Nearly 60% of Americans worry that they’ll outlive their savings. That concern is certainly valid, yet many people don’t have a clear plan for what happens after they stop working.
With longer lifespans, rising healthcare costs, and an uncertain economy, financial planning in retirement has never been more critical.
Retirement isn’t the end of financial planning; it’s a new chapter that requires just as much strategy and oversight as the years leading up to it.
I’ve worked with countless retirees who thought the hard part was saving. The reality is that spending wisely, managing income sources, and preparing for the unexpected are what truly define retirement success.
In this article, we’ll explain everything you need to know to build a retirement plan that supports your lifestyle, protects your future, and adapts as life changes. Here’s what we’ll cover:
- Why retirement planning goes far beyond saving and how to spend with purpose.
- The impact of longevity and rising healthcare expenses on your financial future.
- Common myths that can derail even the best-laid retirement strategies.
- How to assess your income sources, from Social Security to IRAs and pensions.
- Where to find financial advisors specializing in retirement planning.
You’ll learn how to create a financial plan for retirement that’s grounded in realistic numbers, aligned with your goals, and built to last. Whether you’re curious about how to retire well or wondering where to get advice on retirement, you’ll find the answers here.
Estimating What You’ll Need in Retirement
Creating a Retirement Budget
The first step in retirement planning is understanding how much money you’ll actually need.
A common rule of thumb is that retirees require about 70% to 80% of their pre-retirement income to maintain their lifestyle, but this can vary based on your goals and location.
Key expense categories to include:
- Housing: mortgage or rent, property taxes, maintenance, etc.
- Food and groceries.
- Transportation: car payments, insurance, fuel, or public transit.
- Leisure and travel.
- Healthcare: premiums, out-of-pocket costs, and prescriptions.
- Insurance and taxes.
Tracking current expenses and categorizing them helps forecast future needs with accuracy.
Accounting for Inflation and Longevity
Retirement could last 20 to 30 years or more. Inflation steadily increases the cost of living, especially in healthcare where prices typically outpace general inflation. A budget that works at age 65 may fall short by age 80 if inflation isn’t factored in.
Planning for longevity means building in financial buffers and assuming a longer-than-average lifespan. It’s better to overestimate than underestimate.
Using Tools To Forecast Needs
There are many online retirement calculators and worksheets that can help you estimate your future expenses and income.
Tools like those offered by Vanguard and other financial institutions allow you to input your expected retirement age, savings, and lifestyle to get a clearer picture of your financial readiness.
Understanding Your Income Sources
Social Security
Social Security is a foundational income source for most retirees. Your benefit amount is based on your highest 35 years of earnings and the age at which you claim.
Claiming before your Full Retirement Age (FRA) reduces your benefits, while delaying up to age 70 increases them.
Key considerations:
- Know your FRA (typically 66–67 depending on birth year).
- Understand spousal benefits and survivor benefits.
- Use the Social Security Administration’s estimator to model different claiming scenarios.
Pension Plans and Annuities
If you have a pension, you may be offered a choice between a lump sum or monthly payments. Each option has different tax and longevity implications. Annuities can also provide guaranteed income, but fees and terms vary widely.
Evaluate:
- Survivor benefit options.
- Inflation-adjusted payments.
- Tax implications of distributions.
Retirement Accounts
Your 401(k), traditional IRA, and Roth IRA are key retirement savings vehicles. Each has different rules for withdrawals and tax treatment:
- Traditional IRA/401(k): Tax-deferred growth, taxed as income upon withdrawal.
- Roth IRA: Contributions made with after-tax dollars, withdrawals are tax-free in retirement.
- Required Minimum Distributions (RMDs) begin at age 73 for traditional accounts.
Be strategic about withdrawals to avoid penalties and minimize taxes.
Building a Withdrawal Strategy
The 4% Rule and Trinity Study
The 4% rule, based on the Trinity Study, suggests that withdrawing 4% of your retirement savings annually gives you a high probability of not running out of money over 30 years. It’s a helpful starting point but not a one-size-fits-all solution.
Sequence of Returns Risk
This risk refers to the danger of poor market returns early in retirement. Withdrawing during a downturn can deplete savings faster than expected. Strategies to mitigate this include:
- Holding a cash reserve.
- Reducing withdrawals during bear markets.
- Maintaining flexibility in spending.
Tax-Efficient Withdrawals
The order in which you withdraw funds can impact your tax bill. A general guideline:
- Start with taxable accounts.
- Then use tax-deferred accounts (such as traditional IRAs).
- Save tax-free Roth IRA withdrawals for last.
This approach helps manage taxable income and preserve tax-advantaged accounts for later years.
