Ready For Retirement
Ready For Retirement
Retiring After 65? The Rules Change (Hint: You Can Spend More)
Retiring after age 65 changes the math and the priorities. You have fewer high-energy years, shorter tax planning windows, and RMDs much closer than most people realize. But you also often have higher Social Security, clearer spending needs, and more flexibility if the plan is built the right way.
This episode breaks down how retirement strategy shifts when you retire later. Traditional withdrawal rules are built for 30–40 year retirements. If your timeline is closer to 10–20 years, blindly following those rules can lead to significant underspending and missed opportunities in your healthiest years.
Tax strategy becomes more compressed. Roth conversion windows are shorter. Medicare premiums and IRMAA surcharges matter more. Required minimum distributions arrive faster. Planning mistakes are harder to unwind, which makes coordination between income, investments, and taxes far more important.
Market risk looks different too. Higher Social Security and other income sources can reduce pressure on your portfolio, even though recovery time after downturns is shorter. The goal is not extreme conservatism. It is matching investments to real cash-flow needs while protecting against inflation and future healthcare costs.
The episode also covers survivor planning, charitable giving strategies like QCDs, Medicare surcharge planning, and why prioritizing health becomes one of the highest-return investments you can make when retiring later.
Retiring after 65 is not a disadvantage. It simply requires a different plan, tighter execution, and more intentional use of the years that matter most.
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Advisory services are offered through Root Financial Partners, LLC, an SEC-registered investment adviser. This content is intended for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. Viewing this content does not create an advisory relationship. We do not provide tax preparation or legal services. Always consult an investment, tax or legal professional regarding your specific situation.
The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.
Comments reflect the views of individual users and do not necessarily represent the views of Root Financial. They are not verified, may not be accurate, and should not be considered testimonials or endorsements
Participation in the Retirement Planning Academy or Early Retirement Academy does not create an advisory relationship with Root Financial. These programs are educational in nature and are not a substitute for personalized financial advice. Advisory services are offered only under a written agreement with Root Financial.
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Most people don't realize this, but retiring later in life changes the rules. You have fewer go-go years, less runway for recovery in RMDs right around the corner. But you also have more clarity. So today I'm walking through the key decisions people retiring after the age of 65 need to get right because these things are different than people who retire early. So jumping right in. Retiring later typically means higher social security benefits. It typically means fewer years that your portfolio needs to support you. But it also means things like compressed tax planning windows and fewer high energy years that you have left remaining. So this isn't about plain defense. It's about designing a strategy that aligns with your health, your energy, your purpose, and does so with a math to support it. So the first thing that changes if you're retiring after the age of 65 is standard withdrawal rate logic. Typically, when you're looking at a portfolio and you want to say how long can this last so you can determine a safe withdrawal rate, you're assuming that portfolio needs to last for 30 to 40 years. Everything from the 4% rule to the guidance guard rules approach, this is assuming a 30 to 40 year time horizon. That is completely out the window if you are retiring much later in life. You probably don't have 30 or 40 years in your retirement time horizon. So what changes? What changes is your withdrawal rate. If you only have, for example, 20 years that you're planning for in your retirement, using a number like 4% to plan for the rest of your life, you're probably leaving a whole lot of money on the table. Depending on the approach you're taking, depending upon the rules that you're following, you may be able to spend closer to 6 or 7% if you only have 20 years that you're planning for. Now, of course, none of this is intended to be specific advice. Make sure that you're aligning the strategy to your unique situation, understanding your position, working with your financial advisor. But generally speaking, 6-7% might not be too high of a withdrawal rate if you're only trying to support 20 years as opposed to the traditional 30 or even 40 year time horizon. Now, what if you only have 10 years left? What if you've worked until 75 and you think that you might only live until age 85? Well, if you're only spending 4% of your portfolio, that's less than half of what you probably could be spending. You might be able to spend 10% or even more from your initial portfolio balance if you only have 10 years of life that you're trying to support with that portfolio. Now compare these numbers, 10% per year versus a traditional 4% per year. How much more could your portfolio do for you? How much further could that go if you're using the right withdrawal numbers? So as you're retiring later, the first thing to keep in mind is the traditional withdrawal rates, those sustainable withdrawal rates. The math and the logic is sound there, but it's assuming a 30 to 40 year retirement. The older you are when you retire, the