things that you can do to help mediate that concern. You know, maybe not 100% eliminate, and that's probably what we wouldn't say to do, but there's definitely things, you know, to mitigate that future.

Ryan Fleming 13:19

In light of this fact, we have to bring in a lot more revenue as a country.

Brian Minier 13:23

Let's also be clear even if things don't change, taxes are still gonna be your number one expense, even as it is right now. Exactly. And there's still things that you could even do now as it as current situation stands. But in evidence of everything we talked about, then you it's probably gonna get even worse.

Ryan Fleming 13:39

Yeah, we're becomes more pertinent. We need to organize our affairs a certain way.

Three Tax Buckets And Strategy

Ed Beemiller 13:43

So when when we look at you know assets, and Ryan, you've said this before, you know, if we we look at different buckets that assets can be in, there's three different buckets, right?

Ryan Fleming 13:55

That's right.

Ed Beemiller 13:56

You basically have taxable, tax deferred, and tax-free. That's right. Okay?

Ryan Fleming 14:03

Right. Out of all the things that we can all the millions of different strategies we can put our money in all right. It really just boils down to our money can sit in one of those three buckets or all three.

Ed Beemiller 14:11

Right. And the those are the how those accounts are viewed in terms of the IRS, our our our partner that we did not elect, right? So we are all three of us are business partners, right? That's right. We elected to join together and to do what we're doing. Yes, we did. You do not have Do you have any regrets? You know, well, you know. But we had choices, right? We we had choice. That's right. He knew what he was getting into. What you don't have a choice with is your partnership with the IRS and the federal government.

Ryan Fleming 14:40

No, you do not.

Ed Beemiller 14:41

So if you could take advantage of more favorable terms potentially, and and that's where we're we're not saying stick everything into one bucket. But we what we are saying is that you know, planning for that and looking what your needs are, looking and having that discussion of well, how much should be in the tax-free bucket, how much should potentially be in the pre-tax, and then taxable. And it's going to be different for each individual.

Ryan Fleming 15:05

Yep.

Ed Beemiller 15:05

Um, but once again, it's something to use a double negative, it's something you cannot not address, right? I mean, it has to be part of every financial conversation.

Ryan Fleming 15:16

Aaron Powell, a double negative from an English maker.

Ed Beemiller 15:18

Well that's why I I had to preface it. Not to use the double negative, which I then did.

Brian Minier 15:24

It's like when someone says, I'm just saying it.

Ed Beemiller 15:28

To be honest with you, well, okay, are you lying to me normally? What's going on here? You know, and once again, the amount of earnings or income that we have that is taxable versus tax-free has ripple effects, right? And especially once we get into retirement, and we'll talk a little bit in the next episode of what are the impacts on your Social Security. I'm not talking the impacts of how much you get, you know, gross. I'm talking about how much you you get net. You know, a lot of people are like, oh, I don't pay tax on Social Security. Well, yeah. Yeah. Most people don't. I thought that was tax-free. Yeah, tax-free. Well, that's what that's what Trump said, right? We talked about that in a previous episode, you know. And and how much you show in taxable income is then gonna basically tell you how much what percentage you're paying in taxes at very high level. We'll get more into that. That's right. And then also at the end of the day, we've all heard you know the saying that you can't take it with you, right? And that describes legacy.

Ryan Fleming 16:29

Yep.

Ed Beemiller 16:30

So in a perfect world, if legacy was part of what you wanted to accomplish for your children, grandchildren, your church, a pro nonprofit that that you really uh want to support, if you can pass on those assets as much tax advantage as possible, i.e. tax-free, versus putting an additional tax burden on, isn't that something you'd you'd you'd like to do? Some people would want to. Some people don't.

Brian Minier 16:56

But some people said, depending on how you want to pass those on, is going to be different on how you take those distributions. Correct. So if you give it to a nonprofit or your church, you don't necessarily need to do the tax planning to move things tax-free because you can give those assets that are pre-tax to the non-profit.

Ryan Fleming 17:13

And if you didn't even if somebody didn't really care or want to have a legacy to the next generation, again, you you would rather uh divorce yourself from that partnership as fast as possible if taxes are going to be higher in the future, right? So you can sp spend more of your money uh now, right?

Ed Beemiller 17:28

So but without planning for it and and having your will be known, right? As far as what are your wants, what do you what do you want to happen? You know, you have to take in consideration the topic of taxes. Yeah.

Key Takeaways And Next Episode

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Ryan Fleming 17:43

Yeah, and that's and that's really what we'll put the bow tie on it. I mean, at the end of the day, we wanted to do this episode to make sure you guys, the huddlers, know that uh the number one expense by far is is taxes in retirement. It's not medical and it's not really anything. It's not your mortgage, it's not it's not. And and so therefore, then we must be cognizant of this. We must talk about it. It's not just about rate of return. And so, next episode, tune back in, huddlers, because what we're gonna do, we're gonna go a little bit deeper and we're gonna talk about, I would argue, probably the most popular wealth savings engine in the world for people's retirement that started to originate towards the late uh 70s to 1980 called the 401k. Um, there are so many trillions of dollars sitting in tax-deferred vehicles called 401ks. And we're gonna kind of stress test which is better. Is it the pre-tax 401k or is it the after-tax version of the 401k? So this kind of falls in line with some of the things we're talking about. Uh, but hodlers, uh, as always, we we hope you got some good education today. We hope you are uh more aware of this tax burden that you're gonna be riding with you your entire life. Tune back in, like, follow, share, subscribe, whether you're driving in the car, listening, or just um watching us on YouTube. We're thankful so much. And uh, if you want to talk a little bit more about this specific situation that you're in with your taxable buckets that Ed talked about, just give us a give us a call. We'd love to you know kind of help you out there. All right. Sounds great. All right, guys. We'll see you next time. Until next time. Take care, Huddlers.