Retirement Income Planning: How to Pay Yourself Without a Job

The hardest part of retirement is not saving money. It is turning your savings into a paycheck that can last for decades. A strong retirement income strategy combines Social Security, investments, and cash reserves in a way that helps retirees manage taxes, market downturns, and long-term spending needs. At Greenbush Financial Group, we often find that retirees feel more confident once they move from random withdrawals to a structured retirement paycheck plan.

The Hardest Part of Retirement Is Not Saving. It’s Replacing Your Paycheck.

For most of your working life, income was automatic.

You worked, your paycheck arrived, taxes were withheld, and bills were paid.

Retirement changes that system overnight.

Now your income may need to come from:

• Social Security

• Investment accounts

• IRAs

• Roth IRAs

• Cash savings

• Brokerage accounts

• Maybe a pension

That transition can feel uncomfortable even for financially responsible retirees.

Many people spend decades learning how to save for retirement but very little time learning how to withdraw from retirement.

That is why one of the biggest retirement questions becomes:

“How do I actually turn my savings into reliable monthly income?”

The answer is usually not:

• Living only on dividends

• Using the 4% rule blindly

• Pulling money randomly from accounts

• Staying fully invested with no cash reserves

A retirement paycheck works best when it is intentional, flexible, tax-aware, and designed to handle both good markets and bad ones.

What a Retirement Paycheck Actually Looks Like

A retirement paycheck is usually built from three primary sources:

1. Guaranteed income

2. Investment withdrawals

3. Cash reserves

Each source plays a different role.

The goal is not maximizing investment returns.

The goal is creating sustainable monthly income while reducing unnecessary financial stress.

The 3 Buckets of Retirement Income

Bucket #1: Guaranteed Income

This includes predictable income sources such as:

• Social Security

• Pensions

• Certain annuities

For many retirees, this income helps cover core living expenses like:

• Housing

• Utilities

• Groceries

• Insurance

• Basic healthcare costs

Guaranteed income creates stability.

The more predictable income a retiree has, the less pressure there may be on investment withdrawals during difficult markets.

Bucket #2: Investment Withdrawals

This is where retirees often generate additional income beyond Social Security.

Withdrawals may come from:

• Traditional IRAs

• 401(k)s

• Taxable brokerage accounts

• Roth IRAs

This is also where many costly mistakes happen.

Without a strategy, retirees may:

• Withdraw too much

• Trigger unnecessary taxes

• Increase Medicare premiums

• Sell investments during downturns

• Deplete the wrong accounts too early

The order of withdrawals matters.

Bucket #3: Cash Reserves

Cash reserves are one of the most overlooked parts of retirement income planning.

Cash reserves may include:

• Savings accounts

• Money market funds

• CDs

• Treasury bills

• Short-term bond holdings

The purpose of cash is not maximizing returns.

Its purpose is flexibility.

Cash reserves help retirees avoid selling investments during bad markets when emotions are elevated and portfolio values are temporarily down.

How Retirement Income Is Structured Month to Month

Retirement income planning usually starts with one simple question:

“How much do you actually need each month?”

Step 1: Identify Monthly Spending Needs

Example:

John and Linda retire at age 66.

They estimate they need:

• $8,000/month after taxes

That includes:

• Property taxes

• Insurance

• Healthcare

• Travel

• Utilities

• Food

• Entertainment

• Home maintenance

Step 2: Subtract Guaranteed Income

They receive:

• $4,500/month combined from Social Security

That leaves:

• $3,500/month that must come from investments and savings

This is called the income gap.

Step 3: Build a Withdrawal Strategy

Their assets include:

• $950,000 in IRAs

• $300,000 in brokerage accounts

• $150,000 in cash reserves

• $200,000 in Roth IRAs

Instead of taking income randomly, they decide to:

• Use brokerage assets first for flexibility

• Maintain 18 months of cash reserves

• Delay larger IRA withdrawals strategically

• Refill cash reserves during stronger market periods

• Keep Roth assets growing longer for future flexibility

Now their retirement income becomes organized and repeatable rather than reactive.

Why Random Withdrawals Can Create Long-Term Problems

Many retirees withdraw from whichever account feels easiest at the time.

That can create ripple effects.

Example

Suppose a retiree withdraws $80,000 entirely from an IRA for spending and home renovations.

That withdrawal may:

• Push income into higher tax brackets

• Increase taxation of Social Security

• Trigger Medicare IRMAA surcharges

• Reduce future Roth conversion opportunities

A different withdrawal strategy may have created a better long-term outcome.

Retirement income planning is not just about generating cash.

It is about generating cash efficiently.

Why Cash Reserves Matter So Much in Retirement

Many retirees underestimate how emotionally different investing feels after paychecks stop.

During working years, market declines may feel temporary because new paychecks continue arriving.

Retirement changes that dynamic.

Now withdrawals may be happening while investments are falling.

That creates what planners call sequence-of-returns risk.

What Is Sequence Risk?

Sequence risk occurs when poor market returns happen early in retirement while withdrawals are occurring simultaneously.

This combination can permanently reduce long-term portfolio sustainability.

Example

Two retirees start with identical portfolios and identical spending.

One is forced to sell investments during a major downturn to fund living expenses.

The other uses cash reserves temporarily while allowing investments time to recover.

The long-term outcomes can look dramatically different.

How Much Cash Should Retirees Keep?

There is no perfect answer.

But many retirees feel more comfortable keeping:

• 12–24 months of planned withdrawals in cash or short-term reserves

The appropriate amount depends on:

• Risk tolerance

• Market exposure

• Spending flexibility

• Healthcare concerns

• Pension income

• Comfort during volatility

Important Note

Too little cash may force investment sales during downturns.

Too much cash may reduce long-term purchasing power because inflation slowly erodes cash value.

The goal is balance.

Should Retirees Live Off Dividends Only?

Many retirees like the idea of “never touching principal” and living entirely off dividends.

While dividend income can help, retirement income planning is usually more nuanced than that.

Dividend-only strategies can create problems such as:

• Concentrated portfolios

• Reduced diversification

• Lower flexibility

• Chasing yield

• Tax inefficiencies

What matters most is not whether income comes from dividends or withdrawals.

What matters is:

• Total return

• Sustainability

• Tax efficiency

• Risk management

• Flexibility during market declines

A well-designed retirement paycheck should focus on the overall income strategy, not just one type of investment income.

How Social Security Fits Into a Retirement Paycheck

Social Security is often the foundation of retirement income.

The timing decision affects:

• Monthly income

• Portfolio withdrawals

• Survivor income

• Longevity protection

• Taxes

Claiming at 62

Taking benefits early provides income sooner but permanently reduces monthly payments.

This may reduce portfolio withdrawals initially.

But it also lowers guaranteed lifetime income.

Claiming at Full Retirement Age

Waiting until full retirement age increases monthly benefits and avoids early claiming reductions.

For many retirees, this creates a balance between income needs and future benefit growth.

Delaying Until Age 70

Benefits increase each year benefits are delayed beyond full retirement age.

For healthy retirees, delayed Social Security can act as additional protection against longevity risk later in retirement.

Especially for married couples, this can significantly affect survivor income.

How Retirees Avoid Selling Investments During Market Declines

A strong retirement paycheck strategy is designed before market volatility happens.

