Chapter 13: The First 10 Years of Retirement — What Really Happens to Your Money

The first decade is like testing your vessel in open water: you’ll see real storms, real calms, and learn how your ship handles both.

The first decade of retirement is where your financial plan stops being theoretical and becomes real. This is the period when your income sources turn on, your spending patterns shift, your taxes change, and your healthcare costs evolve.

Most retirement books focus on “the number.”

This chapter focuses on the flow — how your money actually behaves in the first 10 years.

1. The Retirement Cash‑Flow Timeline

Retirement income doesn’t arrive all at once. It layers in over time.

Here’s the typical sequence:

Years 1–5

• Savings bridge years (if retiring before Social Security)
• IRA withdrawals begin
• One spouse may start Social Security
• Healthcare may still be private (if under 65)

Years 6–10

• Both Social Security streams active
• Medicare begins at 65
• RMDs may begin at 73 (depending on age)
• Portfolio withdrawals stabilize

Your income changes.

Your taxes change.

Your healthcare costs change.

This is normal — and predictable.

2. The Go‑Go, Slow‑Go, and No‑Go Years (Financial Version)

These phases aren’t about psychology — they’re about spending behavior.

1. The Go‑Go Years (roughly 60–75)

Spending is typically highest because:

• You travel more
• You tackle home projects
• You’re more active
• You have more energy

This is why withdrawal flexibility matters early on.

2. The Slow‑Go Years (roughly 75–85)

Spending naturally declines:

• Less travel
• Fewer big purchases
• More time at home

This often reduces pressure on your portfolio.

3. The No‑Go Years (roughly 85+)

Spending shifts, not spikes:

• Travel drops
• Healthcare rises
• Daily living becomes simpler

The mix changes, but the total often stays manageable.

Understanding this curve helps you build a withdrawal plan that adapts over time.

3. How Spending Actually Changes in the First 10 Years

Most retirees discover that spending is not a straight line.

It behaves like this:

• High early (activity + travel + projects)
• Lower mid (routine + stability)
• Variable late (healthcare + support)

This is why predicting a single “retirement number” is impossible.

Your cash‑flow system adapts:

The categories shift, but the structure stays the same.

4. The Income Transition: What Turns On and When

Example: Two‑Phase Spending Snapshot (Years 1–10)

• Years 1–5: higher travel/projects, private healthcare (if <65), withdrawals bridge until one Social Security stream starts
• Years 6–10: travel slows, Medicare begins, two Social Security streams active, withdrawals stabilize around needs + modest wants

Practical takeaway: Plan for a higher discretionary band early and a lower band later, while keeping needs fully covered throughout.

The first 10 years are when your income sources activate in stages.

1. Savings (bridge years)

If you retire before Social Security, savings fill the gap.

2. IRA withdrawals

These often begin immediately to support cash flow.

3. One Social Security stream

Usually the lower earner starts first.

4. Two Social Security streams

This is when income stabilizes.

5. RMDs (Required Minimum Distributions)

Begin at age 73 for most retirees.

Each layer changes your tax picture and your withdrawal needs.

5. Taxes in the First 10 Years

Your tax situation changes more in the first decade of retirement than at any other time.

Key transitions:

1. Roth conversion window

The years between retirement and Social Security are often the lowest‑tax years of your life.

2. Social Security taxation

Up to 85% of benefits can be taxable depending on income.

3. IRMAA cliffs

Higher income can increase Medicare premiums.

4. RMDs

These can push you into higher brackets if not planned for.

The first 10 years are your best opportunity to shape your lifetime tax bill.

6. Healthcare in the First 10 Years

Healthcare is one of the biggest financial variables early in retirement.

Before 65

• ACA plans
• COBRA
• Employer retiree coverage
• Part‑time work with benefits

At 65

• Medicare begins
• Medigap enrollment window opens
• Prescription coverage decisions matter

After 65

Healthcare becomes more predictable — but long‑term care risk increases.

Planning for these transitions protects your cash flow.

7. Portfolio Behavior in the First 10 Years

The early years are the most vulnerable to market downturns.

Sequence‑of‑returns risk

Bad markets early can hurt more than bad markets late.

This is why:

• Guardrails matter
• Cash reserves matter
• Flexibility matters
• Spending adjustments matter

Simple Guardrails You Can Use

• Start at a reasonable withdrawal (3%–4% depending on flexibility)
• Pause inflation raises after a large market drop (e.g., 15%–20%)
• Temporarily reduce withdrawals by 5%–10% during downturns
• Resume normal increases after recovery

Cash Reserves as a Buffer

Maintain 1–2 years of withdrawals in cash or short‑term reserves. This reduces the need to sell during declines and gives your portfolio time to recover.

After the first decade, the risk declines as Social Security and Medicare stabilize your income.

8. What “Success” Looks Like in the First 10 Years

A successful first decade of retirement is not about:

• beating the market
• predicting spending
• hitting a perfect withdrawal rate

It’s about:

• stable cash flow
• manageable taxes
• predictable healthcare
• flexible withdrawals
• a portfolio that supports your lifestyle

If your income covers your needs and your portfolio remains healthy, you’re on the right course.

9. A Navigation Metaphor

The first 10 years of retirement are like testing your boat in open water for the first time.

You’re learning how the vessel handles:

• different winds (market conditions)
• different currents (tax rules)
• different weather (healthcare costs)

Once you understand how your cash‑flow system behaves, the rest of the journey becomes far more predictable.

Action Steps

• Create a year‑by‑year timeline (savings → IRAs → SS → RMDs)
• Budget for higher discretionary spending in Years 1–5
• Keep 1–2 years of withdrawals in cash reserves
• Set simple withdrawal guardrails (pause raises, temporary reductions)
• Coordinate Roth conversions with ACA/IRMAA and future RMDs
• Revisit spending, taxes, and healthcare annually

Star to Steer By