fewer years you have that your portfolio needs to sustain you. So factor that in so you're not underspending in these years of your retirement. And when you look at the implications of this, a lot of later retirees, they end up underspending because they're applying traditional withdrawal frameworks to a much shorter retirement. So you may have far more permission to spend, especially in those go-go years, than you initially thought you might. Now, this ties in perfectly to the second thing that you need to be thinking about if you're retiring later, and that is this. You really need to optimize the go-go years. Traditionally, you have the go-go years, the slow go years, and the no-go years. And the go-go years is when you have the most time and energy and enthusiasm to do the things that are in front of you. That's typically ages 60 to 75. The slow go years, you're slowing down, that's maybe age 75 to 85. And the no-go years, you really don't have the health or the vitality to do much of anything at that point. And that's 85 and beyond. Now, these numbers, of course, are unique to you and your health and your energy levels. But if you're retiring, say at 70, well, on average, you might only have five years left of the go-go years. Compare that to someone who retires at the age of 62. They might have 13 years in those go-go years. So more than double what you'd have if you retire at 70. What's the takeaway here? Make sure that you start living, especially when you tie this into our previous point of a withdrawal rate that can support higher numbers the longer you wait to retire, simply because there's fewer years left that you have to use your portfolio to support. But make sure you're not letting those go-go years pass you by. Make sure that you are intentionally front-loading some of these experiences, that travel, that time and family, the giving that you want to do, do that because those years are not going to last forever. Now, with everything I'm talking about here, and of course, over all videos, make sure that you have the numbers to back this up. Make sure you've gone through the planning projections, make sure you've worked with your advisor to make sure that you're in a good spot to make this happen. But if you are, those go-go years, that window, it does not last forever. And sometimes it comes to an abrupt end if there's a health event that prevents you from doing the things that you initially plan on doing. You won't get those years back. So make sure that you're taking full advantage of them. The third thing that you need to consider has to do with market downturns. Now, typically when people retire later, let's assume age 70, for example, one of their common concerns when it comes to investments is I don't have time to wait out a recovery. Now, a couple points that I want to make here. Number one, you're right, you don't have as long of a time horizon, but you still might have 20 plus years left of living. Over 20 plus years, you still do need to make sure that you have the investment portfolio that can offset inflation and can be growing for you for future years, especially if you're factoring in later healthcare expenses, long-term care expenses, you need to be positioned well to support that. But you do need to have enough money that's also set aside in something that's not going to be as subject to the ups and downs of the market. Here is the other point, though. When you look at your portfolio and you look at sequence of return risk, which is that risk that what if the market falls in your first few years of retirement and you start spinning down your portfolio too soon, and on top of that, the market's falling, that's a recipe for disaster long term. Here's the thing though. Typically, if you are retiring later, let's say age 70, you are going to have a higher social security benefit. You're collecting at 70 as opposed to say collecting at 62 or 65. If you're married, your spouse is also going to have a social security benefit. The all else being equal is probably going to be higher. Here's why that matters when it comes to your investments. The more money you have from outside income sources, pension, social security, rental income, whatever the case might be, the less pressure there is on your portfolio to generate every last dollar of income that you need to live on. So the higher your outside income sources, the less at risk you are of sequence of return risk. And the reason for that is if there's a major market downturn, you're not so heavily dependent upon only your portfolio to meet your income needs. You have these other income sources that you can use to support your core expenses, to support what you need to spend while given time for your portfolio to recover. So, yes, you have less time to recover from a downturn, but that does not need, you don't still need to be very intentional about designing the right mix of long-term growth investments, because you still might have a couple of decades or more in your retirement with the appropriate mix of shorter-term conservative investments at root financial, we call these root reserves, where we actually go through and say, what is five years worth of cash flow that you need from your portfolio? Depending on what you need from your portfolio, we need to protect at least five years of that so that if there's a market downturn, we don't have to pull from our stock investments, from our growth investments. We can instead pull from our conservative investments, our conservative bucket, and that gives time for these stock investments to recover. So those numbers look different if you're retiring at 70 versus retiring at 60, but that same framework still applies to make sure that you have a portfolio that fully supports your needs going into retirement. The bottom