Why the First Few Years of Retirement Are So Important and How Your Advisor Can Help

Tom Gilmour is a senior director of planning experience integration for Northwestern Mutual.

Many of us view retirement as the reward we receive for a lifetime of hard work, dedicated saving and thoughtful planning—as the destination we’ve been working toward ever since our first paycheck. And to an extent, that’s true: Being able to retire comfortably and on your own schedule is a reward.

But that doesn’t mean that financial planning ends once we reach retirement. If anything, it only becomes more important when we begin actually living off our assets—especially in those first few early years.

Below we take a closer look at some of the factors that can affect your financial stability during retirement and why the first few years could make or break your retirement goals.

Your financial advisor can help ensure financial stability and security during retirement

If you are approaching retirement or are newly retired, it’s critical to think carefully about how you are managing your income, spending, health care costs and various investment risks. This is particularly true in the early years of your retirement, which often dictate what your later years may look like.

The good news is that you don’t have to go it alone. Your Northwestern Mutual financial advisor can ensure that your portfolio is adequately diversified to handle market risks and help smooth out fluctuations, provide guidance on tax-efficient withdrawal strategies from your retirement accounts and help monitor your financial plan over the course of a long and fulfilling retirement. Here’s how:

They’ll help mitigate sequence of returns risk

Even in retirement, most retirees will keep at least a certain percentage of their portfolio dedicated to investments. While this can be an excellent means of generating portfolio growth that helps your savings last longer, it also means opening yourself up to potential investment risks. One important and often overlooked concern is sequence of returns risk.

Sequence of returns risk refers to the idea that the timing of market returns relative to your withdrawals can impact its longevity.

Think of it like this: Say you retire, and the very next year (when you make your first withdrawal), the market contracts by 15 percent. You are locking in those losses and reducing the size of your portfolio. Even if subsequent years yield growth, you will be starting from a lower capital base, limiting your portfolio’s ability to recover.

On the other hand, if your investments grow in your early years of retirement, you’ll be starting out from a position of strength, which will increase the chances your portfolio will be able to weather bad years down the line. It’s for this reason that you may have heard the saying “don’t retire into a recession.” Instead, your financial advisor can help you build a plan designed to withstand a recession.

One important strategy for minimizing this risk is to ensure that your portfolio is properly diversified and not overly concentrated in a single asset, asset class or market sector. That way, when a portion of your portfolio falls, there’s a chance that another may rise, limiting your downside risk.

Another strategy is to do your best to establish other lines of income in addition to your investments, which you can turn to when the market is down. This can help you avoid making withdrawals during down markets, giving your assets more time to recover. And establishing these other lines of income early—before a market downturn—can help you avoid market timing. Just keep in mind that once you reach a certain age (age 73 if you were born between 1951 and 1959 and age 75 if you were born in 1960 or later), there’s no avoiding required minimum distributions (RMDs) without penalty.

They’ll help you avoid key mistakes in your retirement income plan

As you prepare to retire, and in your first few years out of the workforce, it’s important to think carefully about how you will actually generate your income. Otherwise, it’s possible that you may make costly mistakes that can lower the longevity of your savings, including these:

Claiming Social Security too early

In 2024, the average Social Security payment was $1,909. But when you begin claiming Social Security can make a big difference in how much you receive. While you might think you should begin claiming Social Security as soon as you retire, each year you wait (up to age 70) translates into a bigger monthly benefit. Likewise, though you may be eligible to start collecting Social Security at age 62, doing so will reduce your benefit. Your advisor can help you understand how Social Security works alongside other tools in your financial plan to help you make the best decision.

Withdrawing too much

If you’re not careful with the size of your withdrawals, it’s possible to spend down your retirement savings faster than they can replenish themselves—and that means you might outlive your savings. While there are a lot of retirement rules of thumb, the 4 percent rule is a historical guideline based on past market data suggesting that retirees who withdraw no more than 4 percent of their retirement savings in their first year of retirement are likely to make their retirement savings last 30 years. After that, it’s OK to make adjustments for inflation.

Not diversifying your income streams

When it comes to retirement income streams, Social Security and money in a retirement account tend to get most of the attention. But they’re not your only options for generating an income during retirement. Annuities, the cash value of a permanent life insurance policy, cash held in a savings account and investments in a non-retirement brokerage account can all potentially be converted into income—helping you manage a variety of investment risks, such as sequence of returns risk (see above).Your advisor can help show you how all of these tools work together to get the most out of your retirement savings.

