Retirement Income Planning

Start With What the Money Is For

The most common retirement question, how much is enough, has no useful answer on its own. Two households with the same savings can face very different retirements once taxes, account types, Social Security timing, and Medicare surcharges are counted. Our article on how much you need to retire explains why no rule of thumb, including the 4% rule, survives contact with those details, and why we lean toward mapping actual spending against actual income sources instead. Spending and giving start from what the household wants retirement to look like, which is why every plan we build begins with a Statement of Financial Purpose.

The Ages That Change the Plan

Retirement runs on a calendar of birthdays. Nine of them change what is possible, what it costs, or what is required, and most households meet them without a single schedule that shows them all.

55. Leave an employer in or after the year you turn 55 and that employer’s plan can usually pay you without the 10% early withdrawal penalty, under what is called the rule of 55. It covers only that plan, and the plan has to permit withdrawals after you leave; some allow only a single lump sum.

59½. The 10% additional tax on early withdrawals from IRAs and employer plans ends.

62. Social Security retirement benefits can begin, permanently reduced for claiming early.

63. Medicare premium surcharges are set from income two years earlier, so income from the year a person turns 63 sets the surcharge for the year they turn 65.

65. Medicare eligibility begins, with a 7-month initial enrollment window around the 65th birthday month. In Texas, a homeowner who turns 65 can claim the larger school property tax exemption and the school tax ceiling on a residence homestead. Through 2028, each person 65 or older can also claim the $6,000 senior deduction (married couples must file jointly), which phases out at higher incomes.

67. Full retirement age for Social Security, for anyone born in 1960 or later.

70. Delayed retirement credits stop, so waiting past 70 adds nothing to the benefit.

70½. Qualified charitable distributions from an IRA become available.

73 or 75. Required minimum distributions begin: at 73 for those born from 1951 through 1959 (for 1959, under IRS proposed regulations that resolve a drafting conflict in the statute), and at 75 for those born in 1960 or later.

Before the Paychecks Stop

The years just before retirement set up everything after. Retiring before 59½ raises the question of how to reach retirement money early. Our article on 72(t) payments and the rule of 55 compares those two doors and explains why we lean toward the rule of 55 where it is genuinely available. A third path, covered in our article on the Roth conversion ladder, uses conversions that become penalty-free to withdraw after five tax years. Retiring before 65 often means buying health insurance without an employer. Since January 1, 2026, the marketplace premium credit again disappears entirely one dollar above 400% of the poverty level, as our article on ACA subsidies in early retirement explains.

Two more decisions often arrive in these years. A pension that offers a lump sum or a lifetime check is a permanent choice. Our article on pension lump sum versus annuity shows how to compare two offers that are not really comparable, with inflation, the plan’s funding, and the survivor’s benefit inside the decision. And a health savings account, funded and invested for decades, can be the most tax-favored retirement account a household owns. Our article on the HSA as a retirement account explains why, and why it makes one of the worst inheritances for anyone other than a spouse or a charity. Employer stock in a 401(k) can add one more: our article on net unrealized appreciation explains why a routine rollover to an IRA can give up that tax break for good, so it is worth checking before the first dollar leaves the plan.

The Gap Years Before Social Security and RMDs

Between the last paycheck and the start of Social Security and required distributions, taxable income can be lower, and more within a household’s control, than at any other time in adult life. Our article on the retirement gap years explains why those years are the richest tax-planning window most people sleep through, and how Roth conversions use them. With the brackets from the 2017 tax law now permanent, our article on Roth conversion planning after OBBBA covers what replaced the old rush to convert before a sunset.

Conversions are sized against a few lines, and they are not equally steep. The Social Security tax torpedo, which matters only once benefits have begun, is a band of income where each extra dollar can make up to 85 cents of benefits taxable, so a dollar in the 12% bracket can cost about 22% and one in the 22% bracket about 40.7%. As a starting guardrail, adjusted case by case, we lean toward converting up to it but not into it. The OBBBA senior deduction shrinks by 6 cents for each dollar of modified adjusted gross income above $150,000 on a joint return, or 12 cents when both spouses are 65 or older. That is a shallow slope, and we lean toward pricing it into the conversion rather than treating it as a wall.

