Navigating the transition to retirement: a strategic financial guide

By Jason R. Friday, CFP®, MPAS®, RICP®, CMFC, Head of Financial Planning | Citizens Wealth Management

Retirement is often viewed as a single moment: your last paycheck and the first day of the longest vacation of your life. But in practice, it’s better understood as a transition that takes time and thoughtful planning.

The years leading up to retirement are when key decisions come into focus. This is when you define how your savings will translate into a sustainable income stream. By the time you retire, your plan should already be in place, with a clear structure for how income will be generated and how your lifestyle will be supported over time.

Retirement income planning is often complex and the decisions you make can have long-term implications. While this guide can get you started, working with a financial professional is recommended to help ensure your strategy is comprehensive and built to last.

The pre-retirement runway: 2 to 5 years before retirement

Here are four steps to consider as you prepare for your retirement transition.

1. Create a retirement budget

A clear understanding of spending is the foundation of any retirement plan. Start by reviewing two years of bank and credit card statements to establish a reliable monthly baseline. Add up the total and divide by 24 to get an average monthly amount. From there, adjust for expected changes.

For example, your commuting costs may be reduced, but these may be offset by higher travel or health care expenses. Health care costs represent some of the most significant and variable retirement expenses. Be sure to account for Medicare premiums and potential long-term care needs, so these high-variability costs don't derail your base budget.

This period is also an opportunity to streamline your expenses and accelerate any debt reduction, lowering fixed costs and creating more flexibility as you transition into retirement.

2. Identify and strengthen income sources

With a spending framework in place, take an inventory of your available retirement income sources. Most retirees rely on some combination of Social Security, pensions, retirement account withdrawals, part-time work and passive income streams.

In your final working years, consider maximizing catch-up contributions and funding a health savings account (HSA), if eligible, to help strengthen your financial position. Contributions to your HSA are tax-deductible, any investment growth is tax-deferred and withdrawals to pay for qualified health care expenses are tax-free.

In addition to identifying your retirement income sources, you'll need a coordinated plan for how and when they will be used. A well-crafted strategy can help address key retirement risks, support tax efficiency and provide the framework for your income stream.

3. Build your retirement paycheck

Research and experience suggest that retirees are often reluctant to spend the savings that they've built over decades. This is typically due to the fear of outliving their savings or concerns about needing the funds in the future.¹

As a result, building a floor of lifetime income to cover essential expenses is a key aspect of retirement planning. Knowing basic expenses are covered can help reduce anxiety about overspending and free up discretionary spending for things like vacations, entertainment and dining out.

This process typically begins with making decisions about Social Security. Claiming benefits at age 62 results in a permanent reduction, while waiting until full retirement age (67 for those born in 1960 or later) provides full benefits. Delaying until age 70 increases benefits by approximately 8% per year. In January 2026, the average monthly Social Security benefit was about $2,071.²

Beyond Social Security, some retirees have access to defined benefit pension plans. While this is a valuable source of guaranteed retirement income for many current retirees, pensions have become less common in recent decades. Only 29% of working Americans have access to this type of retirement plan today.³

Lifetime income annuities can be considered to help close remaining gaps between your retirement income sources and essential expenses. In exchange for a lump-sum payment or series of payments, lifetime income annuities can provide a guaranteed income stream for life. Similar to Social Security and pensions, this can help cover essential expenses and lessen your reliance on portfolio withdrawals.

4. Create a plan for your retirement accounts

Once your income floor is established, retirement and investment accounts can be used to supplement your retirement paycheck, fund your savings or remain invested for potential long-term growth.

Many retirees find value in organizing assets into time-based segments, often referred to as a "bucket" approach:

• Short-term assets, such as cash and high-yield cash equivalents, can be targeted for needs in the next one to five years.
• Medium-term assets, such as bonds and equity funds, represent the five- to ten-year timeframe bucket.
• Long-term assets, typically equity funds, are designated for needs ten years or more in the future.

A disciplined withdrawal strategy can help balance distributions across taxable, tax-deferred and Roth accounts, potentially reducing overall tax liability and avoiding higher Medicare Income-Related Monthly Adjustment Amount (IRMAA) premiums tied to income thresholds.

Implementing your retirement plan

The early years of retirement are all about putting your plan into action. However, retirement is not a "set-it-and-forget-it" event. Tax laws evolve, investment performance fluctuates and your personal needs change over time.

An annual review should include income sources, spending patterns, beneficiary designations, insurance coverage and estate planning documents. Required minimum distributions (RMDs), which currently begin at age 73, add another layer of complexity that should be incorporated into your tax and income strategies.

Regular reviews create the opportunity for you to refine your approach, helping maintain both stability and flexibility as your circumstances evolve over time.

Begin the transition to retirement with confidence

A well-prepared transition to retirement is built on thoughtful planning, ideally completed before you stop working, along with disciplined execution and ongoing review.

Professional guidance can play a valuable role in this process, helping align complex financial decisions with your broader goals. A Citizens Wealth Advisor can help you create a personalized retirement plan designed to support clarity, flexibility and long-term confidence.

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