That strategy often includes:

• Cash reserves

• Diversification

• Flexible withdrawals

• Annual tax reviews

• Periodic rebalancing

• Spending flexibility

Example Strategy

A retiree may:

• Hold 18 months of withdrawals in cash

• Use Social Security for core expenses

• Withdraw from brokerage accounts during stable markets

• Reduce discretionary spending during downturns

• Refill cash reserves after stronger market periods

This creates options during stressful periods instead of forcing emotional decisions.

How Often Should Retirement Income Plans Be Reviewed?

Retirement income planning is not a one-time event.

Most retirees should review their strategy annually.

Areas worth reviewing include:

• Withdrawal rates

• Tax brackets

• Roth conversion opportunities

• Medicare IRMAA exposure

• Cash reserve levels

• Investment allocation

• Spending changes

• Inflation adjustments

The goal is not constantly changing the plan.

The goal is making thoughtful adjustments as retirement evolves.

A Real-World Retirement Paycheck Example

Susan and Mark retire at ages 65 and 63.

They need:

• $9,000/month after taxes

Their income plan looks like this:

Their Strategy

They maintain:

• 18 months of cash reserves

• Moderate stock exposure for long-term growth

• Diversification across account types

• Annual withdrawal reviews

• Flexible discretionary spending

During strong markets, they replenish cash reserves.

During weaker markets, they temporarily rely more heavily on cash rather than aggressively selling investments.

This approach helps reduce emotional pressure during volatility.

Common Retirement Paycheck Mistakes

1. Withdrawing Randomly From Accounts

Random withdrawals often create tax inefficiencies and unnecessary portfolio stress.

2. Keeping Too Little Cash

Without adequate reserves, retirees may be forced to sell investments during downturns.

3. Keeping Too Much Cash

Excessive cash can reduce long-term purchasing power because of inflation.

4. Ignoring Taxes

Taxes affect:

• IRA withdrawals

• Social Security taxation

• Medicare premiums

• Roth conversion opportunities

Retirement income should be coordinated at the household level.

5. Assuming the Same Strategy Works Forever

Retirement income plans should evolve over time as:

• Spending changes

• Healthcare costs rise

• Markets fluctuate

• RMDs begin

• Tax laws change

Flexibility matters.

What Retirees Often Discover

Many retirees initially focus almost entirely on investment performance.

But over time, confidence often comes more from:

• Organized cash flow

• Predictable income

• Tax coordination

• Flexibility during downturns

• Understanding where each dollar comes from

A retirement paycheck is not about finding a perfect strategy.

It is about building a system that feels sustainable and manageable over time.

Final Thoughts

The hardest part of retirement is usually not building wealth.

It is learning how to turn decades of savings into reliable monthly income.

A thoughtful retirement paycheck strategy can help retirees:

• Reduce financial stress

• Improve tax efficiency

• Navigate market downturns

• Protect long-term portfolio sustainability

• Feel more confident about spending decisions

At Greenbush Financial Group, we often find that retirees gain confidence when they stop thinking about retirement income as random withdrawals and start viewing it as a coordinated household paycheck strategy.

The goal is not predicting every market movement perfectly.

The goal is creating a flexible income system that can support retirement through both strong markets and difficult ones.

Rob Mangold

About Rob……...

Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally, professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, please feel free to join in on the discussion or contact me directly.

FAQ

1. How do retirees create a monthly paycheck from investments?
   Most retirees combine Social Security, investment withdrawals, and cash reserves to create consistent monthly income. Withdrawals are typically coordinated across different account types to improve tax efficiency and manage market risk.
2. How much cash should retirees keep?
   Many retirees benefit from holding 12-24 months of planned withdrawals in cash or short-term reserves, especially during the early retirement years.
3. What accounts should retirees withdraw from first?
   The answer depends on taxes, age, income needs, and long-term planning goals. Many retirees use a combination of taxable accounts, IRAs, and Roth accounts strategically rather than withdrawing from only one source.
4. What is sequence-of-returns risk?
   Sequence risk occurs when poor market returns happen early in retirement while withdrawals are being taken. This can permanently reduce long-term portfolio sustainability.
5. Should retirees rely only on dividends for income?
   Not necessarily. While dividends can help, most retirement income plans work better when they focus on total return, diversification, flexibility, and tax efficiency rather than dividends alone.
6. How does Social Security fit into a retirement paycheck?
   Social Security often acts as the foundation of retirement income by covering a portion of essential expenses and reducing pressure on investment withdrawals.
7. How often should retirement income plans be reviewed?
   Most retirees should review income strategies annually to evaluate taxes, spending, investment allocation, withdrawal rates, and healthcare costs.
8. What is the biggest retirement income mistake?
   One of the biggest mistakes is withdrawing money randomly from investment accounts without coordinating taxes, cash reserves, and long-term income sustainability.

The First Year of Retirement: 7 Financial Moves to Make…and 5 to Avoid

The first year of retirement is one of the most important financial transition periods you’ll ever experience. Decisions around withdrawals, Social Security, taxes, investments, and healthcare can affect your retirement income for decades. Many retirees focus on enjoying newfound freedom but overlook key planning opportunities that exist before year-end and before required distributions begin. At Greenbush Financial Group, we often see that the retirees who build confidence early are the ones who slow down and make intentional first-year decisions.

The First Year of Retirement Is a Transition Year, Not Just a Celebration Year

Retirement changes more than your schedule. It changes how your household generates income, pays taxes, handles market volatility, and manages financial decisions.

For decades, most people operated under a simple formula:

• Work

• Receive paycheck

• Save for retirement

• Repeat

Then retirement arrives, and suddenly everything reverses.

Now your investments may need to generate income. Tax planning becomes more flexible but also more important. Healthcare costs become more visible. Market declines can feel more emotional once paychecks stop.

The first year of retirement is often what we call an “adjustment year.” The decisions made during this period can shape:

• Future tax brackets

• Medicare premiums

• Portfolio longevity

• Social Security income

• Roth conversion opportunities

• Spending habits

• Confidence during market volatility

The goal is not perfection.

The goal is avoiding expensive mistakes while building a sustainable retirement income strategy.

7 Smart Financial Moves to Make During Your First Year of Retirement

1. Build a Retirement Paycheck Plan Before Taking Withdrawals

One of the biggest mistakes new retirees make is randomly pulling money from accounts as expenses arise.

Retirement income should be coordinated intentionally.

Before taking withdrawals, determine:

• How much monthly income you actually need

• Which accounts will fund that income

• How taxes will affect withdrawals

• Which accounts should remain invested longer

• How cash reserves will be handled

Many retirees discover their actual spending differs from what they expected.

The first year is often more expensive because of:

• Travel

• Home projects

• Healthcare changes

• Helping family

• Celebration spending

A paycheck-style withdrawal strategy can create structure and reduce emotional decision-making.

Example

A retired couple needs $7,000 per month after taxes.

They have:

• $1.2 million invested

• $700,000 in IRAs

• $300,000 in taxable accounts

• $200,000 in Roth IRAs

• No Social Security yet

Instead of withdrawing entirely from their IRA, they may benefit from:

• Using taxable savings first

• Realizing lower capital gains

• Keeping taxable income lower

• Preserving future Roth growth opportunities

The order of withdrawals matters more than many retirees realize.

2. Reevaluate Whether to Claim Social Security Immediately

Many retirees automatically claim Social Security as soon as work ends.

That decision can permanently reduce lifetime income.

For healthy retirees with adequate assets, delaying benefits can sometimes improve long-term retirement security.

