Most financial advice focuses on one question: how do I get a higher rate of return? It sounds smart, but chasing returns means chasing something you can’t actually control. The stock market does what it wants, no matter how good your advisor is. There are four things, though, that a Washington State employee planning for retirement really can control: taxes, fees, long-term care costs, and market risk. Get those four right, and you’re in a strong position no matter what the market does.
Why “Beat the Market” Is the Wrong Goal
Imagine two neighbors. One spends every year trying to pick the hottest stocks, hoping to beat the market by a percent or two. The other spends that same time lowering their taxes, cutting their investment fees, protecting themselves from a long-term care bill, and building a plan that survives a market crash. Ten years later, the second neighbor is almost always in better shape, even if their portfolio never “beat” anything.
That’s not a guess. It’s math. Taxes, fees, long-term care costs, and market risk are the four leaks in most people’s retirement bucket. Plug the leaks, and you don’t need a lucky year in the stock market to end up wealthy. You just need time and a plan.
1. Taxes: The Silent Retirement Expense
Washington doesn’t have a state income tax, which is a real advantage. But every dollar you pull out of a traditional 401(k), a 457 plan, or a DRS pension is still taxed by the federal government as ordinary income. Most people don’t think about this until they’re forced to take Required Minimum Distributions (RMDs) starting around age 73, and by then it’s often too late to plan around it.
Here’s a simple example. Say you’re 62, recently retired from a state job, and your only income this year is a small pension. You’re sitting in a low tax bracket. If you convert $20,000 from your traditional 457 plan into a Roth account this year, you pay tax on that $20,000 now, at your current low rate. That money then grows completely tax-free for the rest of your life, and you never pay tax on it again, even when you pull it out.
Compare that to waiting until age 73, when RMDs force you to withdraw money whether you need it or not, often pushing you into a higher bracket, and possibly increasing your Medicare premiums too. A few smart, small conversions in your low-income years can save tens of thousands of dollars in lifetime taxes. That’s a decision you control completely. The market has nothing to do with it.
There’s also a window most people miss entirely: the years between when you retire and when Social Security and RMDs kick in. If you retire at 60 and don’t start Social Security until 67, that’s seven years where your taxable income might be unusually low. Those “gap years” are often the single best window in your entire life to do Roth conversions, harvest capital gains at a low rate, or restructure accounts, because you may never see a tax bracket this low again.
The mistake most retirees make is treating every year the same, instead of looking at their whole retirement as a 20 or 30 year tax picture. A little planning in the low-income years can quietly save more money than any investment pick ever could.
2. Fees: Know What You’re Paying, and What You’re Getting for It
Investment fees are easy to overlook because they’re usually described as a small percentage, like “1%.” That sounds harmless. But a 1% fee isn’t 1% of your gains, it’s 1% of your entire account balance, every single year, whether the market goes up or down. Over decades, that adds up to real money, so it’s worth understanding exactly what you’re paying and why.
Let’s run the numbers. Say you have $100,000 invested and it grows at 7% a year before fees. One version has low fees of 0.5% a year, so your real return is 6.5%. Another version has higher fees of 1.5% a year, so your real return is 5.5%. That one percentage point doesn’t sound like much. Here’s what it actually does over 30 years.
| Fee Level | Net Annual Return | Value After 30 Years | Difference |
|---|---|---|---|
| Low fee (0.5%) | 6.5% | $662,200 | — |
| Higher fee (1.5%) | 5.5% | $498,400 | $163,800 |
That gap is real, but a lower number on a fee disclosure isn’t automatically the better deal. A 0.5% fee is often a self-directed or robo-advisor account: cheaper, but with little to no one reviewing your specific situation. A 1.5% fee more commonly reflects ongoing, hands-on guidance, someone actively coordinating your DRS pension, your Social Security timing, your tax strategy, and your investments together as one plan.
That matters because the costliest mistakes in retirement rarely come from the fee itself. They come from errors nobody caught: a missed Required Minimum Distribution, withdrawing from the wrong account in the wrong order, a beneficiary form that was never updated, or a Roth conversion done in the wrong year. A good advisor catching even one of those mistakes can easily be worth more than the fee difference over a lifetime. The goal isn’t to chase the lowest number, it’s to know exactly what you’re paying, and to make sure you’re actually getting real, ongoing help in exchange for it.
3. Long-Term Care Costs: The Risk Nobody Plans For
Here’s a number that surprises most people: a private room in a Washington nursing home now costs well over $12,000 a month, and that number keeps climbing every year. In-home care isn’t cheap either, often running $30 to $40 an hour. About 70% of people over 65 will need some type of long-term care during their lifetime.
