Dan Reiter, CFP®, CPA, CDFA®
What is a “successful” plan for retirement?
Your answer to this question is likely different from those of your friends, family, and neighbors. Why? Money represents something different to everyone.
You might define a successful retirement as the ability to travel and seek memorable experiences. Perhaps you value the opportunity to contribute to causes that are important to you.
Or, it could be that you primarily value supporting and spending time with children and grandchildren. Maybe your goal for retirement is simply the freedom and independence that comes with not having to wake up each day to punch the clock.
Whether you value freedom, enjoyment, love, legacy, or purpose in retirement, money is a tool to help you accomplish your personal and unique life goals. But how you turn those savings into retirement income may look different from the approach your parents or grandparents relied on.
The shortest definition of a successful retirement that most would agree on is this: To have more money than life, and not more life than money.
That goal has not changed. What has changed is how much responsibility falls on you to make it happen.
Much has been said and written over the years of the “three-legged stool” that serves as the foundation for a retirement plan: (1) employer-provided pension benefits, (2) Social Security, and (3) personal savings.
The stool metaphor is easy enough to understand. If you sit on a three-legged stool, you probably want your stool’s legs to be the same length and have the same capacity to bear your weight. If one leg is shorter or goes missing, you have an uncomfortable problem.
Most nearing retirement have likely heard concerns about Social Security’s long-term funding. It is true that, according to a June 2026 release, the Social Security trust fund reserves are projected to be depleted by 2034. While Social Security remains an important source of retirement income, questions about future benefits add uncertainty to planning.
Employer-provided pensions are also absent for many retirees. With a traditional defined benefit pension, the employer promises a retirement benefit and bears much of the investment and funding risk. Retirees receive pension income without having to decide how much to withdraw from an individual account.
Today, many employers instead offer defined contribution plans such as a 401(k). The employer may help fund the account, but employees take on more responsibility for investing it and turning it into retirement income.
That leaves personal savings—including money accumulated in workplace retirement accounts—with an important job: covering the expenses that Social Security and any pension income do not meet.
A brief look back helps explain that shift. Over the past century, retirement planning has evolved from the expansion of employer pensions and Social Security toward greater reliance on personal savings. Along the way, changes in how long retirement may last and who bears responsibility for funding it has brought new decisions about investments, withdrawals, and taxes.
Early 1900s–1930s: Retirement becomes more attainable. Working beyond age 65 was much more common a century ago. The expansion of employer pensions and the creation of Social Security in 1935 helped make retirement financially possible for more Americans.
Mid-century: Employer pensions provide a foundation. For workers covered by a traditional pension, employers took responsibility for funding a promised retirement benefit. Retirees did not have to manage an individual account and decide how much to withdraw from it to receive that pension income.
1970s–1990s: Workplace savings plans take a larger role. ERISA established protections for private retirement plans in 1974. Later legislation and regulations helped expand the use of 401(k) plans. Over time, participation shifted toward defined contribution plans , placing more investment and retirement-income responsibility on employees.
Today: More decisions fall to the individual. Increases in life expectancy at retirement age and the shift away from traditional pensions create a different planning challenge. Your savings may need to support decades of retirement, with more decisions about investments, withdrawals, and taxes falling to you.
In this new world of retirement planning, retirees have greater personal responsibility for planning their retirement expenses, along with greater complexity in their tax responsibilities.
The three-legged stool looks different today. With concerns about future Social Security benefits and fewer guarantees in employer-provided benefits, retirees may feel less comfortable putting weight on it. For many, one leg carries more of the load: personal savings.
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Old system: Your employer was largely responsible for converting your working years into retirement income. The risks and burdens are bore mostly by the employer. New system: Your employer helps fund an account, but you are increasingly responsible for saving enough, investing it, managing taxes, deciding when and how to withdraw it, and making it last. You bear the risks, which are continuously increasing with earlier retirement and longer life expectancies. |
Most retirees may think that retirement means that they have achieved financial independence. Sure, if enough is accumulated, you may be financially independent from having to go to work every day. But you are just one party with an interest in your retirement. Who else is there? The government and “Mr. Market.”
