Retirement Planning Risks That Can Change After You Stop Working  

For decades, your financial life has had a built-in shock absorber: a paycheck. Markets could fall, expenses could rise, and tax rules could change, but income from work continued arriving every few weeks. 

Retirement changes that dynamic. Instead of regularly adding to your savings, you may begin relying on them for income. At the same time, decisions around Social Security, taxes, healthcare, and eventually required minimum distributions (RMDs) can start affecting one another. 

That’s why the question before retirement isn’t simply whether you have enough. It’s how your financial life will work when your portfolio goes from receiving money to providing it. 

Some of the retirement risks that matter most at that point can be difficult to see while you’re still collecting a paycheck. 

Preparing for retirement? Download our Building a Retirement Paycheck guide to explore how your different retirement income sources could work together once your regular paycheck stops. 

Why Some Retirement Risks Are Hard to See While You’re Still Working 

Saving for retirement and living in retirement are two different financial challenges. 

Think of it like climbing a mountain. For decades, you’ve been focused on reaching the summit by saving, investing, and building wealth. Once you reach retirement, however, the terrain changes. The strategies that helped you accumulate wealth may not work the same way when you begin relying on it. 

While you’re working: 

• Contributions are generally flowing into your retirement accounts. 

• Your paycheck covers much of your everyday spending. 

• You may be able to continue investing during market declines. 

• You often have more time to recover from unfavorable market conditions. 

Once you retire: 

• Portfolio withdrawals may need to continue even when markets decline. 

• Your investments may become an important source of everyday income. 

• Tax decisions can directly affect how much money you have available to spend. 

• Healthcare may become a larger part of your household budget. 

• Decisions such as when to claim Social Security timing can have long-lasting implications. 

Risk #1: A Market Decline Can Matter Differently Once You’re Taking Withdrawals 

Market downturns aren’t new when you retire, but your relationship with them changes. While you’re working, you may be able to leave your investments alone and continue contributing. In retirement, you may need to withdraw from those investments to fund your lifestyle. 

Understanding Sequence of Returns Risk 

Consider two retirees with similar portfolios and long-term average returns: 

• Retiree A experiences strong markets early in retirement before a downturn. 

• Retiree B encounters that downturn shortly after retiring while taking regular withdrawals. 

Retiree B may have to sell investments while values are down, leaving fewer assets invested to participate in a future recovery. That’s sequence of returns risk: the timing of market declines can matter more when you’re relying on your portfolio for income. 

What Can You Consider Before Retirement? 

There isn’t one approach for everyone, but it’s worth asking: 

• How much should you keep in cash reserves in retirement or other liquid assets? 

• Could you adjust withdrawals or discretionary spending during a downturn? 

• Which accounts might you draw from under different market conditions? 

• How would your income plan hold up if markets declined early in retirement? 

How you withdraw money can become just as important as how you invested it. Download our Building a Retirement Paycheck guide to explore more decisions involved in turning savings into retirement income. 

Risk #2: Social Security Becomes an Income-Planning Decision, Not Just a Benefit 

One of the most common retirement questions is, “When should I claim Social Security?” But that question can be difficult to answer without looking at the rest of your retirement income plan. 

For example, delaying Social Security may increase your eventual monthly benefit, but you’ll need income from somewhere else in the meantime. That could mean drawing from retirement accounts or other investments, which may affect your taxes and how much remains invested. 

Your Social Security timing decision may also affect a surviving spouse, while your health, expected longevity, and other sources of income can influence which approach makes sense for you. 

Before deciding when to claim, consider: 

• Where will your income come from if you delay Social Security? 

• How could withdrawals from your portfolio affect your tax picture? 

• How might your decision affect your spouse? 

• What other retirement income sources will begin around the same time? 

Instead of asking only “When should I claim Social Security?” consider a broader question: “How should Social Security fit into my overall retirement income plan?” 

That shift can help you evaluate Social Security as one piece of your retirement paycheck rather than a decision made on its own. 

Risk #3: Your Tax Bill May Not Decline Just Because Your Paycheck Disappears 

Retirement may mean the end of your salary, but it doesn’t necessarily mean the end of a significant tax bill. 

Your income may simply begin coming from different places. Traditional IRA and 401(k) withdrawals can be taxable, Social Security benefits may be partially taxable, and investment income or capital gains can add to the picture. Your income can also affect what you pay for Medicare through IRMAA. 

The Retirement Tax Window You May Be Overlooking 

For some retirees, the period after leaving work but before RMDs begin can create an important retirement tax planning window. 

With employment income gone and RMDs not yet required, you may have more control over when and where you generate taxable income. Depending on your circumstances, this could be a time to evaluate: 

• Roth conversions 

• Strategic withdrawals from retirement accounts 

• Realizing capital gains 

• Charitable giving strategies 

• The timing of other taxable income 

Eventually, RMDs require money to come out of certain retirement accounts whether you need that income or not. That can reduce some of the flexibility you had earlier in retirement. 