line is retiring at a later age does not automatically mean you need to be super conservative with your investments. Instead, your portfolio should be a reflection of your cash flow needs, your other income sources, and how long you need your portfolio to last. The next point that you need to consider if you're retiring after the age of 65 is RMDs might be right around the corner. This might be age 73 or this might be age 75, depending upon the year in which you were born. And just to illustrate how different this is than for someone who's maybe retiring early, is someone who's retiring at 62 and has an RMD age of 75, they have 13 years of a tax planning window to implement Roth conversions, to implement some of the most impactful tax strategy. If you're retiring at 70 and your RMD age is 73, you only have three years to do so. So it's really compressing the window that you have. Here's the thing the strategy is still the same, but the implementation is going to be different. You don't have this giant window within which you can spread out any potential Roth conversions. You may need to do more significant Roth conversions in those first few years, but you still need to look at the overall picture. The framework is still the same. If you need to understand at 70, how much are you paying in taxes? What tax bracket are you in at this point? Versus once required distributions kick in, what tax bracket will you be in at that point? What about five years in, 10 years into required minimum distributions? What tax bracket are you projected to be in? And when you get a 30,000 foot view of where you are today, where you're expected to be in the future, what you're doing is simply implementing tax arbitrage. How can you pay taxes in years in which you're in a lower tax bracket to avoid paying even more in taxes in years in which you're in a higher tax bracket? The same framework applies whether you retire at 50, 60, or 70, but the window that you have to do this becomes far more compressed, which means the importance of doing this and having the right strategy is all the more important. Now, part of this ties into point number four. If you do any charitable giving, then as soon as you turn 70 and a half, you are eligible for what's called a qualified charitable distribution. A qualified charitable distribution says that you can actually gift money directly from your IRA to the charity of your choice. Practically speaking, what this allows you to do is it allows you to avoid having your IRA, pulling money out, paying taxes on that, and then gifting what's left to the charity. If instead you can gift right from the IRA to the charity, it saves you money on taxes. The charity doesn't pay any taxes on the gift that they receive. So if you are doing charitable giving, understand that this becomes one of the primary tools that you should think about using. The benefits are twofold. Number one, I just mentioned it saves you money on taxes. But number two, any qualified charitable distribution that you do counts towards the required minimum distribution you must take from your account. So if your required distribution is 40,000 and you want to gift 10,000, well, if you do that directly from your IRA, the remaining amount that you personally have to take is only 30,000. So this can be an excellent tax planning tool as well as a great way to help you gift more to charity without paying taxes on that money yourself. The fifth thing that you need to consider is IRMA surcharges. IRMA surcharges are the extra amounts that you pay on your Medicare premiums. And this kicks in after the age of 65. A couple of things to note with this. When you're looking at IRMA surcharges, you need to do two things. Number one, you need to realize this is based upon a two-year look back. So if you are 70 and you're saying, okay, now my income going forward is gonna be$70,000 per year, but you are a very high income earner. Let's say you're earning$300,000,$400,000,$500,000 per year leading up to that, Medicare is gonna calculate your surcharge as being much higher than it will actually be. It's looking two years behind and saying, wow, you earned$500,000. Therefore, your surcharge is this. But practically speaking, you're seeing my income is much lower now. I just retired. My income on a go-forward basis is only gonna be$70,000 per year because that's what I need, hypothetically in this example, to maintain my lifestyle. Well, what you can actually do is you can actually submit a form to the Medicare office essentially saying my income going forward is going to be this, and you're not actually subject to that two-year look back. The default time period is a two-year look back. They have your tax returns, they have your records, they can very easily apply that. But understand that you can actually challenge that by submitting the form and saying, here's what my income will actually be. Now, if your income ends up being higher, you'll owe retroactive surcharges on that. But there's a way to tell Medicare, here's what your income will actually be. That's very important and can save you a few hundred dollars in that first year or two of retirement. Number two, the second thing to consider with this is you just need to treat Irma as like another tax. If you want to pull more money out of your portfolio, but you're saying, you know what, there's gonna be a tax bill on this, but it's a vacation you really want to take, don't let the tax strategy drive the life decisions. Take the vacation, take the trip. That's what you've saved the money for. And yes, you want to minimize taxes to the extent possible, but not to the extent that's holding you back from doing what you actually want to do. Treat Irma the same way with one caveat. Taxes, ordinary income taxes, they're progressive, which means