You spent decades building your retirement savings. Eventually, the question changes.
It’s no longer simply: “Am I saving enough for retirement?”
It becomes: “How do I turn what I’ve saved into income throughout retirement?”
That question is at the heart of retirement income planning.
For retirees and people approaching retirement in Pennsylvania, creating a retirement income strategy can involve Social Security, pensions, 401(k)s and 403(b)s, IRAs, investments, taxes, Medicare, insurance, and estate planning. Each piece matters on its own, but decisions made in one area can also affect the others.
That is why retirement planning involves more than reaching a certain account balance.
A thoughtful retirement income plan can help you evaluate questions such as:
- When should I claim Social Security?
- Which retirement accounts should I withdraw from first?
- How much can I reasonably plan to spend each year?
- How could taxes affect my retirement income?
- Is a Roth conversion worth considering?
- How should my investments change as I approach retirement?
- What happens to my plan if the market falls shortly after I retire?
- How should a pension fit into my overall income plan?
- What should I anticipate for Medicare and healthcare expenses?
- How does my retirement strategy coordinate with my estate plan?
For Pennsylvania retirees, there are also state-specific tax and estate considerations worth understanding.
At Flick Financial in Beaver Falls, we work with individuals and families on retirement planning as part of a broader wealth-management process. Depending on the services selected and individual circumstances, planning may address retirement, investments, insurance, Medicare, employee benefits, estate considerations, long-term care, charitable giving, and coordination with CPAs and attorneys.
What Is Retirement Income Planning?
Retirement income planning is the process of evaluating how your savings, investments, Social Security, pensions, and other financial resources may work together to support your expenses after you stop working.
During your working years, the financial equation may feel relatively straightforward: you receive a paycheck and put some of it away for the future.
Retirement changes that process. The assets you've accumulated may now become one of the sources used to fund your expenses. For many retirees, income may come from a combination of:
Social Security + pension income + retirement-account withdrawals + investment income + cash savings + other income
But simply having these resources isn't the same as having a retirement income strategy. The strategy considers when and how you use them.
Two Pennsylvania couples could retire with similar amounts of money but make very different decisions about Social Security, portfolio withdrawals, investment allocation, spending, and taxes.
Retirement income planning is about evaluating how those decisions work together based on your individual circumstances.
1. Start With the Retirement You Actually Want
Before deciding how to generate retirement income, consider what you want that income to support. Retirement expenses often fall into several categories. Your essential expenses may include housing, utilities, groceries, transportation, insurance, healthcare, and taxes. Your lifestyle expenses may include travel, dining out, hobbies, entertainment, gifts, and time with family.
Then there are larger expenses that don't necessarily occur every month: replacing a vehicle, repairing a roof, helping a family member, taking a major vacation, or making improvements to your home.
A retirement plan can account for all of these.
This is also why a general guideline such as needing a certain percentage of your pre-retirement income doesn't tell the whole story.
One family may enter retirement with a paid-off home and relatively modest expenses. Another may hope to travel frequently. Someone else may plan to provide financial support to children or grandchildren.
A more useful starting question is: What does the retirement you envision realistically cost?
Once you have an estimate, you can begin comparing those expenses with Social Security, pensions, investments, savings, and other potential income sources.
2. Know Where Your Retirement Income May Come From
Social Security
Social Security can provide an important source of monthly retirement income, but one of the biggest decisions is when to claim it.
Retirement benefits can generally begin as early as age 62. Claiming before full retirement age results in a reduced monthly benefit. For individuals born in 1960 or later, full retirement age is 67. Delaying benefits beyond full retirement age can increase the monthly Social Security benefit until age 70.
For individuals born in 1943 or later, Social Security delayed retirement credits are generally 8% per year for benefits delayed beyond full retirement age, up to age 70. This increase applies to the Social Security retirement benefit and should not be interpreted as an investment return.
That does not mean everyone should wait until 70. The appropriate claiming strategy depends on individual circumstances, which can include health, anticipated longevity, marital status, employment, other income and assets, cash-flow needs, and retirement goals.
The important point is that Social Security can be considered alongside the rest of your retirement income plan rather than as an isolated decision.
Pensions
Pensions remain relevant for many Pennsylvania households, including people who have spent their careers in education, government, manufacturing, unions, healthcare, and other occupations offering defined-benefit plans.
Depending on your pension, decisions may include:
- When to begin benefits
- Which available payment option to select
- Whether survivor benefits are available
- Whether benefits include cost-of-living adjustments
- How pension income affects the amount you may need from other assets
Some pension elections are difficult or impossible to change once selected, making it important to understand the available options before making a decision.