Ignoring tax efficiency

Just because you’re retired doesn’t mean you don’t have to worry about taxes. In fact, depending on how much retirement income you generate, you could have quite a large tax bill even without working. By leveraging a mix of taxable, tax-deferred and tax-free accounts, you give yourself the flexibility to make strategic withdrawals from year to year to limit your tax bill as much as possible.

All of that is, of course, a lot to keep in mind. If you’re feeling overwhelmed, consider working with your financial advisor, who can help you estimate how much money you will need in retirement, how much income you can realistically generate and strategies you can use to maximize those streams.

They’ll help you adjust spending habits and budgeting

If you’re newly retired, it can be tempting to spend more money than you should. After all, without a 9-to-5 job, you’ve got a lot more time to fill each day. Between new hobbies, meals out with friends and family and that dream vacation you’ve always wanted to take but never had the time for, overspending can be easy.

Overspending depletes your savings faster than you might have originally planned when you first retired. As an add-on effect, it also means that you’re taking money out of the market—causing you to miss out on the compound growth you could otherwise be enjoying. And that means you’re reducing your future income and threatening the quality of your later retirement years.

In a worst-case scenario, overspending in the early years of your retirement could make it necessary to pursue income from sources you wouldn’t have otherwise considered—like selling off a prized asset (such as a treasured asset or the family homestead) or even re-entering the workforce.

With this in mind, it’s important not to abandon your financial plan or budget just because you’re retired. If anything, now’s the time to double down on your plan. If you still want to spend money on the “fun” sides of retirement, consider ways you might be able to lower your other expenses to free up space in your budget—for example, by downsizing to a smaller home or by moving to a lower cost of living area. Your financial advisor can help you establish a budget and explore strategies to help you stay on track.

They can help you plan for increased costs of health care

As we get older, we tend to spend more and more on health care. Between doctor visits, prescriptions, surgeries, Medicare and other health insurance premiums, these costs can really add up. According to the 2025 Fidelity Retiree Health Care Cost Estimate, the average 65-year-old should expect to spend at least $172,500 (after taxes) on healthcare-related expenses over the course of their retirement. For a retired couple, that’s doubled to a whopping $345,000.

It’s important to plan for the cost of long-term care. It’s estimated that 56 percent of Americans 65 or older will need long-term care at some point in their retirement, with an average duration of 3.6 years for women and 2.5 years for men. With the cost of this care ranging from an average of $90,520 for a year’s worth of home-based care to $115,000 per year in a skilled nursing home, it’s easy to see how medical bills can really add up.

With this in mind, it’s critical to include projected health care expenses in your retirement budget to ensure you don’t inadvertently blow a hole in your savings. If you have access to a health savings account (HSA), it can be a good idea to contribute as much as possible each year as a means of setting money aside specifically to cover your health care needs in retirement. Likewise, it’s worth considering whether or not long-term care insurance might play a role in your retirement plan.

Other considerations for the early years of your retirement

In addition to getting your finances ready for retirement, you should also spend some time preparing yourself emotionally.

For example, many retirees struggle with the loss of social connections that comes with retiring from the workforce—all those daily interactions with coworkers, customers, clients, etc. That’s why it’s important to invest in and tend to the other relationships in your life—particularly those with your friends and family—and to seek out new social connections via hobbies, classes, church or worship and community.

Likewise, your physical and mental health will directly impact both the longevity of your retirement as well as your ability to move and do things independently as you age. Prioritizing physical activity, a healthy diet and mental wellness will make it easier for you to get the most out of your retired years.

Your financial advisor can help you get the early years of retirement right

The first few years of retirement will serve as a foundation for the rest of your retired life, so it’s important to avoid as many of the costly mistakes outlined above as possible. That’s why your financial advisor is such a critical partner as you get ready for and enter retirement.

Your advisor can help you design and stick to a plan built on your values. They’ll help you identify blind spots and opportunities to make your plan work harder for you. By getting to know what’s important to you and making recommendations to grow and protect your money, they’ll help you prepare for your launch into retirement—and help make sure you stay afloat while you’re there.

With your advisor at your side, you can enjoy retirement with the peace of mind that your plan is helping you get the most out of the money you worked so hard for.