Retirement Planning

What changes when income comes from savings

Retirement planning is less about hitting a number and more about understanding how income works once it doesn't come from a paycheck. The mix usually includes Social Security, retirement account withdrawals, and possibly a pension or part-time work. Each of these has tax treatment, timing, and trade-offs that interact in ways most workers haven't had to think about before.

The 4% rule — withdraw 4% of your portfolio in year one, adjust annually for inflation — is a useful starting heuristic, not gospel. It was derived from a specific 30-year historical analysis and assumes a particular asset allocation. For early retirees, longer time horizons may warrant lower withdrawal rates; for older retirees, higher rates can be sustainable. Sequence-of-returns risk — a bad market in the first few retirement years — does more damage than the same bad market 20 years in.

Social Security timing is one of the biggest decisions you'll make

The earliest you can claim is age 62 with permanently reduced benefits. Full retirement age (currently 67 for most) gets the full benefit. Delaying past full retirement age increases the monthly benefit by 8% per year until age 70. Over a 30-year retirement, the difference between claiming at 62 and claiming at 70 is often six figures.

The right answer depends on health, life expectancy, marital status, and how much you'll need to draw from savings before Social Security starts. For most people in average health with reasonable savings, delaying past 67 — often to 70 — increases lifetime expected income. For people with shorter expected lifespans or limited savings, claiming earlier can be the right call.

Healthcare in retirement is the line item most workers miss

Medicare starts at 65. Retiring before 65 means paying for individual or COBRA coverage in the gap years, which can run $1,000–$2,000 a month per person. Once Medicare starts, premiums for Parts B and D are income-based — high-income retirees pay surcharges (IRMAA) that scale up with your AGI from two years prior.

Healthcare costs in retirement are commonly estimated at $300,000–$400,000 per couple over the full retirement period (not per year). Health Savings Accounts, if you have access during working years, are the most tax-advantaged vehicle for these costs.

Order of withdrawals matters for taxes

Once retired, you're often pulling from a mix of accounts: taxable brokerage, traditional IRA/401(k), and Roth. The conventional sequence is taxable first, then traditional, then Roth — but this isn't always optimal. Strategic Roth conversions in low-income early-retirement years can reduce lifetime tax meaningfully. Required Minimum Distributions from traditional accounts start at age 73 (or 75 for those born 1960 or later), which can force withdrawals you didn't plan to take.