This is your year! It's finally time to say goodbye to the workforce and spend your days enjoying retirement, whatever that looks like for you. Before planning your bon voyage party, it's important to determine your retirement goals and develop some strategy around your future income.

This guide will walk you through how to maximize Social Security benefits, address how income is adjusted for inflation, and help you determine exactly when this year to stop working. These personal finance topics are vital to consider when planning any kind of retirement, whether it be early, on time, or delayed. If you don't have enough money to fund your retirement, don't fret. We'll suggest some solutions for cash-strapped retirees, too.

A woman at her retirement party with a cake and balloons

Image source: Getty Images.

The following factors are critical to your retirement planning:

  • Healthcare costs: Know how much to expect and how to save for it
  • Inflation: Learn how to manage how far your money will go, over time
  • Social Security: Know how much to expect, how to decide when to take it, and how to increase benefits and avoid reductions
  • Best-case scenario: You have enough saved to retire
  • Medium-case scenario: You have nearly enough saved to retire
  • Worst-case scenario: You don't have enough saved to retire
  • Annuities
  • Early retirement
  • Taxes in retirement: What you need to plan for and how to minimize taxes
  • The non-financial side of retirement
  • Seek professional help

Healthcare costs: Know how much to expect and how to save for it

Let's start with one of the biggest spending categories in many people's retirements: healthcare. You may be lucky and not have to spend much on it in your golden years, but many people will have to spend a lot. Indeed, the average amount that a retiring 65-year-old couple will pay out of pocket over the course of their retirement is $280,000, per Fidelity Investments. Fidelity also found 46% of survey respondents estimating that they'd need less than $100,000. Too many of us are entering retirement unprepared for all our medical costs.

Keep healthcare costs in mind as you save and invest for retirement, and if you don't think you have as much as you might need, see whether you want to allocate more of your retirement nest egg to healthcare or perhaps delay retiring. For the best chance of spending less, aim to get fit and stay fit throughout retirement, as being healthy can shrink your chances of getting some diseases and conditions. 

One way to save money with healthcare expenses is to use a flexible savings account (FSA), which accepts pre-tax dollars and lets you spend them tax-free on healthcare or dependent-care expenses. If you sock away $2,000 into the account and then spend that on, say, a dentist visit, some medications, a new pair of glasses, counseling sessions, and/or any of a host of other eligible expenses, you'll be paying with money on which you're never taxed. (You do need to use most of your contribution each year -- or you'll lose it. December 31 is the deadline for such spending, though some employers extend that by a few months.) The contribution limit for health FSAs is $2,700 for 2019. 

health savings account (HSA) is even better, if you're eligible for one (in part by having a qualifying high-deductible health insurance plan). Like an FSA, you fund an HSA with pre-tax money, thereby lowering your tax bill. That money can be used tax-free for qualifying healthcare expenses, such as doctor visits, lab work, and medications. HSA money can accumulate over many years, invested and growing. Once you turn 65, you can withdraw money from the account for any purpose, paying ordinary income tax rates on withdrawals. The HSA contribution limit is $3,500 for individuals and $7,000 for families for 2019, and those 55 or older can chip in an additional $1,000.

Take some time to learn more about Medicare as well -- the government-sponsored health insurance program for Americans aged 65 and older -- as it will likely be a welcome support in retirement. One critical thing to know is to not be late signing up for it (around age 65), or you could face significant penalties.

Inflation: Learn how to manage how far your money will go, over time

Ignore inflation at your own risk, because over time it shrinks the purchasing power of your dollars. Having $40,000 in annual income in retirement might work in 2020, but by 2040, if inflation has averaged 3% annually (its long-term average), expenses will cost more, requiring about $72,000.

Bear in mind that investment returns are typically presented in nominal terms, meaning inflation is not factored in. Factoring it in gives you "real" returns. Check out the following data from Wharton Business School professor Jeremy Siegel, who calculated average returns for stocks, bonds, bills, gold, and the dollar, between 1802 and 2012 -- a whopping 210 years!

Asset Class

Annualized Nominal Return

Annualized Real Return













U.S. dollar



Data source:Stocks for the Long Run, by Jeremy Siegel.

If you're earning less than the inflation rate from your investments -- say, in bonds or money market accounts -- then you're losing ground and your investment's purchasing power over time is actually shrinking, not growing. If you're averaging 8% annual growth, understand that it may be more like 5% in "real" terms once  inflation is factored in. (And if inflation is higher than 3%, your real return will be even lower.)

One way to deal with inflation is to invest in healthy and growing dividend-paying stocks. Ideally, the stocks will rise in value over time, while paying you cash every month or quarter or so. (Ideally, reinvest that cash into additional shares of stock that should also grow in value. In retirement, you can use the cash as income to spend on living expenses.) Better still, dividends tend to be increased over time, and they often keep up with or exceed inflation. Imagine that you have $300,000 invested in a portfolio with an overall dividend yield of 3%. That would generate $9,000 in dividend income this year. If those payouts are upped by an average of 5% annually over a decade, they'll approach $15,000 in 10 years.

