Retirement Planning • Challenges
Retirement challenges to plan for
What each challenge is, why it matters, and what to plan for, with a key fact or rule, or a clearly labeled hypothetical example, and links to the official source for anything that changes yearly.
Challenge 1 of 11
Taxes
Taxes don’t retire when you do.
What it is
Withdrawals from traditional 401(k)s and IRAs are generally taxed as income, part of Social Security can be taxable, and required minimum distributions (RMDs) start at a set age.
Why it matters
Which account you draw from, and in which year, can change how much you keep. A large withdrawal can also raise your Medicare premiums (see Health care).
What to plan for
- Know which “tax bucket” each account sits in: taxable, tax-deferred or tax-free.
- Mark your RMD start age: 73, or 75 if you were born in 1960 or later.
- Check how much of your Social Security may be taxable.
- Talk with a tax professional before large withdrawals or Roth conversions.
Rule
RMDs generally begin at age 73, or 75 for people born in 1960 or later. Up to 85% of Social Security benefits can be taxable, depending on your other income; the income thresholds and any extra deductions for people 65 and older are on IRS.gov (Publication 915). Hypothetical: a $10,000 traditional IRA withdrawal taxed in a 12% federal bracket costs $1,200 in federal tax; a qualified Roth IRA withdrawal of the same size costs $0.
Source: IRS: Required minimum distributions FAQs, Federal Register: Required minimum distributions, final regulations (2024), IRS Publication 915: Social Security and equivalent railroad retirement benefits
Learn more: The tax buckets strategy · Retirement accounts and limits · Glossary: RMD
Challenge 2 of 11
Inflation
Prices keep rising after the paychecks stop.
What it is
Inflation is the general rise in prices. It slowly shrinks what each dollar buys.
Why it matters
Retirement can last 20 or 30 years or more, and even moderate inflation adds up over that time. Income that stays the same (many pensions and fixed payments) buys less each year.
What to plan for
- Plan spending in today’s dollars, then add inflation.
- Know which income adjusts for inflation (Social Security has a yearly cost-of-living adjustment) and which doesn’t.
- Keep part of long-term money positioned for growth, so it has a chance to keep up.
- Revisit your budget every year.
Math
At 3% a year, prices double in about 24 years (Rule of 72: 72 ÷ 3), so a dollar buys about half as much. Hypothetical: $50,000 of yearly spending today would need about $101,640 in 24 years at 3% inflation. Social Security benefits get a cost-of-living adjustment (COLA) most years; SSA.gov posts each year’s amount.
Learn more: Future Value Calculator (with inflation) · Glossary: inflation · Glossary: Rule of 72
Challenge 3 of 11
Interest rates
Rates move both ways, and both directions matter.
What it is
Interest rates affect what savings accounts, CDs and bonds pay, the prices of bonds you already own, the payouts offered on some income products, and the cost of borrowing.
Why it matters
Falling rates can shrink the income from cash and new bonds. Rising rates can lower the price of bonds you already hold and make mortgages, home equity loans and credit cards cost more.
What to plan for
- Avoid assuming today’s rate will last for decades.
- Learn how rate changes affect any bonds or bond funds you hold (interest rate risk).
- Think about the timing and cost of any big borrowing near retirement.
- If comparing income products such as annuities, know that payout rates depend partly on interest rates, and compare carefully with a qualified professional.
Example (hypothetical)
Hypothetical: $100,000 in savings earning 4.5% pays about $4,500 a year in interest. At 1%, the same savings pays $1,000. When market interest rates rise, the prices of existing fixed-rate bonds generally fall, and the reverse.
Source: Investor Bulletin: When interest rates go up, prices of fixed-rate bonds fall, Investor.gov: Annuities
Learn more: Glossary: bond · How to calculate investment returns
Challenge 4 of 11
Health care and medical expenses
Often one of the biggest costs in retirement.
What it is
Medicare generally starts at 65, but it doesn’t cover everything. There are premiums, deductibles and copays, and gaps such as most dental, vision and hearing care.
Why it matters
Health costs tend to rise with age, and a higher income can raise Medicare premiums through IRMAA. Retiring before 65 means planning coverage until Medicare starts.
What to plan for
- Mark your Medicare enrollment window around your 65th birthday, since late enrollment can mean lasting penalties.
- Budget for premiums and out-of-pocket costs every year, for each spouse.
- Plan health coverage if you retire before 65.
- Check whether your income could trigger IRMAA, especially in a year with a large withdrawal or sale.
Rule
Medicare generally starts at 65. Part B has a monthly premium and a yearly deductible that usually change every year, and people with higher incomes pay more (IRMAA), based on their income from two years earlier. Medicare.gov posts this year’s amounts.
Source: Medicare: Costs, Medicare: Get started with Medicare
Learn more: Glossary: Medicare · Glossary: IRMAA · Glossary: HSA
Challenge 5 of 11
Long-term care
Many people will need help with daily living.
What it is
Long-term care is help with everyday tasks such as bathing, dressing and eating, at home, in assisted living or in a nursing home.
Why it matters
Medicare doesn’t pay for long-term (custodial) care. The cost can fall on savings or on family members, and it can last for years.
What to plan for
- Talk with family about wishes and who could help.
- Learn how Medicaid long-term care works in your state.
- Compare the ways people pay for care (savings, long-term care insurance, hybrid policies, family care) with a qualified professional, without assuming one fits everyone.
- Include caregiving time and costs in the plan.
Fact
Someone turning 65 today has almost a 70% chance of needing some type of long-term care services in their remaining years, according to LongTermCare.gov. Medicare.gov states that Medicare doesn’t pay for long-term care.