401(k)s, 403(b)s, IRAs and Other Retirement Accounts
For many retirees, tax-deferred retirement accounts represent a significant portion of their savings. These accounts can provide flexibility in deciding when and how much to withdraw, subject to applicable plan and tax rules.
The timing and amount of distributions can also have tax implications, which is one reason withdrawal decisions should be evaluated in the context of the overall retirement plan.
Roth Accounts
Qualified Roth distributions receive different federal tax treatment from distributions from traditional pre-tax retirement accounts when applicable requirements are satisfied.
Because different types of accounts may receive different tax treatment, Roth assets are one factor that may be considered when developing a retirement income strategy.
Current federal rules also generally eliminate lifetime required minimum distributions for an original owner from Roth IRAs and designated Roth accounts in employer plans.
Taxable Investment and Savings Accounts
Brokerage accounts, bank accounts, CDs, money-market holdings, and other non-retirement assets can also be part of a retirement income strategy. Having assets with different characteristics may provide additional choices when determining where retirement spending will come from.
3. Understand Pennsylvania's Retirement Tax Rules
Pennsylvania's treatment of retirement income differs from federal tax treatment.
Under current Pennsylvania rules, certain retirement income, including distributions from eligible Pennsylvania retirement plans after retirement age and Social Security payments, is not taxable as Pennsylvania compensation. Specific rules and eligibility requirements apply.
Pennsylvania's current personal income tax rate is 3.07%. However, an important distinction is: A retirement distribution that isn't subject to Pennsylvania personal income tax may still have federal tax consequences.
For example, distributions from traditional IRAs and employer-sponsored retirement accounts may be included in federal taxable income depending on the circumstances.
That's why retirement tax planning isn't simply about determining whether Pennsylvania taxes a particular source of income. Federal and state rules can differ, and individual circumstances matter.
Tax laws can also change. Consult a qualified tax professional regarding your individual tax situation.
4. Don't Treat Social Security as a Standalone Decision
We regularly hear some version of: “I'm eligible at 62. Why wouldn't I just take it?”
For some people, claiming at 62 may be appropriate. For others, delaying benefits may be worth considering.
For individuals born in 1960 or later, claiming at age 62 can result in a monthly retirement benefit that is 30% lower than the full retirement-age amount. Delaying beyond full retirement age can increase the monthly benefit until age 70.
But the planning question isn't simply: “At what age will my Social Security check be the largest?”
It's also: “How does my Social Security decision fit with my other retirement resources and goals?”
For example, someone who delays Social Security may need to use other available resources for expenses during the intervening years. Whether that approach makes sense depends on the individual's overall circumstances.
For married couples, Social Security decisions can also involve spousal and survivor considerations. There is no universally appropriate claiming age. The goal is to understand your available options and make a decision based on your circumstances.
5. Build a Withdrawal Strategy Before You Need One
One of the biggest changes in retirement can be psychological.
For decades, you've been accumulating assets. Then retirement arrives and some of those assets may need to begin funding your lifestyle. A retirement income strategy can help establish:
How much might you withdraw? From which accounts? When? And how might the strategy respond when circumstances change?
Retirement is rarely predictable. Spending changes. Markets change. Tax laws change. Health changes. Family circumstances change.
That means a withdrawal strategy may need to change as well.
A retiree may have several potential sources available, including:
- Traditional IRA
- Roth IRA
- 401(k) or 403(b)
- Taxable brokerage account
- Bank savings
- Pension
- Social Security
The order and timing of withdrawals can have different financial and tax implications.
For example, withdrawal decisions may affect taxable income, future required minimum distributions, federal taxation of Social Security benefits, and other parts of a financial plan.
There isn't one withdrawal sequence that's appropriate for everyone.
6. Pay Attention to Required Minimum Distributions
Tax-deferred retirement accounts don't necessarily remain tax-deferred indefinitely.
Current federal law establishes required minimum distribution rules for many retirement accounts. The applicable starting age depends on birth year and other circumstances. Under SECURE 2.0, the applicable age is generally 73 for individuals who reach age 73 before 2033 and 75 for certain younger cohorts under the statute. Different rules may apply depending on the account and individual circumstance
Why consider RMDs before they begin?
The period between retirement and required distributions may provide an opportunity to evaluate various tax and withdrawal strategies. Depending on individual circumstances, areas worth discussing with financial and tax professionals may include:
- The timing of retirement-account distributions
- Whether a partial Roth conversion should be evaluated
- The timing of realizing investment gains
- How withdrawals coordinate with Social Security and other income
The objective isn't necessarily to minimize taxes in a single year. For some households, it can be useful to consider the potential tax implications of decisions across multiple years.
Tax strategies should be evaluated with an appropriate tax professional based on individual circumstances.