Without a plan, this cost gets paid one of three ways: out of your own savings, by a family member who steps in to help, or eventually by Medicaid after your assets are mostly spent down. None of those are great options if you’ve spent 30 years building a nest egg for your family.
The good news is you get to choose how you protect against this ahead of time, while you’re still healthy enough to qualify. Traditional long-term care insurance is one option. Many people today prefer hybrid life insurance and long-term care policies instead, because if you never need the care, the money isn’t wasted, it passes to your family as a death benefit. Either way, this is a decision made years in advance, on your terms, not in a crisis.
4. Market Risk: Timing Matters More Than You Think
Here’s something most people never hear about until it happens to them: it’s not just the average return of the market that matters, it’s the order those returns happen in. This is called sequence-of-returns risk, and it’s especially dangerous in the first five to ten years of retirement.
Picture two retirees, each with $500,000, each withdrawing $30,000 a year. Retiree A hits a strong market right out of the gate. Retiree B retires right before a 25% market drop, like 2008. Even if both markets average the exact same return over 20 years, Retiree B can run out of money years before Retiree A, simply because they were forced to sell investments while prices were down, locking in losses that never had a chance to recover.
You can’t control when the next downturn happens. But you can control how exposed you are to it. Strategies like keeping a few years of living expenses in safer, more stable accounts, so you’re never forced to sell stocks during a crash, are one of the simplest ways to protect your retirement from bad timing. This is planning, not predicting, and it’s something every retiree can put in place.
How These Four Pieces Work Together
None of these four things work in isolation. A tax decision affects how much money you have exposed to market risk. A fee decision affects how fast your safety cushion for long-term care can grow. That’s why the best retirement plans don’t treat taxes, fees, long-term care, and market risk as four separate projects, they treat them as one connected system.
Think of it like a house. Taxes are the roof, keeping money from leaking out to the government unnecessarily. Fees are the foundation, because even a small crack there weakens everything built on top of it over time. Long-term care planning is the insurance policy on the whole house. And managing market risk is simply making sure the house is built to withstand a storm, not just sunny weather. Skip any one of the four, and the other three can’t fully protect you.
Common Mistakes Washington State Employees Make
The first mistake is assuming a pension and Social Security are “enough” and skipping a real plan altogether. A pension covers a base level of expenses for most retirees, but rarely covers everything, especially with inflation eating away at fixed pension checks over a 25 or 30 year retirement.
The second mistake is never actually reading the fee disclosures on retirement accounts. Most people can tell you their account balance down to the dollar, but couldn’t tell you within 1% what they’re paying in fees every year. That single blind spot, as shown in the table above, can cost hundreds of thousands of dollars over a career.
The third mistake is waiting until a health scare to think about long-term care. By the time care is needed, it’s usually too late, or far more expensive, to get insured. The best time to plan for long-term care is while you’re still healthy, typically in your 50s or early 60s.
Putting It All Together
Taxes, fees, long-term care costs, and market risk aren’t exciting topics. Nobody brags at a dinner party about lowering their investment fees by half a percent. But these four things quietly decide whether your retirement savings actually last as long as you do, far more than picking the right stock ever will.
If you’re a Washington State employee and you’d like help walking through your own pension, your DRS options, and where your own tax, fee, long-term care, and market risk exposure stand today, you can schedule a personal meeting here and we’ll go through it together, at no cost.
Frequently Asked Questions
What’s the single biggest lever a Washington State employee can pull?
For most people it’s fees, simply because it’s the easiest to check. Ask for the total expense ratio and any advisory fee on every account you own, add them up, and then ask what that fee actually buys you, whether that’s ongoing planning and advice or just access to a set of investments.
Does Washington’s lack of a state income tax mean I don’t need to worry about taxes in retirement?
No. It helps, but federal income tax still applies to withdrawals from traditional 401(k), 457, and pension income. Federal tax planning, like Roth conversions in low-income years, still matters a great deal.
Is long-term care insurance worth it if I might never use it?
That’s exactly why many people now choose hybrid life insurance and long-term care policies instead of traditional “use it or lose it” policies. If care is never needed, the money passes to your beneficiaries as a death benefit rather than disappearing.
How much market risk protection do I actually need once I retire?
A common starting point is keeping two to five years of planned withdrawals in safer, more stable holdings, so a market downturn in your early retirement years doesn’t force you to sell stocks at a loss.
P.S. If you found this helpful, the fastest next step is joining our free community below, where we walk through exactly how Washington State employees are putting these four strategies to work in their own retirement plans.
