I grew up in a time when it felt possible to figure things out on your own. It was before smartphones and online tutorials. If something broke, we learned how to fix it. If we wanted to learn something, we found a way.
That mindset is still alive and well today, although we have more access to information than any generation before us. Whether we’re repairing a vehicle, researching a medical diagnosis or learning a new skill, the answer is often just a few clicks away.
That same confidence has served many people well in their financial lives. They learned how to budget, save, invest and build wealth.
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However, retirement introduces a different challenge altogether. The challenges of retirement can often leave someone who is typically “good with money” feeling overwhelmed and vulnerable.
Why does retirement shift the goalposts?
Many people who consider themselves financially adept have spent their working years focused on one primary objective: Growth. They have worked hard, saved consistently, invested diligently and delayed gratification.
For many, that process built on discipline, knowledge and consistency has enabled them to accumulate meaningful retirement savings, pay down debt, raise families and build successful careers.
Retirement, however, changes the approach entirely. This is the point in the journey when three financial disciplines begin to intersect: Income, investments and taxes.
During our working years, these areas often operate independently. But in retirement, when people are in the distribution phase rather than the accumulation phase, they become interconnected.
The transition from accumulating wealth to coordinating wealth is one of the most overlooked and important challenges in personal finance.
Income
Income planning in retirement asks a different question than accumulation planning. The goal shifts from maximizing account balances to answering a much more practical question: “How am I going to get paid?”
Income planning becomes essential for creating a sustainable paycheck from assets that may need to last 30 years or more.
Investments
Investment planning also changes during retirement. During the growth phase, throughout your working years, market declines can often be viewed as temporary setbacks or even opportunities to invest at a discount.
Taxes
Then there is tax planning. For many retirees, taxes become more complicated.
- IRA withdrawals can affect tax brackets
- Tax brackets can affect how much Social Security becomes taxable
- Income can influence Medicare premiums for several years
- Decisions made today may affect surviving spouses and even the tax burden left to children
Making the pieces fit
In retirement, a decision in one area often affects the other two.
- If you increase withdrawals, taxes may rise
- Increase taxable income and Social Security taxation or Medicare premiums may change
- Reduce investment risk and future income potential may be affected
Everything becomes connected.
I’ve noticed a pattern among people approaching retirement. Many arrive with spreadsheets, account statements and years of disciplined saving behind them. They know what they’ve accumulated, but they’re uncertain about how all the pieces fit together.
Questions begin to surface, such as:
- How much can I safely spend?
- When should I claim Social Security?
- Should I prioritize reducing taxes or maximizing income?
- How much investment risk should I still be taking?
- What happens if one spouse dies first?
- How will today’s decisions affect my children tomorrow?
What makes these questions so unsettling is that they rarely have simple answers. Instead, the answers come only through developing careful, intentional strategies. And the reality is, in this space, there isn’t a practice round.
During our working years, progress is relatively easy to measure. We receive a paycheck. We watch account balances grow. We contributed more this year than we did last year. Success is naturally measured by accumulation.
But retirement changes the scoreboard.
The questions become less about growth and more about sustainability. Instead of asking, “How much have I saved?” people begin asking, “Will what I’ve saved be enough?” The focus shifts from building wealth to making decisions that support a desired lifestyle for decades.
So many decisions
For those staring into the fog of retirement, uncertainty often has less to do with the size of a portfolio and more to do with the number of decisions that suddenly appear. The closer retirement gets, the more interconnected those decisions become.
What was once a straightforward objective — save and invest — becomes a series of questions involving income, taxes, risk, healthcare costs, legacy goals and lifestyle choices.
Understanding how those pieces work together often becomes more important than any individual investment selection.
You may be “good with money,” but this season of life may leave you with more questions than ever.
However, having questions and needing clarity doesn’t make someone bad with money.
Rather, it is a sign that the realities of retirement are coming into focus. And at this moment, making wise decisions is paramount in preserving the income, freedom and lifestyle that often take decades to build.
Retirement asks us to think differently about wealth. It is no longer measured solely by account balances or annual returns. It is measured by the ability of our resources to support the life we want to live.
Income, investments and taxes each play an important role. Yet their true value is realized only when they work together.
Dan Dunkin contributed to this article.
This appearance in Kiplinger was obtained through a public relations program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
