The Retirement Lie No One Talks About

Photo by Kelly Sikkema

For decades, Americans have been told that retirement accounts are the key to financial security. Put your money into a 401(k) or IRA, let it grow, and one day, you’ll have enough to retire comfortably. It’s the most widely accepted financial advice out there.

But no one talks about what happens when it’s time to take that money out.

“The government keeps shifting the goalposts on retirement distributions, and most people don’t realize they’re walking straight into a tax trap,” says Michael A. Scarpati, CEO of RetireUS. “You don’t just get your retirement money—you get the tax bill.”

It’s the part of the retirement equation no one warns you about. After 30, 40, even 50 years of saving, the IRS steps in, and suddenly, the money you thought was yours is being taxed like regular income. That tax bill only grows when the money is passed down to the next generation. What should have been generational wealth turns into a tax liability.

For decades, the government encouraged Americans to invest in retirement accounts by offering tax-deferred growth. The idea was simple: put money in now, pay taxes later when you withdraw it in retirement. But the real catch comes when those withdrawals are no longer optional. Required Minimum Distributions (RMDs) force retirees to start taking money out—first at age 70, then 72, and now 75. On the surface, delaying RMDs seems like a good thing. In reality, it creates a larger tax burden down the road, especially for beneficiaries.

When someone inherits a retirement account, they don’t get to keep the money tax-free. They are required to empty the account within ten years, meaning large, forced withdrawals that count as taxable income. If that person is in their peak earning years—typically their 40s or 50s—those distributions push them into a higher tax bracket, wiping out a significant portion of the inheritance.

“The system is designed to catch you off guard,” says Scarpati. “People think they’re passing down their savings to their children, but they’re really passing down a massive tax bill.”

This isn’t an accident. Retirement accounts have become one of the biggest revenue streams for the IRS. Unlike other forms of inherited wealth—such as real estate, which receives a step-up in basis that minimizes taxes—retirement savings are treated as ordinary income when passed down. The government has structured the system so that it gets paid first.

It’s no coincidence that the stretch IRA, which used to allow heirs to spread withdrawals over their lifetime, was eliminated in 2020. Under the SECURE Act, the ten-year rule was introduced, accelerating the tax collection process. The IRS doesn’t want retirement savings to sit untouched for decades—it wants its cut, and it wants it fast.

What makes this system even more frustrating is that most people don’t realize the full tax implications until it’s too late. Financial advisors focus on growing retirement accounts but often don’t emphasize tax-efficient withdrawal strategies. The result? Many retirees and their heirs unknowingly lose hundreds of thousands of dollars to taxes simply because they didn’t plan for it.

For those who think they’ll avoid this problem by relying on Social Security instead, that system is on even shakier ground. While the official projection suggests Social Security reserves will last until 2035, reductions in benefits seem inevitable without congressional intervention. Retirees who expected to lean on Social Security may find themselves more dependent on their retirement accounts, which only compounds the tax problem.

Meanwhile, the cost of retirement itself continues to rise. Healthcare expenses for retirees have skyrocketed, with long-term care costs placing an additional financial strain on families. Those who were once confident in their retirement savings are now forced to stretch their money further than they ever imagined.

The truth is, the government has never been in the business of helping people retire comfortably. The retirement system was built to maximize tax revenue, not financial security. Americans are encouraged to save for retirement, but when the time comes to use that money, the rules are structured to benefit the IRS first.

Planning for retirement isn’t just about saving—it’s about understanding how to keep as much of your money as possible. Without the right strategy, decades of hard work and diligent saving won’t go to your family—it will go straight to Uncle Sam.