7. Understand How Retirement Income Can Affect Social Security Taxes
Another common misconception is that Social Security is always free from federal income tax.
Pennsylvania and federal tax treatment differ.
Depending on filing status and other income, a portion of Social Security benefits may be included in federal taxable income. This is another reason to consider retirement income sources together rather than looking at each account independently.
An IRA distribution, for example, may have implications beyond the tax treatment of the distribution itself. A qualified tax professional can help determine how the rules apply to your individual circumstances.
8. Plan for Healthcare and Medicare
Healthcare can represent an important part of retirement spending.
Medicare generally becomes part of the planning conversation around age 65, but Medicare doesn't eliminate all healthcare expenses.
Depending on individual coverage and needs, retirees may need to budget for premiums, supplemental coverage, prescription-drug costs, deductibles, copays, dental care, vision care, and other out-of-pocket expenses.
Income can also affect certain Medicare premiums. That creates another potential connection between retirement income and other areas of a financial plan. Certain income events may have consequences beyond the immediate federal income-tax calculation.
Flick Financial's wealth-management services can include Medicare review as part of its broader planning offering.
9. Understand the Risk of Retiring Into a Down Market
Investment losses don't necessarily affect every investor in the same way.
A significant market decline while someone is accumulating assets can present different challenges than a decline occurring after someone has begun withdrawing money from a portfolio. This is commonly referred to as sequence-of-returns risk.
If investments need to be sold after a market decline to fund expenses, those withdrawals may affect how much remains invested to participate in a subsequent market recovery.
On the other hand, eliminating investment risk entirely can introduce other considerations, including inflation and the potential need to fund a retirement lasting several decades.
Retirement portfolio decisions therefore involve balancing factors such as time horizon, liquidity needs, risk tolerance, income needs, and long-term objectives.
Flick Financial's investment-management process considers client goals, time horizon, and risk tolerance when developing an investment plan.
Asset allocation does not assure a profit or protect against loss in declining markets.
10. Inflation Still Matters After You Retire
Retirement planning isn't only about paying today's expenses. It also involves considering how purchasing power may change over time.
Inflation means that the cost of goods and services can increase over a long retirement. Some retirement income sources may adjust over time, while others may not.
A pension without a cost-of-living adjustment, for example, may provide the same dollar amount even as the cost of certain expenses changes. That's one reason retirement planning generally looks beyond the first year of retirement and considers a longer time horizon.
No financial plan can predict future inflation rates or guarantee that assets will support a particular level of spending indefinitely.
11. Your Retirement Plan and Estate Plan Should Work Together
Retirement planning and estate planning often intersect. Pennsylvania residents also have state-specific estate considerations worth understanding.
Pennsylvania currently imposes an inheritance tax, with rates generally based on the beneficiary's relationship to the person who died. Current rates include 0% on transfers to a surviving spouse, 4.5% on transfers to direct descendants and lineal heirs, 12% on transfers to siblings, and 15% on transfers to other heirs, subject to applicable exemptions and exceptions.
That doesn't mean every family requires a complex estate strategy.
It does mean Pennsylvania residents may want to understand how their assets are titled, whom they've named as beneficiaries, and how their estate documents coordinate with their financial plan.
Questions worth considering include:
- Are your beneficiary designations current?
- Does your will still reflect your wishes?
- Do retirement-account beneficiaries align with your estate plan?
- Are appropriate powers of attorney in place?
- Does your spouse or another trusted person know where important financial information is located?
- Do you intend to leave assets to children, grandchildren, charities, or others?
- Have you discussed the potential tax considerations with the appropriate professionals?
Financial professionals do not replace estate attorneys or tax professionals. When appropriate, financial planning can include coordination with those professionals.
12. Retirement Planning for Pennsylvania Teachers
Educators and other public-sector employees can have retirement considerations that differ from those of many private-sector employees.
Depending on the individual's employment and benefits, a Pennsylvania educator may need to consider:
- Pension benefits
- 403(b) accounts
- Social Security eligibility
- Personal IRAs and investments
- Spousal retirement benefits
- Healthcare
- Retirement dates and available pension elections
The specific benefits available depend on the individual's employer, plan, service history, and other circumstances.
Rather than evaluating each benefit independently, it may be helpful to consider how pension income and other available resources fit into the household's overall retirement income strategy.
Our financial advisor, Gibson McCracken provides professional advice and education to teachers and public-sector employees in order to help them reach their retirement goals.
13. What Should You Consider Five Years Before Retirement?
The years immediately preceding retirement can be a useful time to begin making the plan more specific.
If you're approximately five years away from retirement, questions to consider include:
1. What might retirement cost?
Develop a realistic estimate based on your expected lifestyle and expenses.
