5 Questions to Test Your Retirement Spending Readiness

Retirees entering the distribution phase face a different set of financial decisions than the accumulation years, where Social Security claiming timing, tax strategy, and withdrawal sequencing determine whether savings last through a retirement that can span two decades.

"Income is the heartbeat of retirement. Without a sustainable income strategy, retirement plans can go awry," said Vincent Sgro, wealth adviser and financial planner at Sterling Bridge Financial Group in Florida.

Claiming Social Security at 62 locks in a roughly 30 percent permanent reduction for those with a full retirement age of 67, while deferring to 70 raises monthly benefits. The earnings test withholds $1 for every $2 earned above $24,480 in 2026 for those not yet at full retirement age.

The stakes are measurable: a retiree spending $10,000 monthly needs a withdrawal strategy tailored to that need, and a poor market in the first five to 10 years of retirement can drain a portfolio before a recovery arrives.

Social Security Timing Sets the Income Floor

The claiming decision is the single largest lever on retirement income. Filing at 62, the earliest allowed age, reduces monthly checks by roughly 30 percent for life for those born in 1960 or later, whose full retirement age is 67. Waiting to 67 removes the earnings test entirely and restores full benefits, while deferring to 70 adds delayed-retirement credits that raise the monthly amount further. The Social Security Administration's 2026 earnings limit of $24,480 means working retirees who exceed it lose $1 of benefits for every $2 earned above the threshold — a withholding that is repaid at full retirement age but can strain near-term cash flow. This year's 2.8 percent cost-of-living adjustment, applied on a percentage basis, makes the permanent reduction more costly over time because smaller baseline checks produce smaller annual raises. The right claiming age depends on health, life expectancy, income needs, tax situation, and whether maximizing survivor benefits for a spouse matters — there is no one-size-fits-all answer.

Roth Conversions and Sequence Risk Shape the Drawdown

Tax strategy becomes a distribution-phase concern. Roth conversions let retirees move money from traditional IRAs and 401(k)s into tax-free accounts, paying taxes at conversion but avoiding them on later withdrawals. Timing matters: converting a few years before required minimum distributions begin avoids stacking income, but moving too much in a single year can push a retiree into a higher tax bracket or raise Medicare premiums. Sequence-of-returns risk is the other major threat. In the accumulation phase, the order of investment returns makes little difference over a 20-year stretch; in retirement, a weak market in the first five to 10 years combined with withdrawals can severely drain a portfolio, leaving too little to benefit from a later recovery. Reducing portfolio volatility approaching retirement is one strategy to blunt that risk.

The distribution phase can and should be the fun phase — if retirees let it. Those who spent decades living frugally to save often struggle to turn off that mindset, watching pennies and skipping the travel and experiences they funded. Working with an adviser who specializes in income planning, tax efficiency, and legacy goals can provide the structure needed to spend with confidence. The figures above reflect 2026 Social Security limits and current rules; retirees should verify against the latest official Social Security Administration announcements before making a claiming decision.

This content is for informational reference only and does not constitute professional advice.