The Top 5 Financial Planning Challenges in the First 10 Years of Retirement

by | Apr 18, 2023 | Blog

By Adam K. Wright, CFA®, CFP®

Retirement marks a new chapter in life that brings unprecedented change. With the ending of a regular paycheck and structured work schedule, you must navigate the unfamiliar terrain of having finite resources and endless free time. This phase is a departure from the life you’ve lived so far. But it’s also an opportunity to reap the rewards of your hard work as your retirement planning pays off.

Our experience has shown that most retirees confront five common financial planning hurdles within the first decade of retirement. If you’re interested in learning more, continue reading the following insights from our team of CERTIFIED FINANCIAL PLANNER™ professionals to set yourself up for retirement success.

Not Creating a Retirement Income Strategy

Financial planning doesn’t stop once you enter retirement. Capitalize on your wealth by deciding the most tax-efficient way to withdraw funds in your golden years. 

Different financial accounts are taxed at different rates. Traditional IRAs and 401(k)s are taxed at the ordinary income tax rate when you withdraw. Roth IRAs and Roth 401(k)s are taxed beforehand, so the money is withdrawn tax-free. Funds in a taxable investment account are taxed at the capital gains tax rate, which is different from your ordinary income tax rate. 

As you can see, calculating the best time to pull from each account is enough to give anyone a headache. But the last thing you want is to get killed by taxes in retirement. Having a well-calibrated retirement income plan can help avoid paying too much in taxes during retirement. 

Create a withdrawal strategy with the help of a Certified Financial Planner who can make sure you’re withdrawing funds at a sustainable rate and that you’re doing it in a tax-efficient way.

Overspending in Retirement

Many people spend their retirement years doing all the things they never got to do when they were working—starting a passion project, remodeling the house, traveling the world, and more.

It’s easy to underestimate the amount of money you’ll spend those first few years when you don’t account for all these “extras.” Overspending, even for a short period, can shave years off the longevity of your assets. Being flexible with retirement spending can help your assets last as long as you need them to. My advice? Create a retirement spending plan. Calculate your monthly income given your withdrawal strategy (See #1) and then create a budget. 

Ignoring How Inflation Changes in Retirement

Another major challenge we see new retirees face is the desire to play it safe in the stock market. This does more harm than good as it leads to inflation risk. 

While healthcare expenditures are typically affected less by inflation than other spending categories, from 2021-2022 there was a 4.0% increase in medical care services compared to the historical average inflation rate of 1.23%. What does this mean? Retirees are more likely to feel the effects of inflation due to mandatory expenses, such as healthcare costs. 

As tempting as it may be, resist the urge to worry about short-term stock market volatility. With a retirement that could easily last 20 to 30 years, inflation is still the biggest threat to your nest egg. Sit down with a Certified Financial Planner who can help you strike a balance between protection and growth. 

Not Having an Emergency Fund Even in Retirement

Could you comfortably pay an unexpected, major expense in retirement without jeopardizing your financial future? For most of us, the answer is no. Just as you were taught to have an emergency fund in your formative years, it’s even more critical to have one in your retirement years. 

It used to be recommended to have 3 to 6 months of expenses saved up in an easily accessible savings account, but now more professionals are recommending at least 12 to 18 months’ worth. This may sound like a lot, but an retirement emergency fund serves two purposes: it covers unexpected expenses and it provides stability during economic downturns. This means you can optimize your retirement portfolio to beat inflation (#3 on our list) while having a safety net to fall back on. 

Going Through Retirement Alone

You’ve spent years creating a strategy to accumulate and safeguard your wealth. Don’t make the mistake of simply “winging it” during retirement and attempting to manage your finances alone. Partnering with a CERTIFIED FINANCIAL PLANNER™ professional can make all the difference between a retirement fund that dwindles away and one that sustains you for the long haul.

At Wright Associates, we take pride in helping our clients navigate these common hurdles while setting them up for the highest success in their retirement. If you find yourself feeling overwhelmed or confused as you map out your plan, consider enlisting the support you need. Rather than going it alone, we want you to experience the comfort and clarity a financial professional can bring. Schedule a complimentary phone call to get started on the path to a retirement full of confidence and comfort.

About Adam

Adam Wright is a CERTIFIED FINANCIAL PLANNER™ professional at Wright Associates, helping clients plan and prepare their investments to retire on their terms. If you’re serious about planning for your retirement and investing for your future, his annual process will help you make the right money choices today. Therefore, Adam and his team will proactively manage your accounts while communicating the progress of your financial plans. He believes the retirement advice you receive should be intentional and actionable.

Adam has a Bachelor of Science in Supply Chain and Information Systems from The Pennsylvania State University and a Master of Business Administration from University of Pittsburgh, Katz Graduate School of Business. He lives in Upper St. Clair with his wife and two children. When he’s not working, Adam enjoys the outdoors (fly fishing), reading, and taking long runs while listening to a favorite podcast. He’s also currently encouraging himself to take up golf. To learn more about Adam, connect with him on LinkedIn.


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