IRMAA, the Medicare premium surcharge, is a set of cliffs read from income two years earlier: going one dollar over a threshold brings that tier’s full surcharge for the year, for each spouse on Medicare. And for households with room in the lowest brackets, the 0% capital gains bracket lets a married couple realize long-term gains at a 0% federal rate while taxable income, gains included, stays at or below $98,900 in 2026. Those gains can still raise Social Security taxation, Medicare surcharges, and marketplace premiums, and conversions compete for that same room, so each year’s low-bracket space goes to one job or the other. All of it is modeled together in a tax projection that spans the whole retirement, because the right amount to convert in any one year depends on every year around it.

Social Security: More Than a Break-Even Age

When to claim Social Security is one of the largest retirement decisions, and the break-even chart answers only part of it. Our article on when to claim Social Security walks through five questions the break-even calculation leaves out, from the household’s spending psychology to the gap-year tax window. It also explains why claiming earlier can sometimes be right simply because it gives a disciplined saver permission to spend and give. For couples, our article on claiming strategies for married couples explains why, when the two benefits are far apart, the survivor benefit becomes the dominant variable. The higher earner’s check becomes the survivor’s, so it generally argues for the higher earner delaying, whatever that spouse’s own break-even.

The survivor’s taxes matter as much as the survivor’s check. After a spouse dies, the household often keeps most of its income but, usually from the following tax year, loses the joint tax brackets, which is the subject of our article on the widow’s tax penalty. That future is one reason we lean toward treating the joint brackets, while both spouses are alive, as an asset worth using.

Medicare: Two Windows You Cannot Reopen

Medicare enrollment is one of the few retirement mistakes that usually cannot be fixed later. Miss the right window and the penalty is a permanent increase in premiums, as our article on Medicare enrollment timing explains, along with the trap that can turn the last months of health savings account contributions into excess contributions. That is why we lean toward starting Medicare coordination in the year each spouse turns 64, not 65.

The second window is the six-month Medigap open enrollment that starts once a person is 65 and enrolled in Part B, and it frames the choice between Original Medicare with a Medigap supplement and a Medicare Advantage plan. A household can move from Medigap to Advantage any fall, but moving back can require medical underwriting once the trial period passes, so our article on Medigap versus Medicare Advantage treats it as a one-way door. When a household is on the fence and the premium is affordable, we lean toward keeping the Medigap option open.

Turning Savings Into a Paycheck

The first years of withdrawals carry the most risk, because a bad market early does more damage than the same market later. Our article on sequence-of-returns risk explains the approach we lean toward: a deliberate cash reserve, a rebalanced portfolio, and a spending plan with guardrails set in advance. It is built on the probability-of-success guardrails research Derek Tharp and Justin Fitzpatrick published at Kitces.com. Our article on retirement spending guardrails explains how risk-based guardrails are set, and why they called for much smaller cuts than withdrawal-rate rules in some of the hardest historical markets.

Which account pays is a tax decision as much as a portfolio one. Our article on retirement withdrawal sequencing explains why spending the taxable account first is the right starting point and only half the answer, since the goal is the smallest tax bill over the whole retirement. Our article on asset location covers which investments belong in which account. When the required distributions arrive, our article on required minimum distributions covers the rules and the planning that has to happen before the first one. Our article on qualified charitable distributions covers the rules and paperwork for sending IRA money straight to charity from 70½, which keeps it out of taxable income and, once required distributions begin, counts toward them.

Insurance and the Long Tail

Insurance has a place in a retirement plan when it covers a named risk the rest of the plan cannot. Our article on annuities, their types, costs, and taxes explains why we generally do not lean toward annuities but are always willing to look at one, and how a plain income annuity can earn its place as longevity insurance. A qualified longevity annuity contract can move up to $210,000 per person (the 2026 lifetime limit) from IRAs and eligible plans into income that starts late in life. We lean toward treating it as insurance first and an RMD tool second, and toward considering one only after the Social Security decision and the conversion years are settled.