Key factors include:

• Health and longevity expectations

• Spousal benefits

• Survivor income planning

• Tax brackets

• Portfolio withdrawal needs

• Other income sources

Important Note

Claiming early is not always wrong.

But the first year of retirement is the time to evaluate the decision carefully rather than defaulting to “I stopped working, so I should claim now.”

Example

A retiree eligible for $2,200/month at age 62 may receive roughly $3,900/month if delaying until age 70.

For married couples, this can significantly affect survivor income later.

3. Review Roth Conversion Opportunities Before Year-End

The years between retirement and Required Minimum Distributions (RMDs) can create unusually low-income tax years.

Those years may offer valuable Roth conversion opportunities.

This is one of the most overlooked planning opportunities in retirement.

Converting portions of a traditional IRA to a Roth IRA during lower-income years may help:

• Reduce future RMDs

• Lower future tax exposure

• Create tax-free income later

• Reduce widow’s tax risk

• Improve long-term tax flexibility

Example

A couple retires at 64 and delays Social Security until 67.

For several years, their taxable income may be significantly lower than during their working years.

They may intentionally convert enough IRA assets annually to “fill up” a lower tax bracket before:

• RMDs begin

• Social Security increases taxable income

• Medicare IRMAA thresholds become an issue

Key Insight

The first retirement year is often more valuable for tax planning than people realize because income may temporarily drop before other retirement income sources begin.

4. Review Medicare IRMAA Exposure Early

Many retirees are surprised when Medicare premiums increase because of prior-year income.

IRMAA stands for Income-Related Monthly Adjustment Amount.

Higher-income retirees can pay significantly more for Medicare Part B and Part D premiums.

Common triggers include:

• Large IRA withdrawals

• Roth conversions

• Capital gains

• Selling property

• Large bonuses during retirement year

Why This Matters in Year One

The retirement transition often creates unusual tax years.

Without planning, retirees can accidentally trigger higher Medicare premiums two years later.

Important Note

Sometimes triggering IRMAA still makes sense.

For example, a strategic Roth conversion today may still save substantial taxes later.

The key is understanding the tradeoff before making the move.

5. Keep a Larger Cash Reserve Than You Think You Need

The first few years of retirement are emotionally different from the accumulation years.

Market volatility can feel more stressful when paychecks stop.

A properly structured cash reserve can help retirees avoid selling investments during market declines.

This reserve may cover:

• 12–24 months of spending needs

• Major healthcare expenses

• Home repairs

• Unexpected family support

• Market downturns

What Many Retirees Get Wrong

Some retirees stay fully invested because they fear missing returns.

Others hold too much cash and reduce long-term growth potential.

The goal is balance.

A thoughtful reserve strategy can improve both flexibility and emotional confidence.

6. Recheck Your Investment Risk Now That You’re Retired

Many investors discover they were comfortable with risk only while employed.

Once retirement begins, market declines feel different.

This does not mean retirees should abandon growth investments entirely.

But it does mean portfolios should reflect:

• Withdrawal needs

• Time horizon

• Income stability

• Emotional tolerance for volatility

• Sequence-of-returns risk

What Is Sequence Risk?

Poor market returns early in retirement can create lasting damage when withdrawals are occurring simultaneously.

This is why investment structure matters more after retirement begins.

Common First-Year Mistake

Making aggressive investment changes during a market drop.

Some retirees panic after their first retirement correction and move heavily to cash after losses already occurred.

That can permanently damage long-term retirement sustainability.

7. Review Estate Documents and Beneficiaries

Retirement is a major life transition and an ideal time to revisit estate planning.

Review:

• Wills

• Trusts

• Powers of attorney

• Healthcare directives

• IRA beneficiaries

• Life insurance beneficiaries

Common Issue

Beneficiary designations often override wills.

We regularly see outdated beneficiaries remain unchanged for decades.

Also Important

Review how retirement accounts align with tax planning and legacy goals.

For some households, Roth accounts may be more attractive legacy assets than traditional IRAs because of future tax implications for heirs.

5 Financial Moves to Avoid During Your First Year of Retirement

1. Avoid Major Lifestyle Purchases Too Quickly

Many retirees make large purchases immediately after retiring:

• Vacation homes

• RVs

• Boats

• Major renovations

• Large gifts to children

The issue is not the purchase itself.

The issue is making irreversible financial decisions before understanding your long-term retirement spending pattern.

Better Approach

Give yourself time to observe:

• Actual spending

• Healthcare costs

• Tax changes

• Lifestyle adjustments

• Market conditions

Your first-year spending may not reflect your long-term retirement reality.

2. Avoid Claiming Social Security Without Running the Numbers

Social Security timing is often permanent.

Many retirees underestimate:

• Survivor implications

• Inflation protection

• Longevity risk

• Tax coordination opportunities

Even delaying benefits by a few years can substantially improve long-term retirement income in some situations.

3. Avoid Taking Large IRA Withdrawals Without Tax Planning

Large withdrawals can create ripple effects:

• Higher tax brackets

• Increased Medicare premiums

• Taxation of Social Security

• Reduced Roth conversion opportunities

Example

A retiree withdraws $150,000 from an IRA for home renovations and gifting.

That single decision could:

• Push income into higher brackets

• Trigger IRMAA surcharges

• Increase future tax exposure

Coordinating withdrawals over multiple years may create a better outcome.

4. Avoid Panic Decisions During Market Declines

The first market downturn after retirement can feel emotionally different.

This is often when retirees second-guess their entire plan.

Selling after declines can lock in losses and reduce future recovery potential.

Better Approach

Build a plan before volatility happens:

• Maintain cash reserves

• Diversify appropriately

• Understand withdrawal flexibility

• Revisit spending priorities

The goal is not eliminating volatility.

The goal is reducing the need for emotional decisions during volatility.

5. Avoid Treating Retirement Like a Permanent Vacation

Many retirees spend aggressively during the first year before understanding what sustainable retirement spending actually looks like.

This does not mean retirement should be restrictive.

But retirees benefit from observing:

• Real monthly expenses

• Healthcare changes

• Inflation effects

• Travel patterns

• Long-term lifestyle costs

The first year should help establish sustainable habits and confidence.

A Real-World First-Year Retirement Scenario

John and Susan retire at 64.

They have:

• $1.2 million invested

• $80,000 in cash

• A paid-off home

• No pension

• Estimated spending needs of $7,000/month after taxes

Their first instinct is:

• Claim Social Security immediately

• Withdraw additional income entirely from IRAs

• Renovate the home

• Increase stock exposure after hearing “retirees need growth”

Instead, after planning carefully, they decide to:

• Delay Social Security until age 67

• Use taxable savings for part of their income

• Complete partial Roth conversions annually

• Maintain 18 months of cash reserves

• Reduce portfolio volatility modestly

• Delay large home projects for one year

The Result

They create:

• Lower projected lifetime taxes

• Higher future guaranteed income

• Better Medicare premium management

• Greater flexibility during market declines

• More confidence about long-term sustainability

None of the decisions were dramatic.

But together, they improved the odds of long-term retirement success.

Questions to Review Before December 31 of Your First Retirement Year

Your first retirement year may create unique tax planning opportunities before year-end.

Questions worth reviewing include:

• Should you do a Roth conversion this year?

• Are capital gains unusually low this year?

• Should you harvest gains before Social Security begins?

• Are Medicare IRMAA thresholds an issue?

• Are you withholding enough taxes from withdrawals?

• Should you rebalance investments?