You might also set yourself up with some dependable annuity income in retirement, which we'll explore in more detail shortly.

Two Social Security cards are shown, lying on top of U.S. currency.

Image source: Getty Images.

Social Security: Know how much to expect, how to decide when to take it, and how to increase benefits and avoid reductions

Next, become savvier about Social Security. Set up a my Social Security account with the Social Security Administration (SSA) to get an idea of how much your benefit checks will be. The average Social Security retirement benefit is $1,420 per month, about $17,000 per year, while the maximum monthly benefit for those retiring at their full retirement age in 2019 is $2,861 (or $34,000 for the year). To qualify for Social Security benefits, you simply need to collect 40 credits, with a credit representing earnings of at least $1,360 (as of 2019). You can earn up to four credits per year, so you can qualify simply by working for a decade and by earning at least $1,360 per quarter ($5,440 for the year). 

If you've earned more than average in your working life, you can expect higher-than-average retirement benefits. And better still, there are ways to increase your Social Security benefits. For example, you might work a few more years to make sure you have at least 35 years of income on your record. (The formula that determines your benefits is based on your earnings in the 35 years in which you earned the most, so if you only earned income in 30 years, it will be incorporating five zeros, which could shrink your benefits considerably.) You might delay starting to collect your benefits, too, as that increases the size of your checks. (It's not always your best move though -- as you'll get fewer checks, overall.)

Married couples have more things to know and strategies to consider. For starters, if one spouse dies, the other can collect the deceased party's benefits or their own -- whichever is larger. Thus, one strategy to consider is to have the spouse with the lower expected benefits start collecting first, while the higher-earning spouse delays starting to collect, making their ultimate benefits larger. (Then, if the higher-earning spouse dies, the lower-earning one can collect the larger checks.) Know, too, that one spouse may be able to receive spousal benefits of up to 50% of the other spouse's benefits instead of their own benefits, if those benefits are larger. 

There are even survivor benefits available for family members of eligible workers who die. According to the Center for Budget and Policy Priorities, "For a young worker with average earnings, a spouse, and two children, that's equivalent to a life insurance policy with a face value of over $725,000 in 2018, according to Social Security's actuaries."

Best-case scenario: You have enough saved to retire

The best-case scenario if you're planning to retire in 2019 is that you have enough income on which to live comfortably without worrying about running out of money. Just how much money do you need to retire with? Well, that number is different for everyone, depending on factors such as expected expenses, health, expected longevity, quality of life, and much more.

It's helpful to think in terms of needed annual income, rather than just a big nest egg of several hundred thousand dollars. One rough rule of thumb is to shoot for 80% of your pre-retirement income, which can be drawn from different income streams, such as Social Security, dividend income, interest income, annuity income, pension income, rental property income, etc.

Crunch your own numbers and see how much you need compared to how much you have or expect to have in retirement. For example, if you need or want to start with $60,000 in annual income in our first year of retirement and you expect to collect $25,000 from Social Security, that leaves a $35,000 shortfall. You might buy $15,000 in annual income via a fixed annuity, leaving $20,000, and you might plan to generate that by having about $500,000 invested in a range of healthy and growing stocks and some perhaps some bonds as well.

Two red dice on top of a torn piece of paper on which is printed the words Retirement and Have you saved enough?

Image source: Getty Images.

Medium-case scenario: You have nearly enough saved to retire

Here's another scenario, though: You don't have quite as much as you need. If you're close to where you need to be, you might choose to work part-time for part of your retirement.

Consider trying to scale back your hours at your current employer, or you might get a different part-time job. Working the equivalent of just three hours a day five days a week is 15 hours -- and if you earn $15 per hour, that could generate $225 per week (pre-tax), or $11,700 annually. That could be enough to bridge the gap between the income you need and the income you currently expect to have coming to you.

Possible jobs include working at a local retailer, tutoring, walking or boarding dogs on Rover and Wag, or giving music or language lessons. You can babysit or nanny on the weekends. You might drive for Uber or Lyft, or make and sell sweaters or jewelry or hand-cut wooden jigsaw puzzles on Etsy or eBay. Other ways to generate income include taking in a boarder for a while or renting out a room on Airbnb.

Worst-case scenario: You don't have enough saved to retire

If you're like many millions of Americans, you're nowhere close to where you should be in terms of saving for retirement. About 19% of workers aged 55 and older report having less than $1,000 saved for retirement, and a whopping 35% have less than $50,000, per the 2018 Retirement Confidence Survey.

Not having enough retirement income can be alarming, but depending on how severe your shortfall is, it may not doom you to a terrible retirement. You might be able to tighten your belt and try to make do with less, but that would leave you stretched and probably stressed out -- and vulnerable to unexpected medical or other expenses.

Instead, consider delaying your retirement by a few years, if possible. Doing so not only helps your retirement account(s) grow fatter, but it also means that those accounts will have to support you for fewer years. You'd keep your employer-sponsored health insurance for additional years, too. On top of all that, you can make your Social Security checks fatter by delaying retirement. If you were expecting to get about $24,000 in your first year of retirement ($2,000 per month), delaying for three years could get you around $2,500 monthly, or close to $30,000 annually.

