For many people, retirement used to look like a clear finish line. You worked for decades, reached a certain age, and then stopped working- often supported by a pension or union benefits.
Today, retirement often looks very different.
Many individuals gradually transition away from full-time work rather than stopping all at once. Some shift to part-time consulting, volunteer work, or pursue interests that may generate modest income. Because of longer life expectancies and changes in retirement benefits, retirement planning now involves more choices- and more planning.
Understanding those choices early can help you prepare financially and emotionally for the transition.
Rethinking What “Retirement” Means
Rather than a single moment in time, retirement is often a series of decisions and stages.
Some of the key questions people consider include:
- When should you step away from your primary career?
- Would you like to work part-time, consult, or pursue a “hobby job” after leaving full-time work?
- When do you plan to fully stop working, if at all?
- How might your health and lifestyle influence your plans?
- When should you claim Social Security benefits?
- When should you begin drawing income from retirement accounts such as IRAs or 401(k)s?
There is no single right answer. The goal is to create a coordinated plan that supports your lifestyle while managing taxes, healthcare costs, and long-term financial sustainability.
The Three Phases of Retirement Spending
Financial planners often describe retirement as occurring in three general lifestyle phases.
The Go-Go Years
Early retirement is often the most active stage. Many retirees travel, pursue hobbies, and take advantage of the flexibility that comes with leaving full-time work.
The Slow-Go Years
Over time, activity levels often moderate. Travel may become less frequent and spending patterns may shift toward more local activities.
The No-Go Years
Later in retirement, health considerations may reduce mobility or independence. During this stage, spending often shifts toward healthcare and support services.
While every individual’s experience is different, planning for these changing phases can help align financial resources with lifestyle needs.
Tax Considerations in Retirement
Many people are surprised to learn that retirement income is often taxable.
Retirement Account Distributions
Withdrawals from traditional IRAs and 401(k) accounts are generally taxed as ordinary income because contributions were made with pre-tax dollars.
Social Security Benefits
Depending on your total income in retirement, up to 85% of Social Security benefits may be taxable under current tax law.
Roth Accounts
Qualified withdrawals from Roth IRAs and Roth 401(k)s are typically tax-free after age 59½ if account rules are met.
Because different accounts receive different tax treatment, withdrawal strategies can play an important role in managing taxes throughout retirement.
Required Minimum Distributions (RMDs)
Current tax law requires individuals to begin Required Minimum Distributions (RMDs) from most tax-deferred retirement accounts beginning at age 73.
RMDs represent the minimum amount the IRS requires you to withdraw annually from traditional retirement accounts such as:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- Most employer retirement plans
Failing to withdraw the required amount may result in IRS penalties. The required percentage generally increases gradually each year as you age.
Healthcare and Medicare Planning
Healthcare is another area where retirees often encounter unexpected costs.
Most individuals become eligible for Medicare at age 65, but the program does not cover all healthcare expenses. Many retirees also consider:
- Medicare Supplement (Medigap) policies
- Medicare Advantage plans
- Prescription drug coverage (Part D)
Medicare also does not typically cover long-term care, such as extended nursing home or assisted living stays, which is an important planning consideration for many households.
Meeting with a knowledgeable professional before turning 65 can help clarify available options and enrollment timelines.
Longevity: Planning for a Longer Retirement
Another key change in retirement planning is longevity.
According to data from the Social Security Administration:
- A 65-year-old woman today may live to approximately age 86 on average.
- A 65-year-old man may live to approximately age 84 on average.
For couples, the odds that one partner will live into their early 90s are significant.
Longer lifespans mean retirement savings may need to support 25–30 years of spending, making thoughtful withdrawal strategies and investment planning especially important.
Saving in Retirement
Even after retiring from a primary career, individuals who continue to earn income may still be able to contribute to retirement accounts.
Depending on eligibility:
- Earned income may allow contributions to a Roth IRA
- Some part-time or consulting work may allow participation in an employer retirement plan
Continuing to save, even modestly, can help extend long-term financial flexibility.
Building a Thoughtful Retirement Plan
Retirement planning today involves more than reaching a certain age or accumulating a specific dollar amount. It often includes coordinating:
- Income sources
- Tax planning
- Healthcare decisions
- Investment strategy
- Lifestyle goals
Maybe you could benefit form a visit with an experienced, highly-trained, CERTIFIED FINANCIAL PLANNER™ professional and Behavioral Financial Advisor in West Saint Paul, Minnesota to help better understand your options. I love to meet new people.
I am a financial planner who is an advocate for my clients ALL THE TIME- a fiduciary financial planner. I provide guidance based on clients’ best interests, not commissions or sales quotas. I think it’s the best way to serve clients and I am thrilled to work this way all the time.
And yes, I’m still taking on a few great families to be part of my financial planning practice in West Saint Paul, Minnesota and, thanks to Zoom, across the country.
Starting the conversation early can make the transition smoother and provide greater flexibility over time.
This article is provided for informational purposes only and should not be considered investment, tax, or legal advice. Dunncreek Advisors does not provide legal or tax advice.
Frequently Asked Questions
When is the best time to claim Social Security benefits?
The timing of Social Security benefits depends on several factors, including your income needs, health, life expectancy, and other retirement income sources. Individuals can claim benefits as early as age 62, but monthly payments are permanently reduced if claimed before full retirement age. Delaying benefits beyond full retirement age may increase monthly payments up to age 70. A coordinated retirement income strategy can help determine how Social Security fits within your overall plan.
How much should I withdraw from retirement savings each year?
There is no single withdrawal strategy that works for everyone. Retirement income planning often considers factors such as expected longevity, investment portfolio structure, tax implications, and other income sources like pensions or Social Security. Some retirees use general guidelines such as withdrawing a small percentage of their portfolio each year, but the appropriate approach should be evaluated within the context of a long-term financial plan.
What expenses are often overlooked when planning for retirement?
Healthcare costs, taxes, and long-term care are commonly underestimated expenses in retirement. While programs like Medicare can help cover certain medical costs after age 65, they typically do not cover all healthcare expenses or long-term care services. Planning for these potential costs early can help retirees maintain financial flexibility throughout different stages of retirement.