if you earn one more dollar, that extra dollar is taxed at your marginal tax bracket. It's not impacting the tax rate of other dollars that you previously earned. So, for example, if you're in the 22% tax bracket, that means some of your dollars were taxed at 10%, some were taxed at 12%, and then finally some were taxed at 22%. Each additional dollar that you earn, it's taxed at 22%. With Irma, it's different. Once you do cross a new threshold, your surcharge just jumps to that next level, that next threshold. It's not a progressive thing where some dollars are taxed differently. So you should treat it as a tax, but understand that if you are right up against one Irma surcharge, right up against one Irma threshold, it might make sense to try to be a little bit strategic about where do you pull that next dollar so that you don't spend one more dollar and end up having that one dollar cost you a few hundred dollars the next year in extra surcharges. The next thing that you need to consider if you're retiring later is planning for the survivor. If we just look at averages, the lighter you wait to retire, the earlier, assuming you're married, one of you is going to pass away. So when you're looking at your retirement plan, it's always important to have a plan for the surviving spouse, not just the time that both of you are together, but it's all the more important when you are retiring later. The reason is one of you is likely to pass earlier than you would, of course, had you retired much earlier. What does this mean? It means understanding what's going to happen to Social Security when one of you passes away first. There will be a survivor benefit, but it still means that your overall social security income is cut. When you are married, you get to take advantage of tax brackets that are designed for people who are married finally jointly. When one of you passes away, those tax brackets, in most cases, get cut in half depending on your income. What doesn't typically get cut in half is your income, especially because a lot of your income in many cases is driven by required distributions. And if one spouse passes away, depending on the age gap, their IRA typically just folds into the surviving spouse's IRA and you continue taking required distributions. So the actual required distribution does not go down, but the tax brackets that you get to take advantage of do get cut in half. So the surviving spouse could be on the hook for a lot more in taxes if you're not careful about planning for this ahead of time. And then also just plan for the emotional side of this. One spouse typically tends to be the money person, the other spouse typically is not the money person. That's perfectly fine, but you still do need to be on the same page. The spouse that's not the money person needs to understand where is everything held? How much can we spend? What would happen if my spouse passed away? Who could I reach out to if my spouse passed away? In fact, that's a big reason a lot of people start working with financial advisors later on. They enjoyed doing things their whole life, they were quite good at it, but they know that if they were to pass away, their spouse would not have the same interest, nor would they have the same capabilities when it comes to making sure everything is optimized. We see that all the time at Root Financial. When people come to us, they are doing a good job, but they're preparing not just for their retirements and optimizing everything, they're also preparing for what happens when they pass first. How do they make sure that their spouse is taken care of? So making sure there's a plan in place, not for if one of you predeceases the other, but when. Both the financial side of this as well as the emotional side of making sure the surviving spouse is in a good position to carry on. The last thing that you really need to prioritize if you're retiring later is your health. Now, when you are retiring later, your go-go years are compressed, as I talk about. Because of this, investing in your health is not an expense. This truly is an investment. Without your health, you're not going to be able to enjoy your retirement as much. Without your health, you're not going to be able to take the trips you want to take. Without your health, you're not going to be able to play with your grandchildren with the same energy and vitality you otherwise would have wanted. So, really, really, really prioritize your health in those initial years. Once it goes, it's very difficult to get it back. So, what can you do to make sure you're spending time in the gym, you're spending time staying active, you're spending time eating right so that all those retirement goals you have don't fade away because your health is lost, but those actually become a reality that you can live into. So to wrap up, retiring later is not a disadvantage. It's simply different. And if you design this first five to 10 years very intentionally, everything from your tax strategy to how do you invest to how do you plan for contingencies is making sure your spouse is cared for if you are married, you can create an incredibly rich and meaningful retirement. But it doesn't happen by default. So make sure that you are either putting the work in to create this plan yourself or work with a financial advisor if you need help doing so. That's exactly what we do at Root Financial. If you're interested in Root, you can either click on the link in the show notes below, or you can scan this QR code right here to schedule time with our team. But when it comes to retirement, retirement's not just a math problem. You need to get the math right so that retirement can be all that you want it to be. You can pursue the purpose, the fun, the impact that you can have when you have a well designed strategy.