Risk #4: Inflation Doesn’t Need to Be Dramatic to Change a 25- or 30-Year Retirement 

Inflation in retirement doesn’t have to make headlines to have a meaningful impact on a long retirement. Even relatively modest increases in prices can compound over time. 

Consider a retirement lifestyle that costs $100,000 per year today. With 3% annual inflation, maintaining roughly the same purchasing power could require approximately: 

• $116,000 per year after 5 years 

• $134,000 per year after 10 years 

• $156,000 per year after 15 years 

• $181,000 per year after 20 years 

That doesn’t necessarily mean your spending will follow this exact path. Retirement expenses can change considerably as your lifestyle and priorities evolve. 

But it illustrates why creating a retirement paycheck isn’t simply about replacing your salary with a fixed amount of income. Your income needs may need to evolve too. 

After all, the purpose of your retirement savings isn’t just to cover expenses. It’s to support the life you’ve been planning for, whether that includes traveling, spending more time with family, helping children or grandchildren, or simply maintaining the freedom to make choices as life changes. 

When planning your retirement income, consider not only what your lifestyle costs today, but what it could take to support that lifestyle 10, 20, or even 30 years from now. That longer view is an important part of longevity planning. 

Risk #5: Healthcare Can Become Both a Spending Risk and a Tax-Planning Issue 

Healthcare costs in retirement are often treated as another line item in a retirement budget, but the cost can be more complicated than simply estimating your annual medical expenses. 

In addition to Medicare premiums, you may need to account for supplemental coverage, prescriptions, out-of-pocket expenses, and the possibility of long-term care costs later in life. 

There’s also a less obvious connection: some of your financial decisions can affect what you pay for Medicare. 

When Income and Medicare Costs Collide 

Higher modified adjusted gross income can trigger the income-related monthly adjustment amount (IRMAA), which increases Medicare premiums Part B and Part D premiums for higher-income beneficiaries. 

That means a financial decision that makes sense in one area could have an effect somewhere else. For example, a large traditional IRA withdrawal or Roth conversion could increase your income enough to affect future Medicare premiums. 

This doesn’t necessarily mean you should avoid those strategies. It means their broader impact is worth considering. 

As you approach retirement, look at healthcare, taxes, and income decisions together rather than treating each as a separate part of your financial plan. 

The Hidden Risk: Treating Each Decision as a Separate Decision 

The biggest retirement planning challenge may not be any one of the risks we’ve covered. It’s what happens when they begin interacting. 

Think of your retirement plan less like a row of separate light switches and more like a control panel. Adjusting one setting can change what happens elsewhere. 

For example: 

• Delaying Social Security may mean drawing more from your portfolio in the meantime. 

• Portfolio withdrawals can change your taxable income and potentially affect Medicare premiums. 

• A market downturn may influence which assets you want to draw from and how much flexibility you have with spending. 

• RMDs can eventually introduce taxable income on a schedule you don’t fully control. 

• Inflation can gradually increase the amount of income your lifestyle requires. 

This is why decisions that look sensible on their own may look different when viewed as part of your entire financial picture. 

The goal isn’t simply to manage each retirement risk individually. It’s to understand how your retirement income, investments, taxes, healthcare costs, and withdrawal strategy may affect one another so you can make decisions with the bigger picture in mind. 

Approaching retirement? Download our complimentary Building a Retirement Paycheck guide to explore how your different sources of retirement income may fit together. 

The Five Years Before Retirement May Be Some of Your Most Valuable Planning Years 

The years leading up to retirement aren’t simply a countdown to your last day of work. They can be an important opportunity to make decisions while you still have time to adjust. 

Before your paycheck stops, start putting your future retirement income strategy through a few real-world tests: 

• Your spending: What will it actually cost to support the retirement lifestyle you want? 

• Your withdrawals: Which accounts might you draw from first, and could that change depending on markets or taxes? 

• Your Social Security: When could it fit into your broader income strategy? 

• Your taxes: What might taxable income look like during your first decade of retirement, including once RMDs begin? 

• Your healthcare: How could Medicare premiums and other healthcare expenses affect your budget? 

• Your flexibility: If markets fall, inflation persists, or your priorities change, where could you adjust? 

You don’t need to predict exactly what the next 20 or 30 years will bring. The value of planning before retirement is identifying where you have choices today and how those choices could affect the years ahead. 

The closer retirement gets, the conversation can begin shifting from “How much have I saved?” to “How will I actually use what I’ve built?” 

Conclusion 

If retirement is starting to feel less like a distant goal and more like an upcoming transition, now may be the time to look beyond the size of your portfolio and consider how it will support your life. 
 
Understanding retirement risks such as market downturns, Social Security timing, taxes, inflation, healthcare costs, and required minimum distributions can help you see how different parts of your retirement plan may interact. 

Download Liberty Group’s complimentary Building a Retirement Paycheck guide to explore some of the decisions involved in creating income after your working paycheck stops. 

Ready to take the conversation further? Connect with the Liberty Group team to discuss how your retirement income strategy, tax planning, healthcare considerations, and broader financial plan may fit together as you prepare for retirement. 

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.  

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