• Are charitable giving strategies appropriate?

• Have beneficiaries been updated?

These decisions are often easier and more valuable before future retirement income sources begin.

Common First-Year Retirement Mistakes

Here are several patterns we frequently see:

• Spending before building a withdrawal strategy

• Claiming Social Security too quickly

• Ignoring Roth conversion windows

• Taking unnecessary taxable withdrawals

• Underestimating healthcare costs

• Overreacting to market volatility

• Maintaining outdated investment allocations

• Forgetting beneficiary reviews

• Making emotional investment changes

The first year of retirement often sets the tone for future decision-making.

Final Thoughts

Your first year of retirement is not just about leaving work. It is about transitioning from accumulation to distribution, from saving to creating sustainable income.

The retirees who navigate this transition best are usually not the ones making dramatic moves.

They are the ones slowing down, reviewing tax opportunities carefully, building intentional withdrawal strategies, and avoiding irreversible mistakes too early.

At Greenbush Financial Group, we often find that the most successful retirement transitions come from thoughtful planning rather than reacting emotionally to headlines, market volatility, or uncertainty.

The goal of year one is not perfection.

It is building confidence, flexibility, and a financial foundation that can support the next several decades.

Rob Mangold

About Rob……...

Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally, professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, please feel free to join in on the discussion or contact me directly.

FAQ

1. What is the biggest financial mistake retirees make in their first year?
   One of the biggest mistakes is withdrawing money from retirement accounts without a coordinated tax and income strategy. Poor withdrawal sequencing can increase taxes, Medicare premiums, and long-term portfolio stress.
2. Should I take Social Security as soon as I retire?
   Not necessarily. Many retirees benefit from delaying benefits, especially if they expect longer life expectancy or want to maximize survivor income for a spouse.
3. Should retirees use cash first before withdrawing from investments?
   In many cases, maintaining a cash reserve for near-term spending can reduce the need to sell investments during market declines. The right approach depends on taxes, market conditions, and withdrawal needs.
4. Why are Roth conversions often valuable early in retirement?
   Early retirement years may temporarily lower taxable income before RMDs and Social Security begin. This can create opportunities to convert IRA assets at lower tax rates.
5. How much cash should retirees keep during the first year?
   Many retirees benefit from holding 12-24 months of spending needs in cash or short-term reserves, especially during the retirement transition period.
6. Can retirement withdrawals increase Medicare premiums?
   Yes. Large IRA withdrawals, Roth conversions, and capital gains can increase income enough to trigger IRMAA surcharges for Medicare Part B and Part D.
7. Should retirees change investments immediately after retiring?
   Not automatically. However, retirement is a good time to reassess whether your portfolio still aligns with your income needs, risk tolerance, and withdrawal strategy.
8. What should retirees review before the end of their first retirement year?
   Retirees should review taxes, Roth conversions, Medicare income thresholds, investment allocations, withdrawal strategies, and beneficiary designations before December 31.

College Savings or Retirement First? How to Decide in 2026

One of the most common financial planning questions we hear at Greenbush Financial Group is whether to prioritize saving for your children’s college or for your own retirement. Both goals are important—but when resources are limited, the right order can make a major difference in your long-term security. In most cases, it makes sense to secure your retirement first, then allocate additional savings toward education goals. Here’s why that order matters and how to balance both effectively.

Why Retirement Comes First

Retirement should almost always take priority for one simple reason: there are no loans for retirement. Your future financial independence depends on your ability to replace your income when you stop working—and that window to save is limited.

Key Reasons to Prioritize Retirement

• You can’t borrow for it. Your children can access student loans, grants, or scholarships; you cannot do the same for retirement income.

• Compounding works best early. The earlier you contribute to retirement accounts like a 401(k) or IRA, the more time your investments have to grow tax-deferred or tax-free.

• Employer matches add free money. If you skip retirement contributions to fund college, you may also miss out on employer matching contributions that could increase your savings rate.

• Tax advantages are stronger. Retirement accounts typically offer better tax deferral and protection benefits than education accounts.

The Case for Funding College Early

While retirement usually takes priority, it’s also important to plan for education costs strategically. A balanced approach can help you avoid high student loan debt while still protecting your own future.

Benefits of Starting College Savings Early

• Tax-free growth. 529 plans grow tax-free and withdrawals are tax-exempt when used for qualified education expenses.

• High contribution limits. You can contribute up to $19,000 per year per parent ($38,000 for married couples) in 2026 without triggering the gift tax, and you can front-load five years’ worth at once.

• State tax benefits. Many states offer income tax deductions or credits for 529 plan contributions.

• Investment flexibility. Funds can be used for tuition, room and board, and even graduate school.

For families with younger children, consistent 529 contributions—even modest ones—can grow meaningfully over 15–18 years while you continue building your retirement savings.

Balancing Both Goals

It doesn’t have to be all-or-nothing. You can take a blended approach:

1. Maximize employer match in your 401(k) or SIMPLE IRA first.

2. Open a 529 plan and set up automatic contributions (even $100 per month makes a difference).

3. Reevaluate each year—as income rises, you can shift additional funds toward college savings.

4. Use windfalls wisely. Bonuses, tax refunds, or side-income can go toward education savings without disrupting retirement.

5. Encourage student participation. Teen jobs, scholarships, or community college for core credits can reduce overall cost.

At Greenbush Financial Group, we often model side-by-side scenarios showing how redirecting amounts from retirement to college savings can alter your future income security.

How Retirement Savings Can Help with College

One overlooked advantage: saving for retirement can indirectly help with college funding.

• Lower FAFSA impact: Retirement assets aren’t counted toward federal financial aid formulas, while 529 balances are.

• Penalty-free withdrawals: The IRS allows penalty-free (but taxable) withdrawals from IRAs for qualified education expenses if needed later.

• Future flexibility: A strong retirement foundation may let parents help pay off loans later without jeopardizing their future.

Action Steps to Get Started

• Review your retirement contribution rate and increase it until you reach your employer’s match or target savings goal.

• Set up a 529 plan for each child, even if contributions start small.

• Reassess annually as college costs and retirement targets evolve.

• Meet with a financial planner to model the long-term trade-offs of different savings rates.

Rob Mangold

About Rob……...

Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally, professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, please feel free to join in on the discussion or contact me directly.

FAQs: College Savings vs. Retirement

1. Should I ever prioritize college savings over retirement?
   Only if your retirement plan is fully funded or you’re on track with a strong pension. Otherwise, we believe that your future security should come first.
2. Can I use my IRA for college expenses?
   Yes, you can withdraw IRA funds penalty-free (though taxable) for qualified higher education costs, but this should often be a last resort.
3. How much should I contribute to a 529 plan?
   Many families aim for about one-third of projected costs; the rest can come from cash flow, aid, or loans. Even small, consistent contributions grow substantially over time.
4. What if I can’t afford both?
   Focus on retirement first. You could potentially help your child repay loans later, but you can’t finance your own retirement.
5. Are there other college savings options besides 529s?
   Yes—Coverdell ESAs and custodial UGMA/UTMA accounts can also be used, though they have different tax and financial aid impacts.

2026 Mandatory Roth Catch-Up Contributions for Higher Earners: What the New Rules Mean for Retirement Savers

Beginning in 2026, higher-earning workers will be required to make all retirement plan catch-up contributions on a Roth (after-tax) basis. This rule, created under SECURE Act 2.0, applies to individuals earning above a specific wage threshold and affects 401(k), 403(b), and governmental 457(b) plans. Our analysis at Greenbush Financial Group shows that while the change increases current taxable income, it can also create meaningful long-term tax benefits if planned correctly. This article explains who is impacted, how the rule works, and what planning steps to consider before 2026.

