The Implications of Retirement on Your Financial Plan

September 1, 2023

The Implications of Retirement on Your Financial Plan

September 1, 2023

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As we navigate through our careers and personal lives, retirement often feels like a distant eventuality. The truth is, it’s never too early to start planning for this significant phase of life. Retirement brings about a variety of implications for your financial plan, ranging from changes in income and expenses to shifts in investment strategies and estate planning considerations. Let’s delve deeper into the ways retirement influences different aspects of your financial life and how you can gear up for a smooth transition.

Shift in Income Sources: A Fundamental Change

One of the most dramatic changes that retirement brings about is the switch in income sources. The steady paycheck that once hit your bank account every couple of weeks will cease (the accumulation phase), and you’ll need to start drawing on other income sources such as Social Security, pensions, annuity payments, retirement savings accounts like a 401(k) or IRA, or perhaps even part-time work or passive income from investments (the withdrawal phase). Having a plan for which income sources you’ll draw from in which order is incredibly important to optimizing the longevity of your savings and lowering your tax burden (e.g., do you know when the best time to start drawing your Social Security is?).

Understanding the tax implications of these income sources is crucial as it can significantly affect your net income. For instance, withdrawals from traditional 401(k) or IRA accounts are taxable as ordinary income, while qualified withdrawals from a Roth 401(k) or Roth IRA are tax-free. It’s critical to have a withdrawal strategy that maximizes your income while minimizing the tax burden.

There’s also something called the sequence of returns (SOR) risk. This refers to the risk of receiving lower or negative returns early in a period when withdrawals are made from an individual’s underlying investments. More plainly, it’s the risk that the market will perform poorly at the worst possible time for you—namely, when you start withdrawing funds in retirement. You can read more about SOR risk and how you might be able to avoid it here.

Changes in Expenses: The New Normal

Retirement also brings about a major shift in your expenditure pattern. Some costs associated with your working life, such as commuting expenses, professional wardrobe, or lunches out, will naturally decrease or disappear. However, other costs more associated with retirement and aging, like healthcare or leisure and travel, may spike.

As retirees often have more free time, you may want to explore hobbies or travel more, increasing your leisure expenses. It’s important to reassess your budget and adjust your financial plan to accommodate these new expenses. This can help ensure you’re able to enjoy the lifestyle you envisioned for your retirement without financial stress.

Investment Strategy Adjustments: From Accumulation to Preservation

With retirement comes a necessary shift in investment strategy. During your working years, your primary goal is wealth accumulation. However, once retired, the focus moves from accumulation to preservation and withdrawal. It’s a balancing act between continuing to grow your wealth and starting to preserve what you have accumulated—and while you’re likely withdrawing from these accounts at the same time. This transition generally means rebalancing your portfolio to include more conservative investments to reduce risk. Investments may be shifted towards more stable and income-producing assets like bonds, annuities, or dividend-paying stocks.

However, it’s essential not to eliminate risk entirely, as some growth investments can help outpace inflation and maintain your lifestyle over a potentially lengthy retirement, helping avoid running out of money in your lifetime.

Healthcare Costs: Planning for the Unforeseen

One of the biggest and most unpredictable expenses in retirement is healthcare. As we age, the probability of health issues arising increases, often leading to significant healthcare costs. According to Fidelity’s Retiree Health Care Cost Estimate, a healthy retired 65-year-old couple can expect may need around $315,000 to cover healthcare costs in retirement right now—and this will likely only rise in future years. Considering the rising costs of medical care, having a robust financial plan that adequately factors in potential healthcare expenses is paramount. Options such as Health Savings Accounts (HSAs), long-term care insurance, and comprehensive Medicare planning can provide a safety net for these potential expenses.

Estate Planning Considerations: Securing Your Legacy

Retirement is an ideal time to review and update your estate plan. Adjustments may be needed due to changes in your financial situation, family circumstances, or personal wishes. An up-to-date estate plan can provide peace of mind and help prevent potential legal and financial complications for your heirs later. It is also a crucial step in ensuring your assets are distributed according to your desires. We also recommend reviewing your estate plan annually to account for any changes to your wishes or financial situation.

Tax Planning: Optimizing Your Retirement Income

Your tax situation can undergo a significant transformation in retirement, depending on your various income sources and the state you live in. Some states, for example, exempt certain types of retirement income from state taxes. Constructing a tax-efficient strategy for withdrawals from your retirement accounts can help maintain your net income and provide substantial savings. Tax planning prior to retirement is extremely important so that you can determine if a Roth IRA conversion might be a good idea for you and outline the optimal withdrawal sequence from your retirement accounts and to avoid paying excessive taxes.

Required minimum distributions will also become a reality at age 73 if you have tax-deferred retirement accounts like a 401(k) or traditional IRA. These can carry significant tax implications as well, so reviewing your RMDs and adjust your plan as needed is important every year.

Inflation: A Silent Threat

Lastly, it’s crucial not to overlook the role of inflation in your retirement plan. It’s a fact that goods and services get more expensive with time. With the cost of living likely to increase over time, the purchasing power of a dollar will decrease, necessitating more funds in the future to maintain your current lifestyle. Therefore, keeping a portion of your portfolio invested in assets that can potentially outpace inflation is key to a successful retirement plan.


In essence, retirement brings about considerable changes to your entire life—especially your finances. Understanding these implications is a significant step in adjusting your financial plan and ensuring you’re prepared for this life stage. Collaborating with a financial professional can help you tailor a plan based on your unique circumstances, goals, and risk tolerance. After all, the ultimate goal of retirement planning is to not only ensure you can retire but that you can retire comfortably and continue living the life you desire. No matter where you are in your journey, remember that it’s never too late to start planning for your retirement. A financially secure retirement is a reward for years of hard work, and you owe it to your future self to start planning today.


Standard Disclosure

This blog expresses the author’s views as of the date indicated, are subject to change without notice, and may not be updated. The information contained within is believed to be from reliable sources. However, its accurateness, completeness, and the opinions based thereon by the author are not guaranteed – no responsibility is assumed for omissions or errors.  This blog aims to expose you to ideas and financial vehicles that may help you work towards your financial goals. No promises or guarantees are made that you will accomplish such goals.

Past performance is no guarantee of future results, and any expected returns or hypothetical projections may not reflect actual future performance or outcomes. All investments involve risk and may lose money. Nothing in this document should be construed as investment, tax, financial, accounting, or legal advice. Each prospective investor must evaluate and investigate any investments considered or any investment strategies or recommendations described herein (including the risks and merits thereof), seek professional advice for their particular circumstances, and inform themselves about the tax or other consequences of any investments or services considered.

Investment advisory services are offered through Liberty Wealth Management, LLC (“LWM”), DBA Liberty Group, an SEC-registered investment adviser.  For additional information on LWM or its investment professionals, please visit  or contact us directly at 411 30th Street, 2nd Floor, Oakland, CA  94609, T: 510-658-1880, F: 510-658-1886, Registration with the U.S. Securities and Exchange Commission or any state securities authority does not imply a certain level of skill or training.


Fidelity Viewpoints. (June 21, 2023). How to plan for rising health care costs. Fidelity.

Schreier, Halsey. (June 12, 2023). Retirement Doesn’t Mean The End Of Financial Planning. Forbes.