The idea of “Mr. Market” as a metaphor for the stock market was introduced by famous investor Benjamin Graham in his 1949 book titled The Intelligent Investor. In his book, Graham describes the stock market ("Mr. Market") as a temperamental fellow subject to wild mood swings in the short-term. An aggressive buyer one day, and a depressed seller the next.
The stock market is an immensely valuable partner in your retirement. There are few (if any) vehicles that are better in the aim of long-term wealth building and creation. By “long term”, I mean decades. Year to year, month to month, or day to day, though? Mr. Market can be unpredictable.
Source: Dimensional. Annual returns for the S&P 500 Index, 1926–2025.
Over the past 100 years, the stock market as measured by the S&P 500 index has had an annualized return of about ten percent per year.
How many years did the stock market return anywhere close to its average, within plus or minus 2% points? Seven times. Seven years out of a hundred.
For those who are still saving money for retirement, a decline can provide an opportunity to buy more at lower prices. However, Mr. Market’s volatile nature creates a different challenge for those withdrawing from their portfolio.
This is due to something called sequence of returns risk. In simple terms, the timing of good and bad market years matters when you are taking withdrawals. A significant decline in early retirement, combined with withdrawals, can make it harder for your savings to recover.
Let’s look at an illustration of this risk. The BlackRock visual below starts with a hypothetical retiree at age 65 and assumes:
Source: BlackRock
In Portfolio A, the good years occur first. Portfolio B shows a steady return of 7% every year. Portfolio C reverses Portfolio A’s sequence, with the negative occurring first.
Despite the exact same average return of 7% per year, what happens? The retiree with Portfolio C runs out of money before age 90, whereas the retiree with Portfolio A still has over a million dollars at age 90.
It would be great to be able to predict the whims and emotional state of Mr. Market in your early years of retirement. That’s the tricky thing with emotions, though. They’re unpredictable.
Retirement can last twenty to thirty years or longer. Over that period, Mr. Market can be a valuable partner. Over the first few years, though, his unpredictable moods can make withdrawals more difficult.
Holding a portion of anticipated withdrawal needs in lower-risk assets such as cash and high-quality bonds may help reduce the need to sell stocks after a decline. The appropriate amount depends on your circumstances.
The point is this: You can’t control the stock market over a period of days, months, or even a few years. You can plan how much exposure you have to it and how you will fund withdrawals.
But market returns are only part of what determines how much you need to withdraw. Taxes have a say, too.
While perhaps not as temperamental as Mr. Market, the government brings its own challenges and demands as a retirement partner.
You worked your entire life paying taxes on the income that you earned throughout your working career. Your working income stops when you retire, so your tax does too, right? Wrong. What might be surprising is the amount of taxes you could pay throughout retirement.
Let’s consider a hypothetical example.
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A Retirement Example: Sandra Jones Sandra just retired at age 60 and is very excited to spend her retirement traveling the world and watching her young grandchildren grow up. A lifelong saver, she has contributed a high percentage of her earnings for many years to her pre-tax workplace 401(k) plan. At the time of retirement, she accumulated right at $2.5 million in her savings plan. Invested in a balanced-risk investment strategy, she expects her 401(k) to continue to grow at about 7% per year on average. Sandra expects to receive about $3,500 per month from Social Security when she turns 67, which will serve to reduce the amount she needs to withdraw from her retirement savings at that time. For now, however, she begins withdrawing $12,000/month net of taxes from her 401(k) to cover her living needs. Curious about taxes, Sandra asks her financial advisor to tell her how much in projected taxes in her lifetime she will pay. Projecting Sandra’s withdraw needs into the future and assuming spending will need to increase with inflation at a rate of 2.5% per year, her advisor calculates the number. Over $1.3 million in federal taxes alone. Once state and additional Medicare taxes are calculated and added, it’s possible taxes would exceed $1.75 million. Sandra’s lifetime taxes may exceed 70% of the original balance in her 401(k) she has spent her whole career accumulating! |
Sandra’s example shows why taxes deserve a place in your retirement spending plan: the money you withdraw must cover both your living expenses and the tax bill that comes with those withdrawals.
For many retirees, taxes are the single largest expense. In one recent survey of households with the highest 20% of income, personal taxes as a percentage of gross income ranked higher than any other major category, including housing.