What Is the Mandatory Roth Catch-Up Rule in 2026?

The mandatory Roth catch-up rule requires certain high earners to make all catch-up contributions as Roth contributions, rather than pre-tax.

Under prior rules, employees age 50 and older could choose whether catch-up contributions were pre-tax or Roth. Starting in 2026, that choice is removed for higher earners.

At Greenbush Financial Group, this is one of the most common sources of confusion we see among pre-retirees who are aggressively saving in the final working years.

Who Is Subject to Mandatory Roth Catch-Up Contributions?

The rule applies if both of the following are true:

• You are age 50 or older

• Your prior-year wages exceed $150,000, indexed for inflation

• Wages are based on W-2 compensation

• Income from self-employment or investments does not count toward this threshold

If your wages are at or below the threshold, you may still choose between pre-tax or Roth catch-up contributions.

Which Retirement Plans Are Affected by the Rule?

Mandatory Roth treatment applies to catch-up contributions made to:

• 401(k) plans

• 403(b) plans

• Governmental 457(b) plans

It does not apply to:

• IRAs (Traditional or Roth)

• SEP IRAs

• SIMPLE IRAs (which follow separate contribution rules)

Catch-Up Contribution Limits for 2026

While final IRS-indexed numbers will be confirmed closer to 2026, current rules provide context for how the change applies.

General framework:

• Standard elective deferral limit (under age 50): indexed annually

• Catch-up contributions (age 50+): additional amount above the standard limit

• Ages 60–63: enhanced catch-up limits under SECURE Act 2.0, also subject to Roth-only treatment for higher earners

Our analysis at Greenbush Financial Group suggests that many high earners will still benefit from maximizing these Roth catch-up dollars despite losing the immediate tax deduction.

Why Congress Implemented the Mandatory Roth Requirement

The shift to Roth catch-up contributions serves two primary purposes:

• Increases near-term tax revenue for the federal government

• Expands long-term tax-free retirement savings for participants

Because Roth contributions are taxed upfront, the rule accelerates tax collection while potentially reducing future required minimum distributions.

Tax Impact: Higher Income Today, Lower Taxes Later

Mandatory Roth catch-ups create a trade-off.

Short-term impact:

• Higher taxable income

• Reduced ability to lower current-year tax bills

Long-term benefits:

• Tax-free growth

• Tax-free withdrawals in retirement

• Reduced exposure to future tax rate increases

• Potentially lower Medicare IRMAA and Social Security taxation later in life

At Greenbush Financial Group, we often see this rule align well with broader Roth conversion strategies already being implemented for higher-income households.

Employer and Plan Administration Considerations

Employers must ensure their retirement plans are properly updated to allow Roth catch-up contributions.

Key considerations:

• Plans that do not allow Roth contributions may need amendments

• Failure to comply could eliminate the ability to make catch-up contributions entirely

• Payroll and recordkeeping systems must track Roth-only catch-ups correctly

This is an important operational issue for both employers and employees to confirm well before 2026.

Planning Strategies Before 2026

There is still time to plan proactively.

Strategies to consider:

• Evaluating partial Roth conversions during lower-income years

• Coordinating catch-up contributions with overall tax bracket management

• Reviewing whether employer plans are Roth-enabled

According to guidance from the Internal Revenue Service, compliance will be strictly tied to wage reporting, making advance planning essential.

Rob Mangold

About Rob……...

Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally, professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, please feel free to join in on the discussion or contact me directly.

Frequently Asked Questions About Mandatory Roth Catch-Up Contributions

1. What is the mandatory Roth catch-up rule starting in 2026?
   It requires higher-earning employees age 50+ to make all retirement plan catch-up contributions on a Roth (after-tax) basis.
2. What income level triggers mandatory Roth catch-ups?
   The rule applies to individuals with prior-year W-2 wages above $150,000 (2025 amount), indexed for inflation.
3. Does this rule apply to IRAs?
   No. The mandatory Roth catch-up requirement only applies to employer retirement plans, not IRAs.
4. Can I still make pre-tax contributions if I’m a high earner?
   Yes. The rule only affects catch-up contributions; standard employee deferrals may still be pre-tax.
5. What happens if my employer’s plan doesn’t offer Roth contributions?
   If Roth contributions are not available, catch-up contributions may not be permitted until the plan is amended.
6. Is mandatory Roth catch-up a bad thing for retirees?
   Not necessarily. While taxes may increase today, Roth catch-ups can significantly reduce taxes in retirement if used strategically.

Retirement Tax Traps and Penalties: 5 Gotchas That Catch People Off Guard

Even the most disciplined savers can be blindsided in retirement by unexpected taxes, penalties, and benefit reductions that derail a carefully built plan. These “retirement gotchas” often appear subtle during your working years but can cost tens of thousands once you stop earning a paycheck.

Here are five of the biggest surprises retirees face—and how to avoid them before it’s too late.

1. The Tax Torpedo from Social Security

Many retirees are surprised to learn that Social Security isn’t always tax-free. Depending on your income, up to 85% of your benefit can be taxed.

The IRS uses something called “provisional income,” which includes half your Social Security benefit plus all other taxable income and tax-free municipal bond interest.

• For individuals, taxes begin when provisional income exceeds $25,000.

• For married couples, it starts at $32,000.

A well-intentioned IRA withdrawal or capital gain can push you over these thresholds—causing a sudden jump in taxes. Strategic Roth conversions and careful withdrawal sequencing can help smooth this out over time.

2. Higher Medicare Premiums (IRMAA)

The Income-Related Monthly Adjustment Amount (IRMAA) is one of the most overlooked retirement costs. Once your modified adjusted gross income (MAGI) exceeds certain limits, your Medicare Part B and D premiums increase—often by thousands of dollars per year.

For 2025, IRMAA surcharges begin when MAGI exceeds roughly $103,000 for single filers or $206,000 for married couples. The catch? Medicare looks back two years at your income. A Roth conversion, property sale, or large one-time distribution can unexpectedly trigger higher premiums two years later.

Proactive tax planning can prevent crossing these thresholds unintentionally.

3. Required Minimum Distributions (RMDs)

Once you reach age 73, the IRS requires you to start withdrawing from pre-tax retirement accounts each year—whether you need the money or not. These RMDs are taxed as ordinary income and can increase your tax bracket, raise Medicare premiums, and reduce your eligibility for certain deductions.

The biggest mistake is waiting until your 70s to plan for them. Roth conversions in your 60s can reduce future RMDs, and charitable giving through Qualified Charitable Distributions (QCDs) can offset the tax impact once they begin.

4. The Widow’s Penalty

When one spouse passes away, the surviving spouse’s tax brackets and standard deduction are cut in half—but income sources often don’t decrease proportionally. Social Security may drop by one benefit, but RMDs, pensions, and investment income remain largely the same.

The result is a higher effective tax rate for the survivor. This “widow’s penalty” can last for years, especially when combined with RMDs and Medicare surcharges. Couples can reduce the long-term impact through lifetime Roth conversions, strategic asset titling, and beneficiary planning.