The table below shows what a difference an extra year or three can make in your investing -- if you're socking away $10,000 annually and it's growing by an annual average of 8%:

Growing at 8% for

$10,000 Invested Annually

20 years


21 years


22 years


23 years


24 years


25 years


26 years


27 years


Data source: Calculations by author.

If you're so far behind that working a few more years won't be enough, think about making some more extreme moves, such as working two jobs, downsizing to a smaller home, perhaps in a less costly area or shedding one of your household's cars. Considering a move? While the median home value in California was recently about $409,300, it was only $161,600 in New Mexico and only $143,600 in South Carolina -- and both states have lower effective property tax rates, too.


Few of us have pension income to look forward to, but you can set up dependable pension-like income for yourself by using annuities. While variable annuities and indexed annuities are often problematic -- by charging steep fees and sporting restrictive terms -- fixed annuities are well worth considering. They're much simpler instruments and they can start paying you immediately or on a deferred basis. Annuity payments can adjusted over time for inflation, too, if you pay extra for that feature or accept smaller payments.

Below are examples of the kind of income that various people might be able to secure via an immediate fixed annuity in the current economic environment. (You'll generally be offered higher payments when interest rates are higher.)



Monthly Income

Annual Income Equivalent

65-year-old man




65-year-old woman




70-year-old man




70-year-old woman




65-year-old couple




70-year-old couple




75-year-old couple




Data source:, as of Dec. 31, 2018.

A deferred annuity might also be useful, helping you avoid running out of money late in life. It starts to pay you at a future point, such as when you turn a certain age. A 65-year-old man, for example, might spend $100,000 for an annuity that will start paying him $1,359 per month for the rest of his life beginning at age 75.

One strategy is putting a big chunk of your nest egg into a deferred fixed annuity that will start paying you a significant sum for the rest of your life beginning after a number of years. Then use the rest of your nest egg to support you until the deferred annuity starts paying.

Early retirement

Most of us would probably love to retire early, as the sooner we retire, the sooner we can get around to all those fun activities that we've long meant to do, like driving across the country, learning to sail, or taking history courses at the local college. Younger and healthier retirees can enjoy their money and time better, as they're more able to travel and enjoy recreation.

If you're still many years from retiring as you read this, you might want to crunch a few numbers and see whether an early retirement is possible for you. It may be more achievable than you think, if you can get aggressive about saving in the coming years. Check out the table below to see how much you might be able to amass:

Growing at 8% for

$10,000 Invested Annually

$15,000 Invested Annually

$20,000 Invested Annually

3 years




5 years




10 years




15 years




20 years




Data source: Calculations by author.

Taxes in retirement: What you need to plan for and how to minimize taxes 

Don't neglect to consider taxes as you plan for retirement. Just because you're not earning wages doesn't mean you get a free pass from the IRS. Even your Social Security benefits may be taxed. They generally aren't, but taxation can rear its ugly head if your income during the year includes Social Security benefits as well as significant other sources, such as wages, self-employment income, interest, or dividend income.

Here are the most common sources of retirement income and their taxation treatment:

  • Social Security: Depending on the amount of taxable income from other sources, Social Security benefits can be taxed, at rates ranging from 0% to 85%.
  • Traditional IRAs and 401(k)s: Distributions from these tax-advantaged retirement accounts (along with 403(b)s, 457s, and thrift savings plans) are taxed as ordinary income, at rates ranging from 10% to 37%.
  • Roth IRAs and 401(k)s: Qualified distributions from Roth IRAs, Roth 401(k)s, and Roth 403(b)s are tax-free, because they were taxed before being saved.
  • Investment income: Short-term capital gains (from investments held for one year or less) are taxed as ordinary income, at rates ranging from 10% to 37%, while long-term capital gains are taxed at either 0% or 15%. Dividends from most stocks held for more than 60 days are taxed at 0% or 15%.

The non-financial side of retirement

Finally, as you prepare to retire in 2019, or later, be sure to give thought to non-financial matters, such as how your daily life will change and how you'll deal with it. Many retirees find themselves bored, restless, or lonely in retirement.

The routine of working is more important to some of us than we realize, so consider how you might deal with the loss of it in retirement -- maybe by working a part-time job while retired or by taking up new pastimes. No matter how old you are, you might look into developing some hobbies and friendships now that you can carry into later years. Being social has been shown to pay big, intangible dividends, too, by keeping you mentally and physically healthier and holding dementia and depression at bay.

Seek professional help

Planning effectively for retirement can be intimidating, but it's vital to do a good job, so don't be afraid to seek help from a financial advisor. A good advisor may save you more than he or she charges you. Ask around for recommendations, or look up local advisors at, where you'll find advisors designated as fee-only, which means they won't earn commissions from selling you products.

Planning for retirement can be tough and tedious, but the end result should be well worth it: low-stress, comfortable golden years full of doing things you want with people you love.