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Major category |
Percentage of pretax income |
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Personal taxes |
19.35% |
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Housing |
17.39% |
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Personal insurance and pensions |
10.06% |
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Transportation |
9.39% |
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Food |
6.44% |
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Healthcare |
3.61% |
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Entertainment |
3.03% |
Source: BLS 2022 Consumer Expenditure Survey
The size of that expense is only part of the planning challenge. Sandra’s projected tax bill depends on the rules in place today—but her retirement could last several decades. What happens if those rules change?
The government brings another challenge to your retirement plan: a growing debt problem. Addressing that problem could involve cutting spending, raising taxes, or some combination of the two. You cannot know which decisions lawmakers will make or how those decisions could affect your retirement dollars.
For now, we are enjoying low federal income tax rates by historical standards. In 2026, the top federal ordinary income tax rate is 40.8%. Considering that the highest federal income tax brackets once exceeded 90%, today’s rates are hard to complain about.
Source: Bradford Tax Institute
Still, tax rates and legislation are never guaranteed to last forever. Your second silent partner in retirement, the government, will continue to have a claim on some of your retirement income. Planning for how that claim could change over time is part of helping your savings last.
That brings us to the third partner in your retirement plan: you.
Placing you third in line is intentional. Why? Because you cannot control government tax policy or what the stock market does over short periods of time. You can, however, plan how your savings will be invested and used.
The construction of any good plan for retirement should address this question:
Acknowledging that I’m partnered with the government and stock market for the duration of my retirement life, how do I minimize their negative claims on my retirement dollars?
If you are like many retirees with substantial savings, you have been a good saver over your working life. You probably also have experience investing through the ups and downs of the market. But you may have spent less time learning how to plan and manage taxes in retirement.
That is where proactive tax planning comes in. You cannot choose the tax rates, but you can consider the tax consequences of your decisions before making them. Which accounts will fund your withdrawals? How might those choices affect what you owe now and in later years? For example, a taxable retirement withdrawal may also increase the portion of your Social Security benefits subject to tax.
The goal is to look for opportunities to reduce the government’s claim on your retirement pie, leaving more available for your personal goals. Tax planning cannot eliminate market risk, but it can help you evaluate the tradeoffs in how you use your savings.
If you’re a few years out from retirement, even better. Certain strategies require preparation and foresight, in some cases years before retirement begins. If you’re already nearing or in retirement, there are still opportunities worth evaluating. For a closer look, read our article on retirement tax strategies before and after Social Security.
Key Takeaways
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For many retirees, the question used to be when the pension check would arrive. Today, it’s how to turn years of savings into income—and make it last. With more of that responsibility falling on you, it’s natural to have questions about how all the pieces fit together.
Does your plan explain where your income will come from, how you’ll cover spending during a market decline, and what you may owe in taxes? Those answers help connect the money you’ve saved with the retirement you want.
At Prosperity Planning, we help you work through those questions as part of a retirement plan built around your goals. Our CFP® professionals and in-house CPA bring investment and tax considerations into the same conversation, so you can understand how your decisions affect one another. Together, we can help you turn the savings you’ve built into a plan for the retirement you want. Schedule a conversation today to get started.
Schedule a call with one of our Certified Financial Planner™ (CFP®) professionals today!
Prosperity Planning is neither an attorney nor an accountant, and no portion of the content should be interpreted as legal, accounting or tax advice. Be sure to consult with a tax professional before implementing any investment strategy. Investment advice, financial planning, and retirement plan services are provided by Prosperity Planning, Inc., an SEC registered investment advisor. The information contained herein, including but not limited to research, market valuations, calculations, estimates and other material obtained from these sources are believed to be reliable. However, Prosperity Planning, Inc. does not warrant its accuracy or completeness. The information contained herein has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or to participate in any trading strategy. If an offer of securities is made, it will be under a definitive investment management agreement prepared on behalf of Prosperity which contains material information not contained herein and which supersedes this information in its entirety. Any investment involves significant risk, including a complete loss of capital and conflicts of interest. The applicable definitive investment management agreement and Form ADV Part 2A will contain a more thorough discussion of risk and conflict, which should be carefully reviewed before making any investment decision.