5. State Taxes and Hidden Relocation Costs

Many retirees move to lower-tax states hoping to stretch their income, but state-level taxes can be tricky. Some states tax pension and IRA withdrawals, others tax Social Security, and a few impose taxes on out-of-state income or estates.

Additionally, higher property taxes, insurance premiums, and healthcare costs can offset income tax savings. A comprehensive cost-of-living comparison is essential before relocating.

Our analysis at Greenbush Financial Group often reveals that the “best” retirement state depends more on quality of life, healthcare access and total cost of living than on income tax rates alone.

How to Avoid These Retirement Surprises

Most retirement gotchas come down to timing and coordination—especially between taxes, Social Security, and healthcare. A few key steps can make a major difference:

• Run retirement income projections that include taxes and IRMAA thresholds.

• Consider partial Roth conversions before RMD age.

• Sequence withdrawals intentionally between taxable, tax-deferred, and Roth accounts.

• Evaluate the long-term impact of home state taxes before moving.

• Review beneficiary and trust structures regularly.

The earlier you identify potential traps, the easier they are to fix while you still control your income and withdrawals.

The Bottom Line

Retirement is more complex than simply replacing a paycheck. The interplay between taxes, healthcare, and income sources can turn small decisions into costly mistakes. By spotting these gotchas early, you can preserve more of your wealth and enjoy a smoother, more predictable retirement.

Our advisors at Greenbush Financial Group can help you identify your biggest risk areas and design a plan to minimize the tax and income surprises most retirees never see coming.

FAQs: Retirement Planning Surprises

Q: Are Social Security benefits always taxed?
A: No. But depending on your income, up to 85% of your benefits may be taxable.

Q: How can I avoid higher Medicare premiums?
A: Manage your income below IRMAA thresholds through strategic Roth conversions and tax-efficient withdrawals.

Q: What happens if I miss an RMD?
A: You could face a 25% penalty on the amount not withdrawn, reduced to 10% if corrected quickly.

Q: Why do widows and widowers pay more in taxes?
A: Filing status changes from joint to single, cutting brackets and deductions in half while much of the income remains.

Q: Are all retirement states tax-friendly?
A: No. Some states tax retirement income or have higher overall costs despite no income tax.

Rob Mangold

About Rob……...

Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally, professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, please feel free to join in on the discussion or contact me directly.

Social Security Cost of Living Increase Only 2.8% for 2026

By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group

The Social Security Administration (SSA) has announced that the annual Cost-of-Living Adjustment (COLA) for 2026 will be 2.8%, up slightly from 2.5% in 2025, but still below the ten-year average of about 3.1%. While any increase in Social Security benefits is welcome news for retirees, many experts and retirees alike worry that this modest adjustment may not be enough to keep pace with rising living costs.

In this article, we’ll cover:

• How the 2026 COLA compares to previous years

• Why this year’s increase may not keep up with inflation

• The lag retirees face when inflation heats up

• Possible strategies to help offset higher costs

The 2026 COLA: Modest in Historical Context

While the 2.8% increase may seem like a fair bump, it’s actually on the lower end of recent COLA adjustments. Here’s a look at the last five years of Social Security COLAs:

As the table shows, retirees experienced significant boosts during the high-inflation years of 2022 and 2023, but those increases have tapered off as inflation cooled — at least according to official data. However, many households continue to feel that everyday prices for groceries, utilities, and especially healthcare haven’t truly come back down.

Why the 2026 COLA May Not Be Enough

Although the 2.8% COLA aims to help beneficiaries keep up with inflation, many retirees report that their actual cost of living has increased by well over 3%. Everyday expenses — particularly healthcare premiums, prescription drugs, and food — have outpaced average inflation in recent years.

For retirees living on a fixed income, this can feel like a slow squeeze. Even small differences between the COLA and real inflation can add up to a meaningful loss in purchasing power over time.

The Timing Problem: If Inflation Heats Up, Help May Be a Year Away

One major challenge with the COLA system is timing. Adjustments are made once per year, based on inflation readings from the third quarter of the previous year.

That means if inflation begins to surge again in mid-2026 — say, to 4% or higher — retirees won’t see an increase in their Social Security benefits until January 2027. By then, a full year of higher prices could have eroded much of their financial cushion.

For retirees already struggling to cover basic costs, that lag can create a serious hardship.

What Can Retirees Do?

If the COLA isn’t keeping up with rising expenses, retirees may need to take proactive steps to protect their financial well-being. A few options to consider:

• Reevaluate annual spending. Look for non-essential expenses that can be trimmed or delayed.

• Explore part-time or flexible income. Even modest earnings can help bridge the gap during higher-inflation periods.

• Lean on family support if necessary. Having an honest discussion about temporary help from family members can make a meaningful difference.

• Revisit your financial plan. This is a good time to review your withdrawal strategy, investment income, and emergency savings to make sure your plan can weather inflation surprises.

The Importance of Adjusting Retirement Projections for Inflation

When planning for retirement, it’s critical to adjust annual expenses for inflation in your projections. Even modest inflation can dramatically change your future spending needs.

Let’s look at an example:

• A 65-year-old retiree today has annual living expenses of $60,000.

• If inflation averages 3% per year, by age 75, those same expenses would grow to roughly $80,600.

That’s over $20,000 more per year — just to maintain the same standard of living.

Failing to account for inflation in your retirement projections can lead to underestimating how much income you’ll truly need down the road. Whether you’re living off investment withdrawals, pensions, or Social Security, it’s essential to plan for rising costs and ensure your income sources can keep pace.

Final Thoughts

Now more than ever, staying proactive about budgeting, income planning, and inflation protection strategies is essential. Social Security was never meant to cover all retirement expenses — and in today’s environment, it’s important to ensure your broader financial plan can pick up where the COLA falls short.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions (FAQ)

How much will Social Security benefits increase in 2026?
The Social Security Administration announced a 2.8% Cost-of-Living Adjustment (COLA) for 2026, a modest rise from 2.5% in 2025. This increase remains below the ten-year average of roughly 3.1%.

Why is the 2026 COLA increase considered modest?
While the 2.8% adjustment helps offset inflation, it’s smaller than the larger increases retirees saw in 2022 and 2023 during periods of high inflation. Many retirees feel everyday costs, especially for healthcare and essentials, continue to rise faster than official inflation measures suggest.

How does the timing of COLA adjustments affect retirees?
COLA calculations are based on inflation data from the third quarter of the previous year, meaning there’s often a delay in responding to rising prices. If inflation increases during 2026, beneficiaries won’t see higher payments until 2027, leaving a potential gap between expenses and income.

What can retirees do if their Social Security increase isn’t keeping up with inflation?
Retirees can review spending habits, trim non-essential costs, explore part-time income opportunities, and update financial plans to better manage inflation risks. Maintaining flexibility and preparing for price changes can help preserve purchasing power.

How can inflation impact long-term retirement planning?
Even moderate inflation significantly raises living costs over time. For example, a retiree spending $60,000 annually could need over $80,000 within ten years if inflation averages 3%, underscoring the importance of including inflation adjustments in retirement projections.

Why is it important to revisit a financial plan regularly during retirement?
Regularly reviewing your financial plan helps ensure that income sources, such as investments or pensions, continue to meet rising expenses. Adjusting for inflation, healthcare costs, and market changes can help retirees maintain their desired standard of living.

Planning for Healthcare Costs in Retirement: Why Medicare Isn’t Enough

By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group

When most people picture retirement, they imagine travel, hobbies, and more free time—not skyrocketing healthcare bills. Yet, one of the biggest financial surprises retirees face is how much they’ll actually spend on medical expenses.

