Retirement planning is surprisingly similar to climbing a mountain or going for a hike. On the way up, you primarily focus on reaching the top. But on the way down, safety may become your priority.

Missteps become more dangerous as the hours on your feet consume energy, and time is limited as daylight wanes. Fortunately, with awareness, you can manage the risks and improve the chances of a successful journey.

What does this have to do with retirement? In previous decades, you may have thought of retirement as an accumulation goal: You save money and attempt to build up as much in retirement savings as possible – much like working your way to the top of your hike. But as you approach your retirement years (or during those years), the priorities change and the stakes rise. 

Income First

As you probably already know, it’s best to look beyond simply growing an investment account at this stage in life. Your financial decisions related to retirement should revolve around income, whether you’re deciding how to invest, where to pull money from, or when to retire. 

When you prioritize after-tax income over investment performance, you don’t necessarily need to chase fancy strategies or get distracted by the financial “flavor of the day.” The topics below can help you focus on the most important aspects of living comfortably during retirement.

#1: Taxes (How Much You Keep)

Tax planning is critical to a retirement income plan. Your withdrawals and income only matter to the extent that you can actually spend that money. Whatever you pay in taxes is gone for good, so it’s wise to manage your tax liability. 

Smart strategies involve estimating how much you’ll pay and exploring opportunities to pay less. For example, you might choose to withdraw from specific accounts that maximize your after-tax spending, or you might convert pre-tax retirement savings to after-tax Roth holdings during years when you’re in a relatively low tax bracket.

Your taxable income can impact retirement in surprising ways. For example, your income level may cause you to pay taxes on your Social Security benefits, or it could lead to higher Medicare premiums.

Pay Attention to the Right Measure

All that said, you probably don’t need to overdo it – it’s easy to find sensational rabbit holes here. Remember that the goal is to maximize after-tax income, not necessarily score the lowest tax bill possible in a given year.

Plus, we all benefit from taxes (through roads and other services, for example), although you don’t need to pay any more than your fair share.

It’s easy to forget taxes while running retirement calculations. If you’re not sure whether your plan includes after-tax income, double-check the assumptions.

#2: Healthcare Costs

Healthcare becomes increasingly important during retirement, so it’s crucial to build these costs into your income plan. 

The numbers change every year, but some estimates say that a 65-year-old woman retiring today needs roughly $193,000 for healthcare during retirement. That includes Medicare premiums and selected out-of-pocket expenses (but does not include long-term care, dental, and other costs).

But you don’t pay all of that in a lump sum. Instead, you might pay roughly $12,300 in your first year – which you can potentially fund with regular Social Security and pension income. Still, healthcare costs tend to rise over time, and the rate of increase has been rapid.

You may be accustomed to having an employer pay for coverage, but that typically ends when you stop working, and most people use Medicare after age 65. Consider enhancing your coverage with a Medigap or Medicare Advantage plan, but be aware that there are always pros and cons.

Speak with a health insurance professional licensed in your state (and discuss any health conditions you have) so you know what your expenses might look like.

Long-Term Care (LTC)

Long-term care is one of the most vexing aspects of retirement planning. In addition to ongoing annual costs, you may face a substantial increase in healthcare spending that your retirement income cannot support. To address that risk, you may want to look into insurance coverage, self-funding with savings or home equity, and other strategies.

#3: Inflation

Costs tend to rise over time. Do you remember how much you used to pay for gas, bread, and other everyday items? That trend is likely to continue, so it’s important to have an income stream that keeps up with those rising costs.

When planning for retirement income, people often ignore the effects of inflation. But doing so can substantially change your retirement prospects. Unfortunately, factoring in inflation means you may need more assets (or a later retirement date, or a smaller income). As unpleasant as that may be to discover, it’s better to know this ahead of time.

There’s no way to predict exactly what the inflation rate will be during your retirement years. However, you can make educated guesses based on economists’ forecasts (which might or might not hold true). Just do the best you can with the information available and make adjustments as life unfolds.

Does Spending Keep Going Up?

To further complicate matters, your spending might change over time. For example, while you may see rising healthcare costs, travel expenses could decline. Some people think about retirement as the “Go-Go, Slow-Go, and No-Go” years. Others predict a smile-shaped spending curve that starts high (yay retirement!), then dips as you slow down, and rises again as health issues intensify.

#4: Investments Matter (Somewhat)

Investments typically get a lot of attention – perhaps too much attention – when it comes to retirement. Your investment choices are certainly important, but your behavior might be the most critical aspect here.

For example, you might not need to take a substantial amount of risk, depending on your circumstances and your needs. Ultimately, boring investing strategies (possibly implemented with risk management strategies in mind) can be a prudent way to manage your money.

On the other hand, avoiding risk altogether can expose you to the risk of losing purchasing power to inflation.

Sometimes people get enamored with income investing, or selecting investments primarily based on their interest or dividend income. That’s an understandable approach, but it has pitfalls. For example, you could end up overweighting certain sectors and ignoring others, and a total return strategy (which pursues a combination of growth and income) might make sense, as well.

One of the most important aspects of the investment piece is uncertainty. You can’t know if your holdings will perform well or not, so it’s best to be conservative with your assumptions. Even then, you may benefit from running a variety of scenarios, as described below.

Take Your Temperature

If you’re curious what level of risk might be right for you, this risk-tolerance questionnaire may provide insight. Sometimes going through the process and thinking about the questions is more valuable than any quiz results.

5. “What If” Scenarios

There’s no way to predict the future perfectly. That’s why it’s crucial to develop a retirement income plan that accounts for a variety of outcomes. Whether you build your plan on your own or with the help of a financial planner, be sure to explore several optimistic and pessimistic scenarios.

Your life is like a book that is being written day by day. Creating a plan is smart, but it’s best to expect things to change, and your initial plan will need ongoing adjustments. You can anticipate some of those issues while building a plan and “test” how the plan works – which is an excellent way to understand your finances.

Let’s Have a Conversation:

Which of these seems most important to you, and what’s missing from this list? What have you found most interesting as you plan for retirement, and were there any surprises that you think others might find helpful? Most importantly, where do you enjoy hiking most – forest, beaches, mountains, etc.?