Long-term care is the risk that is easiest to leave out of a plan, and our article on funding long-term care lays out self-insurance, traditional coverage, and hybrid policies, and which dollars should pay. For a permanent life insurance policy bought decades ago, we lean toward judging it only by what it does from here, as our article on whole life versus universal life explains. And for Texas homeowners, our article on property tax at 65 covers the $200,000 school exemption, the tax ceiling, and the option to defer the tax at 5% a year.

Passing It On

Retirement accounts pass by beneficiary form, not by will, and the rules for heirs changed sharply in 2020. Most adult children who inherit an IRA now must empty it by the end of the tenth year after the year of death, with annual distributions along the way if the owner died on or after their required beginning date. Our article on inheriting an IRA covers the mistakes that cannot be undone and the one decision that moves the needle: when, within the window, to take the money. Naming a trust as beneficiary can protect an heir. But a trust that keeps IRA income pays the top 37% rate above $16,000 of income in 2026. Our article on naming a trust as IRA beneficiary explains why we lean toward a trust only when it solves a problem trusts are good at.

How We Think About It

We lean toward building retirement income on the household’s actual numbers rather than a rule of thumb: actual spending, actual income sources, and the tax that each source carries. The tax goal is the smallest bill over the whole retirement, not in any one year, and, when leaving money to heirs matters, across the family, federal and state. That is why the gap years, the conversion guardrail, and the Medicare surcharge cliffs are modeled together.

We lean toward settling the Social Security decision on the household’s own numbers first, including the survivor’s position and the household’s comfort with spending and giving. Then comes the sizing of the conversion years, and only then the question of whether any insurance product is needed for the longevity risk that remains. We also lean toward weighting inflation risk more heavily than is typical, particularly for irreversible choices that lock in a fixed income.

We lean toward giving the decisions that cannot be undone the most care. Medicare enrollment, the Medigap choice, and a pension election each run on a fixed calendar, so they deserve early attention; an annuity purchase runs on no deadline, so it waits until the rest of the plan is settled. And we lean toward a spending plan with guardrails set in advance that adjust spending in both directions. A sustained decline then calls for a modest, planned trim rather than a hard one, held until the plan recovers enough to restore it, and a strong run calls for a raise that is also set in advance, with room to spend or give more.

None of this replaces the CPA or the attorney. We work alongside them, so the tax, legal, insurance, and personal sides of retirement are decided together. Alongside the Social Security claiming guide below, two more of our free guides go deeper on the decisions with the most moving parts: Understanding Medicare and Inherited Retirement Accounts.

Common Questions

What is retirement income planning?

It is the work of turning savings into income that lasts for life, with the least lifetime tax. It decides how much a household can spend and give, which accounts pay for it and in what order, and when to claim Social Security. It also covers Medicare and its surcharges, where insurance fits, and how the accounts pass to heirs, all coordinated across the whole retirement rather than one year at a time.

Which ages matter most in retirement income planning?

Nine ages matter most. The first five are 55, when the rule of 55 can open an employer plan; 59½, when the early withdrawal penalty ends; 62, the earliest age for Social Security retirement benefits; 63, the income year that sets the first Medicare surcharge; and 65, when Medicare eligibility begins. The last four are 67, full retirement age for anyone born in 1960 or later; 70, when delayed retirement credits stop; 70½, when qualified charitable distributions open; and 73 or 75, when required minimum distributions begin.

Which retirement decisions are hard or impossible to undo?

Missing a Medicare enrollment window can mean a premium penalty for life. Choosing Medicare Advantage, at 65 or after dropping a Medigap policy, and staying past the 12-month trial right can make Medigap hard to get back, because insurers in most states can then use medical underwriting. A pension election is permanent once payments begin, and an income annuity generally cannot be undone once its payments start. A Roth conversion cannot be reversed once it is done. A Social Security claim can be withdrawn only once, within 12 months of the first month of entitlement, by repaying every benefit paid on it, including any paid to family members on the same record.

When should retirement income planning start?

Years before the last paycheck. Income from the year each spouse turns 63 sets that spouse’s first Medicare surcharge, so that year’s income is worth planning before it happens, and we lean toward building the Medicare enrollment calendar in the year each spouse turns 64. The tax window before required distributions is also easiest to use when it is planned before it opens. A decade out is not too early for the big choices, such as when to retire, how to reach savings before 59½, and how Social Security will fit.