Many retirees dramatically underestimate their healthcare costs in retirement, even though this is the stage of life when most people access the healthcare system the most. While it’s common to pay off your mortgage leading up to retirement, it’s not uncommon for healthcare costs to replace your mortgage payment in retirement.

In this article, we’ll cover:

• Why Medicare isn’t free—and what parts you’ll still need to pay for.

• What to consider if you retire before age 65 and don’t yet qualify for Medicare.

• The difference between Medicare Advantage and Medicare Supplement plans.

• How prescription drug costs can take retirees by surprise.

• The reality of long-term care expenses and how to plan for them.

Planning for Healthcare Before Age 65

For those who plan to retire before age 65, healthcare planning becomes significantly more complicated—and expensive. Since Medicare doesn’t begin until age 65, retirees need to bridge the coverage gap between when they stop working and when Medicare starts.

If your former employer offers retiree health coverage, that’s a tremendous benefit. However, it’s critical to understand exactly what that coverage includes:

• Does it cover just the employee, or both the employee and their spouse?

• What portion of the premium does the employer pay, and how much is the retiree responsible for?

• What out-of-pocket costs (deductibles, copays, coinsurance) remain?

If you don’t have retiree health coverage, you’ll need to explore other options:

• COBRA coverage through your former employer can extend your workplace insurance for up to 18 months, but it’s often very expensive since you’re paying the full premium plus administrative fees.

• ACA marketplace plans (available through your state’s health insurance exchange) may be an alternative, but premiums and deductibles can vary widely depending on your age, income, and coverage level.

In many cases, healthcare costs for retirees under 65 can be substantially higher than both Medicare premiums and the coverage they had while working. This makes it especially important to build early healthcare costs into your retirement budget if you plan to leave the workforce before age 65.

Medicare Is Not Free

At age 65, most retirees become eligible for Medicare, which provides a valuable foundation of healthcare coverage. But it’s a common misconception that Medicare is free—it’s not.

Here’s how it breaks down:

• Part A (Hospital Insurance): Usually free if you’ve paid into Social Security for at least 10 years.

• Part B (Medical Insurance): Covers doctor visits, outpatient care, and other services—but it has a monthly premium based on your income.

• Part D (Prescription Drug Coverage): Also carries a monthly premium that varies by plan and income level.

Example:

Let’s say you and your spouse both enroll in Medicare at 65 and each qualify for the base Part B and Part D premiums.

• In 2025, the standard Part B premium is approximately $185 per month per person.

• A basic Part D plan might average around $36 per month per person.

Together, that’s about $220 per person, or $440 per month for a couple—just for basic Medicare coverage. And this doesn’t include supplemental or out-of-pocket costs for things Medicare doesn’t cover.

NOTE: Some public sector or state plans even provide Medicare Part B premium reimbursement once you reach 65—a feature that can be extremely valuable in retirement.

Medicare Advantage and Medicare Supplement Plans

While Medicare provides essential coverage, it doesn’t cover everything. Most retirees need to choose between two main options to fill in the gaps:

• Medicare Advantage (Part C) plans, offered by private insurers, bundle Parts A, B, and often D into one plan. These plans usually have lower premiums but can come with higher out-of-pocket costs and limited provider networks.

• Medicare Supplement (Medigap) plans, which work alongside traditional Medicare, help pay for deductibles, copayments, and coinsurance.

It’s important not to simply choose the lowest-cost plan. A retiree’s prescription needs, frequency of care, and preferred doctors should all factor into the decision. Choosing the cheapest plan could lead to much higher out-of-pocket expenses in the long run if the plan doesn’t align with your actual healthcare needs.

Prescription Drug Costs: A Hidden Retirement Expense

Prescription drug coverage is one of the biggest cost surprises for retirees. Even with Medicare Part D, out-of-pocket expenses can add up quickly depending on the medications you need.

Medicare Part D plans categorize drugs into tiers:

• Tier 1: Generic drugs (lowest cost)

• Tier 2: Preferred brand-name drugs (moderate cost)

• Tier 3: Specialty drugs (highest cost, often with no generic alternatives)

If you’re prescribed specialty or non-generic medications, you could spend hundreds—or even thousands—per month despite having coverage.

To help, some states offer programs to reduce these costs. For example, New York’s EPIC program helps qualifying seniors pay for prescription drugs by supplementing their Medicare Part D coverage. It’s worth checking if your state offers a similar benefit.

Planning for Long-Term Care

One of the most misunderstood aspects of Medicare is long-term care coverage—or rather, the lack of it.

Medicare only covers a limited number of days in a skilled nursing facility following a hospital stay. Beyond that, the costs become the retiree’s responsibility. Considering that long-term care can easily exceed $120,000 per year, this can be a major financial burden.

Planning ahead is essential. Options include:

• Purchasing a long-term care insurance policy to offset future costs.

• Self-insuring, by setting aside savings or investments for potential care needs.

• Planning to qualify for Medicaid through strategic trust planning

Whichever route you choose, addressing long-term care early is key to protecting both your assets and your peace of mind.

Final Thoughts

Healthcare is one of the largest—and most underestimated—expenses in retirement. While Medicare provides a foundation, retirees need to plan for premiums, prescription costs, supplemental coverage, and potential long-term care needs.

If you plan to retire before 65, early planning becomes even more critical to bridge the gap until Medicare begins. By taking the time to understand your options and budget accordingly, you can enter retirement with confidence—knowing that your healthcare needs and your financial future are both protected.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions (FAQ)

Why isn’t Medicare enough to cover all healthcare costs in retirement?
While Medicare provides a solid foundation of coverage starting at age 65, it doesn’t pay for everything. Retirees are still responsible for premiums, deductibles, copays, prescription drugs, and long-term care—expenses that can add up significantly over time.

What should I do for healthcare coverage if I retire before age 65?
If you retire before Medicare eligibility, you’ll need to bridge the gap with options like COBRA, ACA marketplace plans, or employer-sponsored retiree coverage. These plans can be costly, so it’s important to factor early healthcare premiums and out-of-pocket expenses into your retirement budget.

What are the key differences between Medicare Advantage and Medicare Supplement plans?
Medicare Advantage (Part C) plans combine Parts A, B, and often D, offering convenience but limited provider networks. Medicare Supplement (Medigap) plans work alongside traditional Medicare to reduce out-of-pocket costs. The right choice depends on your budget, health needs, and preferred doctors.

How much should retirees expect to pay for Medicare premiums?
In 2025, the standard Medicare Part B premium is around $185 per month, while a basic Part D plan averages about $36 monthly. For a married couple, that’s roughly $440 per month for both—before adding supplemental coverage or out-of-pocket expenses. These costs should be built into your retirement spending plan.

Why are prescription drugs such a major expense in retirement?
Even with Medicare Part D, out-of-pocket drug costs can vary widely based on your prescriptions. Specialty and brand-name medications often carry high copays. Programs like New York’s EPIC can help eligible seniors manage these costs by supplementing Medicare coverage.

Does Medicare cover long-term care expenses?
Medicare only covers limited skilled nursing care following a hospital stay and does not pay for most long-term care needs. Since extended care can exceed $120,000 per year, retirees should explore options like long-term care insurance, Medicaid planning, or setting aside savings to self-insure.