Investment Strategy in Retirement
Adjusting Asset Allocation
As you enter retirement, preserving capital becomes more important. Many retirees consider liquidating assets such as gold investments and shift toward bonds or dividend-paying stocks for stability and income. Still, some stock exposure helps combat inflation.
Balancing Growth and Safety
Low bond yields and rising costs make growth a necessary part of many retirement portfolios. A balanced approach might include:
- 40–60% stocks for growth.
- 40–60% bonds or fixed income for stability.
- Diversified mutual funds or ETFs.
Rebalancing and Managing Volatility
Rebalancing your portfolio annually ensures your asset allocation stays aligned with your goals and risk tolerance. It also helps reduce emotional decision-making during volatile markets.
Managing Taxes in Retirement
Required Minimum Distributions (RMDs)
RMDs begin at age 73 for traditional IRAs and 401(k)s. Failing to take them results in significant penalties. Planning ahead can reduce the tax hit by spreading withdrawals over several years.
Roth Conversions
Converting traditional IRA funds to a Roth IRA in lower-income years can reduce your long-term tax burden. This strategy works best when you can pay the conversion tax from non-retirement funds.
State and Federal Tax Considerations
Some states don’t tax retirement income, while others tax Social Security or pension benefits. Consider your state’s tax policy when deciding where to live in retirement.
Planning for Healthcare and Long-Term Care
Medicare and Supplemental Coverage
Medicare kicks in at age 65, but it doesn’t cover everything. You’ll likely need:
- Part B (doctor visits) and Part D (prescriptions).
- Medigap or Medicare Advantage plans.
- Dental, vision, and hearing coverage, which may require separate policies.
Long-Term Care Options
Nearly 70% of retirees will need some form of long-term care. Options include:
- Long-term care insurance.
- Out-of-pocket savings.
- Medicaid planning for those with limited assets.
Budgeting for Medical Inflation
Healthcare costs rise faster than most other expenses. Budgeting for 5–6% annual increases in healthcare spending can help maintain financial stability.
Emergency Funds and Debt Management
Maintaining a Cash Reserve
I always recommend keeping 6 to 12 months of living expenses in a liquid savings or money market account. This helps cover unexpected costs without disrupting your investment strategy.
Reducing or Eliminating Debt
High-interest debt can erode your retirement income quickly. Tackle credit card and personal loan balances before retiring. If you carry a mortgage, evaluate whether it makes sense to pay it off.
Managing Large One-Time Expenses
Plan for big-ticket items such as home repairs, car replacements, or supporting family members. Set aside a separate fund to avoid dipping into your long-term investments.
Working With a Retirement Financial Planner
What a Retirement Financial Planner Does
A retirement financial planner helps you coordinate income, investments, taxes, and estate planning. Their advice is tailored to your retirement goals and lifestyle.
Services may include:
- Creating a sustainable withdrawal plan.
- Tax-efficient income strategies.
- Coordinating with estate attorneys and CPAs.
- Ongoing portfolio management.
Where To Find Financial Advisors Specializing in Retirement Planning
Reputable platforms to find retirement-focused advisors include:
- Vanguard.
- Zoe Financial.
- Facet.
Look for advisors with certifications such as CFP® or RICP® and who operate under a fiduciary standard.
Questions To Ask Before Hiring an Advisor
- Are you a fiduciary?
- How are you compensated (fee-only or commission-based)?
- What is your experience with retirement planning?
- What services are included, and how often will we meet?
Psychological and Behavioral Considerations
Addressing Fear of Running Out of Money
Many retirees worry about depleting their savings. A clear, flexible plan provides peace of mind. As I often say to clients, confidence in retirement comes from knowing your numbers and having a strategy that adjusts with life.
Staying Disciplined With Spending
Avoid lifestyle inflation and emotional spending. Use a budget, and revisit it regularly. Separate needs from wants, and limit large discretionary purchases.
Adjusting to Life After Work
Retirement affects more than finances. It’s a shift in identity and daily routine. Financial stability allows you to focus on purpose, whether that means travel, volunteering, or spending time with family.
Secure the Retirement You Deserve
Financial planning in retirement definitely involves numbers, but it’s also about creating a strategy that supports your lifestyle for decades. Here are the key takeaways:
- Know your numbers, and estimate your retirement spending needs.
- Understand and optimize income sources such as Social Security, pensions, and retirement accounts.
- Use withdrawal strategies and tax planning to stretch your savings.
- Plan for healthcare and long-term care costs, which often exceed expectations.
- Work with a retirement financial planner to build a plan tailored to you.
As an expert on all things related to retirement, I’ve seen how proper planning can turn anxiety into clarity.
Whether you’re wondering how to start a retirement fund or how to make a retirement plan, take one small step today: use a calculator, call an advisor, or sit down with your budget. The future you’re building matters.