2. Where might your income come from?
Review potential Social Security benefits, pension income, investments, savings, and other resources.
3. Does your investment strategy still reflect your circumstances?
Consider whether your goals, time horizon, liquidity needs, and risk tolerance have changed as retirement approaches.
4. Have you evaluated your Social Security options?
Compare different claiming ages and understand how they affect monthly benefits.
5. What is your healthcare plan?
Consider Medicare eligibility and how you'll obtain coverage if you retire before becoming eligible.
6. Do you understand the tax characteristics of your accounts?
Identify which assets are held in traditional tax-deferred, Roth, and taxable accounts.
7. Are your beneficiaries and estate documents current?
Review them periodically and after significant life changes.
8. What do you actually want retirement to look like?
Retirement planning isn't only about money. Consider how you hope to spend your time and what is most important to you.
14. What Should You Consider One Year Before Retirement?
As retirement gets closer, your plan can become more specific. Items to review may include:
- Expected retirement date
- Estimated monthly retirement spending
- Social Security options
- Pension elections, if applicable
- Medicare or other health coverage
- Potential portfolio withdrawals
- Cash reserves
- Investment allocation
- Potential tax withholding or estimated-tax needs
- Beneficiary designations
- Estate documents
- Outstanding debt
It's also worth thinking through a very practical question: Where will your first month of retirement income come from?
If your final employer paycheck arrives on June 30, for example, what resources will fund July's expenses?
Retirement planning can help turn a collection of financial accounts and benefits into a coordinated strategy for meeting ongoing expenses.
15. Do You Need a Financial Advisor for Retirement?
Not everyone chooses to hire a financial advisor. Some people are comfortable managing their investments and evaluating retirement decisions independently.
For others, retirement is a point when professional financial planning may be helpful because multiple decisions begin interacting.
A retirement planner may help you evaluate questions such as:
- When can I reasonably retire?
- When should I consider claiming Social Security?
- How much might I plan to spend?
- Which resources could provide my retirement income?
- Does my investment strategy still fit my needs?
- What happens to the plan if circumstances change?
- How might taxes affect different decisions?
- How does my estate plan coordinate with my financial plan?
The role of a retirement planner can extend beyond investment selection to helping evaluate how different pieces of the financial picture interact.
Flick Financial has helped hundreds of clients transition into retirement. Our wealth-management services address areas including retirement, investments, insurance, employee benefits, estate considerations, long-term care, charitable giving, and other areas depending on the client's selected services and circumstances.
Retirement Planning in Beaver County and Western Pennsylvania
Financial planning is personal wherever you live.
For Flick Financial, serving Western Pennsylvania also comes with a longstanding connection to the community.
The Flick family's history in financial services in Beaver County dates back decades. Don Flick began his financial-services career after accepting a position with Metropolitan Life in Beaver Falls. His son Dan and later grandsons Kevin and Alan followed him into the business, officially establishing Flick Financial in 2016.
Today, Flick Financial is located at 2674 Darlington Road in Beaver Falls, Pennsylvania.
Retirement isn't lived on a spreadsheet.
It's deciding how you'd like to spend your time, whether you plan to remain in your home, what role travel may play in your life, whether you'd like to help children or grandchildren, how you want to support organizations that matter to you, and what you'd like to leave behind.
Financial planning helps connect those goals with the financial decisions that accompany them.
Retirement Planning Doesn't End When Retirement Begins
A retirement plan isn't necessarily finished on the day you retire.
Markets may change. Tax laws may change. Your spending may change. Your health and family circumstances may change.
And what matters to you at 65 may look different at 75 or 85.
That's why a retirement income strategy can be reviewed and adjusted as circumstances evolve. No plan can predict every detail of the coming decades or guarantee a particular financial outcome.
The objective is to make informed decisions based on your goals, circumstances, and the information available at the time.
Ready to Talk About Retirement?
If you're approaching retirement and wondering how the different pieces of your financial life fit together, Flick Financial can help you evaluate your options.
We're in located in Beaver Falls, Pennsylvania, and offer retirement planning as part of our wealth and investment management services. Available services may include investment management, insurance planning, Medicare review, and additional planning services depending on the client's selected service level and individual circumstances.
Whether retirement is several years away, approaching soon, or already here, retirement planning can help you evaluate how the resources you've accumulated align with the life you want to live.
Disclosure: This material is provided for general informational and educational purposes only and is not intended as individualized investment, tax, or legal advice. Individual circumstances vary. Consult the appropriate financial, tax, or legal professional regarding your situation. Investing involves risk, including the potential loss of principal. Asset allocation does not assure a profit or protect against loss in declining markets.