Source: LongTermCare.gov (ACL): How much care will you need?, Medicare.gov: Long-term care coverage
Learn more: Glossary: long-term care
Challenge 6 of 11
Market volatility and sequence of returns
Markets will rise and fall, including after you retire.
What it is
Volatility is how much prices swing. Sequence-of-returns risk is the extra damage done when losses arrive early in retirement, while money is being withdrawn.
Why it matters
Selling investments after a drop to pay the bills turns a temporary decline into a permanent loss. The same average return can leave very different results depending on the order.
What to plan for
- Keep a near-term reserve so a downturn doesn’t force you to sell.
- Match your investment mix to your time horizon and your comfort with risk.
- Decide ahead of time where spending could flex in a bad year.
- Avoid big decisions in a panic; write down your rules when markets are calm.
Example (hypothetical)
Hypothetical: two retirees each start with $500,000, take $30,000 at the start of each year, and get the same five yearly returns (−15%, −10%, +5%, +12%, +20%) in opposite order. With the losses first, about $350,639 is left after five years; with the gains first, about $407,860, a gap of about $57,222. Also: a 20% drop needs a 25% gain just to get back to even. Ignores fees and taxes.
Source: Investor.gov: Asset Allocation
Learn more: Investor Risk Self-Check · Investment challenges · Glossary: sequence-of-returns risk
Challenge 7 of 11
Longevity
The risk of outliving your money.
What it is
Longevity risk is the chance of living longer than your savings last.
Why it matters
Life expectancy is an average, and many people live well past it. A plan built to the average age can run short for anyone who beats it.
What to plan for
- Plan to an age well past average, such as 90 or 95.
- Know which income lasts for life (Social Security, many pensions, and some annuities that some people use).
- Revisit your withdrawal rate as the years go by.
Fact
Based on the Social Security Administration’s 2023 period life table (2026 Trustees Report), a 65-year-old man has about 18 more years on average and a 65-year-old woman about 21. Of people who reach 65, about 24% of men and 35% of women would live to 90.
Source: SSA: Actuarial life table (2023 period table, 2026 Trustees Report)
Learn more: Glossary: longevity risk · Episode: How Much You Need to Retire
Challenge 9 of 11
Withdrawal rate
Spending too fast early can shorten the runway.
What it is
Your withdrawal rate is the share of savings you take out each year.
Why it matters
Too high a rate, especially combined with early market losses, can drain savings years too soon. Too low a rate can mean giving up things you could have afforded.
What to plan for
- Start from essential and discretionary spending, not a single number.
- Treat rules of thumb such as the 4% rule as a starting point, not a promise.
- Build in flexibility, such as trimming travel or gifts in down years.
- Review the rate every year.
Example (hypothetical)
Hypothetical, with no growth and no inflation to keep the math simple: $500,000 lasts 25 years at $20,000 a year, but only 12.5 years at $40,000 a year. Real results depend on returns, inflation, taxes and fees.
Source: CFPB: Planning for retirement
Learn more: How Much You Need to Retire: the 25x and 4% rules · Glossary: withdrawal rate · Retirement income worksheet
Challenge 10 of 11
Spouse and survivor income
Plan for two lives, and for one.
What it is
Couples face the likelihood that one spouse outlives the other, sometimes by many years.
Why it matters
When one spouse dies, the household usually goes from two Social Security checks to one, and some pensions shrink or stop. Many expenses don’t fall by half.
What to plan for
- Compare pension survivor options before choosing a payout.
- Coordinate Social Security claiming with the survivor in mind.
- Review life insurance and survivor income needs.
- Make sure both spouses know where the accounts, passwords and documents are.
Fact
A surviving spouse can receive up to 100% of the late spouse’s Social Security benefit at full retirement age for survivor benefits (between 66 and 67). If someone qualifies for a survivor benefit and their own benefit, the payments are not added together; they receive one.
Learn more: Life insurance needs (with calculator) · Glossary: survivor benefits
Challenge 11 of 11
Legacy and estate documents
Your paperwork decides what happens next.
What it is
A will, beneficiary designations, financial and health care powers of attorney, and possibly a trust.
Why it matters
Beneficiary forms on retirement accounts and insurance often decide who receives that money, whatever a will says, so outdated forms can send money to the wrong person. Inherited retirement accounts also come with tax rules.
What to plan for
- Review beneficiaries on every account and policy after any big life event.
- Create or update a will and powers of attorney.
- Consider a health care directive.
- Work with an estate attorney, and tell a trusted person where documents are kept.
Fact
For account owners who died after 2019, most beneficiaries other than a surviving spouse (and a few other groups) must withdraw the entire inherited retirement account within ten years, according to the IRS.
Source: IRS: Required minimum distributions FAQs, IRS: Retirement topics, beneficiary
Learn more: Financial House: Legacy floor · Glossary: beneficiary
Challenge 8 of 11
Social Security timing
When you claim changes the check for life.
What it is
You can start retirement benefits as early as 62 or as late as 70. Full retirement age is 67 for people born in 1960 or later.
Why it matters
Claiming early permanently reduces the monthly check; waiting past full retirement age raises it until 70. For couples, the choice also shapes the survivor’s income.
What to plan for
Rule
For people born in 1960 or later, claiming at 62 cuts the benefit by about 30%, and each year of waiting past 67 adds 8% until 70. Hypothetical: a $2,000 benefit at 67 would be about $1,400 at 62 or $2,480 at 70 (before cost-of-living adjustments). Working while claiming before full retirement age can temporarily reduce benefits above a yearly earnings limit; SSA.gov posts this year’s limit.
Source: SSA: Starting your retirement benefits early, SSA: Delayed retirement credits, SSA: Receiving benefits while working (earnings limit), my Social Security account
Learn more: Glossary: full retirement age · Planning for retirement
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