How can a financial advisor help plan for healthcare costs in retirement?
A financial advisor can estimate future healthcare expenses, evaluate Medicare and supplemental plan options, and build these costs into your retirement income plan. At Greenbush Financial Group, we help retirees design strategies that balance healthcare needs with long-term financial goals.

Special Tax Considerations in Retirement

By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group

You might think that once you stop working, your tax situation becomes simpler — after all, no more paychecks! But for many retirees, taxes actually become more complex. That’s because retirement often comes with multiple income sources — Social Security, pensions, pre-tax retirement accounts, brokerage accounts, cash, and more.

At the same time, retirement can present unique tax-planning opportunities. Once the paychecks stop, retirees often have more control over which tax bracket they fall into by strategically deciding which accounts to pull income from.

In this article, we’ll cover:

• How Social Security benefits are taxed

• Pension income rules (and how they vary by state)

• Taxation of pre-tax retirement accounts like IRAs and 401(k)s

• Developing an efficient distribution strategy

• Special tax deductions and tax credits for retirees

• Required Minimum Distribution (RMD) planning

• Charitable giving strategies, including QCDs and donor-advised funds

How Social Security Is Taxed

Social Security benefits may be tax-free, partially taxed, or mostly taxed — depending on your provisional income. Provisional income is calculated as:

Adjusted Gross Income (AGI) + Nontaxable Interest + ½ of Your Social Security Benefits.

Here’s a quick summary of how benefits are taxed at the federal level:

While Social Security is taxed at the federal level, most states do not tax these benefits. However, a handful of states — including Colorado, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont — do impose some form of state tax on Social Security income.

Pension Income

If you’re fortunate to receive a state pension, your state of residence plays a big role in determining how that income is taxed.

• If you have a state pension and continue living in the same state where you earned the pension, many states exclude that income from state tax.

• However, with state pensions, if you move to another state, and that state has income taxation at the stateve level, your pension may become taxable in your new state of domicile.

• If you have a pension with a private sector employer, often times those pension payment are full taxable at both the federal and state level.

Some states also provide preferential treatment for private pensions or IRA income. For example, New York excludes up to $20,000 per person in pension or IRA distributions from state income tax each year — a significant benefit for retirees managing taxable income.

Taxation of Pre-Tax Retirement Accounts

Pre-tax retirement accounts — including Traditional IRAs, 401(k)s, 403(b)s, and inherited IRAs — are typically taxed as ordinary income when distributions are made.

However, the tax treatment at the state level varies:

• Some states (like New York) exclude a set amount – for example New York excludes the first $20,000 per person per year — from state taxation.

• Others tax all pre-tax distributions in full.

• A few states offer income-based exemptions or reduced rates for lower-income retirees.

Because these rules differ so widely, it’s important to research your state’s tax laws.

Developing a Tax-Efficient Distribution Strategy

A well-designed distribution strategy can make a big difference in how much tax you pay throughout retirement.

Many retirees have income spread across:

• Pre-tax accounts (401(k), IRA)

• After-tax brokerage accounts

• Roth IRAs

• Social Security

Let’s say you need $70,000 per year to maintain your lifestyle. Some of that may come from Social Security, but you’ll need to decide where to withdraw the rest.

With smart planning, you can blend withdrawals from different accounts to minimize your overall tax liability and control your tax bracket year by year. The goal isn’t just to reduce taxes today — it’s to manage them over your lifetime.

Special Deductions and Credits in Retirement

Your Adjusted Gross Income (AGI) or Modified AGI doesn’t just determine your tax bracket — it also affects which deductions and credits you can claim.

A few important highlights:

• The Big Beautiful Tax Bill that just passed in 2025 introduces a new Age 65+ tax deduction of $6,000 per person over and above the existing standard deduction.

• Certain deductions and credits, however, phase out once income exceeds specific thresholds.

• Your income level also affects Medicare premiums for Parts B and D, which increase if your income surpasses the IRMAA thresholds (Income-Related Monthly Adjustment Amount).

Managing your taxable income through careful distribution planning can therefore help preserve deductions and keep Medicare premiums lower.

Required Minimum Distribution (RMD) Planning

Once you reach age 73 or 75 (depending on your birth year), you must begin taking Required Minimum Distributions (RMDs) from your pre-tax retirement accounts — even if you don’t need the money.

These RMDs can significantly increase your taxable income, especially when stacked on top of Social Security and other income sources.

A proactive strategy is to take controlled distributions or perform Roth conversions before RMD age. Doing so can reduce the size of your future RMDs and potentially lower your lifetime tax bill by spreading taxable income across more favorable tax years.

Charitable Giving Strategies

Many retirees are charitably inclined, but since most take the standard deduction, they don’t receive an additional tax benefit for their donations.

There are two primary strategies to consider:

1. Donor-Advised Funds (DAFs) – You can “bunch” several years’ worth of charitable giving into one tax year to exceed the standard deduction, then direct the funds to charities over time.

2. Qualified Charitable Distributions (QCDs) – Once you reach age 70½, you can donate directly from your IRA to a qualified charity. These QCDs are excluded from taxable income and count toward your RMD once those begin.

Final Thoughts

Retirement opens up new opportunities — and new complexities — when it comes to managing taxes. Understanding how your various income sources interact and planning your distributions strategically can help you:

• Reduce taxes over your lifetime

• Preserve more of your retirement income

• Maintain flexibility and control over your financial future

As always, it’s wise to coordinate with a financial advisor and tax professional to ensure your retirement tax strategy aligns with your goals, income sources, and state tax rules.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions (FAQ)

How are Social Security benefits taxed in retirement?
Depending on your provisional income, up to 85% of your Social Security benefits may be subject to federal income tax. Most states don’t tax these benefits, though a few—including Colorado, Minnesota, and Utah—do.

How is pension income taxed, and does it vary by state?
Pension income is typically taxable at the federal level, but state rules differ. Some states exclude public pensions from taxation or offer partial exemptions—like New York’s $20,000 per person exclusion for pension or IRA income. If you move to another state in retirement, your pension’s tax treatment could change.

What taxes apply to withdrawals from pre-tax retirement accounts?
Distributions from Traditional IRAs, 401(k)s, and similar pre-tax accounts are taxed as ordinary income. Some states offer exclusions or partial deductions, while others tax these withdrawals in full. Understanding your state’s rules is essential for accurate tax planning.

What is a tax-efficient withdrawal strategy in retirement?
A tax-efficient strategy blends withdrawals from different account types—pre-tax, Roth, and after-tax—to control your annual tax bracket. The goal is not just to lower taxes today but to reduce lifetime taxes by managing income across multiple years and minimizing required minimum distributions later.

What new tax deductions or credits are available for retirees?
The 2025 tax law introduced an additional $6,000 deduction per person age 65 and older, in addition to the standard deduction. Keeping taxable income lower through smart planning can also help retirees preserve deductions and avoid higher Medicare IRMAA surcharges.

How do Required Minimum Distributions (RMDs) impact taxes?
Starting at age 73 or 75 (depending on birth year), retirees must withdraw minimum amounts from pre-tax retirement accounts, which increases taxable income. Performing partial Roth conversions or strategic withdrawals before RMD age can help reduce future tax exposure.

What are Qualified Charitable Distributions (QCDs) and how do they work?
QCDs allow individuals age 70½ or older to donate directly from an IRA to a qualified charity, satisfying all or part of their RMD while excluding the amount from taxable income. This strategy helps maximize charitable impact while reducing taxes in retirement.