Managing money in retirement is a completely different game than saving for it. For decades, the goal was simple: contribute as much as you can and let it grow. Now the rules have flipped. You’re drawing down instead of building up, and every decision carries more weight because there’s no paycheck to bail you out if things go sideways.
But most retirement income problems are predictable and preventable. The five questions below are designed to surface the risks that catch retirees off guard. Work through them and you’ll have a much clearer picture of where you stand and what, if anything, needs to change.
1. Do You Actually Know What You’re Spending or What It’ll Cost in 10 Years?
Most retirees assume their spending will drop once they stop working, and in some ways, it does. No more commuting costs, work wardrobes, or retirement account contributions. But travel, hobbies, home maintenance, and family support can quietly fill the gap left by a paycheck, sometimes surpassing what you spent before.
The only way to know where you actually stand is to track your real spending for three to six months — not what you think you spend, but what the bank statements say. Most people are surprised by the gap between the two.
From there, build in inflation. A modest 3% annual increase in living costs might sound harmless, but over 24 years it doubles what you need to cover the same lifestyle. Healthcare adds another layer of complexity since Medicare doesn’t cover everything, and prescription and long-term care costs tend to rise faster than general inflation.
It also helps to think of retirement in phases. Financial planners often describe three stages: the “go-go years” in early retirement, when people tend to spend more on travel and activities; the “slow-go years” in the middle, when spending typically levels off; and the “no-go years” later on, when medical costs can spike significantly.
2. How Do You Keep Your Money Safe Today Without Letting Inflation Eat It Tomorrow?
There’s a tension at the heart of retirement investing that a lot of people struggle with: the safest-feeling option is often the most dangerous one in the long run. Parking everything in cash or a savings account feels secure, but if your money isn’t growing faster than inflation, you’re losing purchasing power every single year.
One framework that helps resolve this tension is the “bucket strategy.” Instead of treating your portfolio as one big pool of money, you divide it into three buckets based on when you’ll need access to the funds.
Bucket one covers your near-term needs, typically one to two years of essential living expenses, held in cash or a money market account. Bucket two holds three to ten years of future needs in bonds and conservative investments. Bucket three is for long-term growth, invested in stocks and other growth assets you won’t need to touch for at least a decade.
Beyond organizing your money, this method changes how you approach market swings. When stocks drop 20%, you’re not panicking because your next two years of income is already sitting safely in bucket one. You can wait out the downturn rather than selling at a loss.
Allocation percentages will vary based on age, health, income sources, and risk tolerance, but the overarching point holds for almost everyone: staying 100% conservative is not a safe choice. It’s a slow leak.
3. What’s Your Plan If the Market Drops 30% Right After You Retire?
A major market downturn in the early years of retirement is disproportionately damaging compared to the same downturn later on. Financial planners call this sequence-of-returns risk, and it’s one of the most underappreciated threats to a retirement plan.
During your working years, a market crash is painful to watch but doesn’t require you to do anything, you just keep contributing and wait for recovery. In retirement, you’re withdrawing from the portfolio to cover living expenses. That means you’re selling shares at depressed prices and locking in losses. When the market eventually recovers, your portfolio has fewer shares left to benefit from the rebound. Two retirees with identical lifetime average returns can end up with dramatically different outcomes depending on whether bad years came early or late.
The most straightforward protection is a cash reserve. Have one to two years of essential living expenses kept outside the market in a high-yield savings account or money market fund. That buffer means you don’t have to sell anything during a downturn. You draw from the reserve instead and give your investments time to recover.
Other buffers can help too: Social Security income that arrives regardless of market conditions, flexibility to trim discretionary spending temporarily, or a small amount of part-time work in the early retirement years if needed and desired.
4. Is Your “Safe” Money Actually Safe — or Is It Quietly Losing Value?
“Safe” is a word that means different things in finance depending on what risk you’re protecting against. A traditional savings account is safe from market volatility. But if the interest rate is below inflation, the real purchasing power of that money is shrinking every month. That’s a risk too, just a slower and quieter one.
High-yield savings accounts pay meaningfully more than standard savings accounts and remain FDIC insured and fully liquid. The catch is that rates fluctuate, and in a low-rate environment, they can still fall short of inflation.
Certificates of deposit (CDs) offer a fixed rate for a set term, which makes them predictable and useful for money you won’t need immediately. Many retirees use a “CD ladder” , spreading funds across CDs with staggered maturity dates (six months, one year, two years, and so on), to maintain some liquidity while capturing higher rates. The trade-off is early withdrawal penalties if you need access before a CD matures, and the risk of being locked into a lower rate if interest rates rise quickly.
Income funds, mutual funds built around dividend-paying stocks, investment-grade bonds, or a combination, are another option for retirees who want more yield than cash provides without taking on full equity risk. Funds like those offered through Vanguard or Fidelity in this space tend to deliver moderate, dependable returns. One important tax note: income from these funds is typically taxed as ordinary income rather than at the lower capital gains rate, which can matter depending on your bracket.
5. How Long Does Your Money Actually Need to Last?
This is the question most retirement plans get wrong — not because people ignore it, but because they anchor to the wrong number. Many people mentally plan to age 80 or 85, often based on their parents’ or grandparents’ lifespans. But average life expectancy has risen, and the real risk in retirement isn’t dying early. It’s living longer than your money does.
A 65-year-old today has a meaningful probability of living into their late 80s or beyond. For couples, the odds are even higher that at least one partner will reach 90. One of the most powerful tools for managing longevity risk is Social Security timing. Every year you delay claiming beyond your full retirement age, up to age 70, your monthly benefit increases by roughly 8%. That’s a significant guaranteed, inflation-adjusted income boost for life. For retirees who can bridge the gap with other savings, delaying often pays off substantially over a long retirement.
Annuities are another option worth understanding, though they come with trade-offs. In exchange for a lump sum, an annuity can guarantee income for life regardless of how long you live, essentially transferring longevity risk to an insurance company. The downsides include giving up liquidity, complexity in product selection, and ongoing fees. They’re not right for everyone, but for covering essential baseline expenses, they can provide genuine peace of mind.
Long-term care is the other major piece of the longevity puzzle. Medicare does not cover extended nursing home or in-home care. The costs can be substantial and can arrive quickly. Options include long-term care insurance, hybrid life insurance policies with LTC riders, or self-funding through dedicated savings. Ignoring this area entirely and hoping for the best is a plan, but not a good one.
A common starting point for sustainable withdrawal rates is the 4% rule. Research suggesting that withdrawing 4% of your portfolio in year one, then adjusting for inflation annually, has historically lasted 30 years across a range of market environments. It’s a useful benchmark, but not a guarantee. In lower-return environments or very long retirements, a more conservative rate, or a dynamic approach that adjusts spending based on portfolio performance, may be more appropriate.
None of these questions have perfect answers. But asking them honestly is what separates a retirement plan that holds up from one that just looks good on paper. The goal isn’t to eliminate uncertainty, but stop being surprised by risks that were always there to see.
