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How to plan for your income needs in the 3 stages of retirement

Your priorities — and spending — will likely change as you move through retirement. Here’s how to prepare.


Traveling? Volunteering? Spending more time with loved ones? You probably have an idea of what you will do in your perfect retirement. But don’t count on it staying the same over what could be a period of more than 30 years. Your retirement will evolve over time. Most people go through three stages of retirement: exploring, nesting and reflecting.


In the first stage of retirement, while your health is good and you have goals to accomplish, you might travel the world, learn new skills, volunteer and take up new hobbies. Move to a new locale and/or purchase a second home. Perhaps even start a new business or work part-time.


Steps you can take to prepare

Your key financial priorities will be to continue to invest for growth and future healthcare costs, while also funding increased spending to pursue your goals.


Make sure you have a retirement income plan


Once you stop receiving a regular paycheck, you will move from accumulating assets for retirement to decumulating your assets in retirement. In the same way it was important to have a plan to build up your assets, you will need a plan to draw down your assets.


You’ll want to ensure you have a predictable income stream that covers both your essential and discretionary expenses.1 This will most likely include income from a combination of Social Security benefits, pensions and annuity payments and withdrawals from IRAs, 401(k)s and personal investment accounts. Your advisor, along with your tax professional, will help you develop a withdrawal strategy that can address your income needs and also take your taxes into consideration.


Sources of income among retirees (65+)2


Social Security




Interest, dividends or rental income


Wages, salaries or self-employment


Cash transfers, other than Social Security

Note: Among retirees. Respondents could select multiple answers. Sources of income include the income of a spouse or partner.


Think about the best time to take your Social Security benefits


Part of your income stream in retirement will no doubt come from your Social Security benefits, which you can begin receiving as early as age 62. Or you may want to defer taking those benefits until you reach full retirement age or even age 70 (at which time your benefit amount will be capped).


Full Retirement Age determination*

Birth year

Full Retirement Age

1937 or earlier


1938 – 1942

65 + 2 months per year after 1937 until 1943

1943 – 1954


1955 – 1959

66 + 2 months per year after 1954 until 1960

1960 or later



At what age you begin taking your Social Security benefits will depend on your personal needs and anticipated lifespan.3 It is an important decision and should be discussed with your advisor as you develop your plan for funding your retirement expenses.

Vertical bar graph showing how benefits are adjusted depending on what age you begin taking Social Security benefits.

Prepare yourself for funding healthcare costs as you age

Healthcare costs in retirement are usually more than most people anticipate. Premiums, out-of-pocket expenses and critical services not covered by Medicare can deplete your retirement savings if you aren’t prepared for them.


In fact, a healthy 65-year-old couple who retired in 2023 will likely use nearly 70% of their lifetime Social Security benefits to cover their medical costs in retirement.4 You can use this time in the early phase of your retirement to make sure your projected healthcare budget is sufficiently addressed to help you cover the healthcare costs you will incur in the later stages of retirement.



of lifetime Social Security benefits will likely be used to cover medical costs in retirement for a 65-year-old couple who is healthy in 2023.4

Consider working longer and limit your investment withdrawals to allow your assets the potential to continue growing


By extending the time you remain in the workforce, you may be able to continue to fund your retirement without taking early Social Security benefits and/or withdrawals from your retirement accounts. Because we are living longer and healthier lives, this is an option for more and more retirees.


According to the U.S. Bureau of Labor Statistics, by 2032, 8.6 percent of the civilian labor force is projected to be older than 65. In fact, older adults are one of two age groups expected to increase their labor force participation over the decade. By 2032, 21 percent of older adults will be in the labor force.5


In the next stage, when you are less active, you may settle into a routine with a more relaxed pace or travel closer to home visiting friends and family. Or perhaps relocate or downsize your home.


Steps you can take to prepare

As your spending slows a bit, consider using this period to prepare for potentially higher expenses in the next stage that could be the result of inflation and rising healthcare costs.


Topics to discuss with your advisor

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In this stage, when you may be facing lifestyle challenges such as encountering more health-related expenses, becoming a widow or widower, or needing support from your family or others. You may also start thinking more deeply about your estate plan.


Steps you can take to prepare

You may want to strike a balance between securing your own financial future and leaving a legacy.


Topics to discuss with your advisor

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Depending on when you retire, your goals in retirement and the state of your health, you may find that you will experience all three stages of retirement — or you may only experience one or two of them. Each stage will impact your expenses and, therefore, will be important in determining your retirement income needs.


The more you can envision your plans for retirement, and the earlier you can do that, the better your chances will be for making them happen.


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* Social Security Administration Publication EN 05-10035 Social Security Retirement Benefits, 2023.

1 Merrill. “Retirement Paycheck: Replacing Your Income in Retirement.” Accessed January 31, 2024.

2 Board of Governors of the Federal Reserve System. “Economic Well-Being of U.S. Households in 2022,” May 2023.

3 Merrill. “Determining The Best Age to Collect Social Security.” Accessed January 31, 2024.

4 HealthView Services. “Medicare and Social Security COLAs: Putting the 2023 Numbers into Context,” October 2023.

5 Pew Research Center. “Older workers are growing in number and earning higher wages,” December 14, 2023.

6 Merrill. “Make your money last in retirement.” Accessed February 6, 2024.

7 National Association of Realtors®. “Home Buyers and Sellers Generational Trends Report,” 2023.

8 U.S. Department of Health and Human Services. “How much care will you need?” Accessed January 31, 2024.

9 Lustbader, R. “2024 Wills and Estate Planning Study.” Accessed January 31, 2024.


Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.


This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.


This material should be regarded as educational information on healthcare considerations and is not intended to provide specific healthcare advice. If you have questions regarding your particular situation, please contact your legal or tax advisor.


Long-term care insurance coverage contains benefits, exclusions, limitations, eligibility requirements, and specific terms and conditions under which the insurance coverage may be continued in force or discontinued. Not all insurance policies and types of coverage may be available in your state.


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