How to Protect Your First 10 Years of Retirement

Recently, my husband and I met with our financial advisor to start running different scenarios for our retirement. We’ve been weighing everything from the best time for my husband to start Social Security (I already claimed mine at 62 — see that post HERE) to how long our money will last so I don’t slip into my old “bag lady” mindset (more on that in my Money Mindset post).

Retirement planning can feel like a mix of excitement and fear. On one hand, you finally get more time for the things you love. On the other, there are the “what ifs” — what if the market drops early in retirement, what if medical costs spike, or what if we overspend in those first travel-happy years?

That’s why I’ve been diving into how to protect the first 10 years of retirement. They matter more than most people realize. Early losses can ripple for decades, health needs often shift, and taxes can creep in quietly. This post walks through the strategies I’m learning — the same ones I’m using in my own planning — to help keep the next 10 years steady so the decades after feel lighter.

1. Manage the “Sequence of Returns” Risk

Early market losses hit harder when you are drawing income. This is the sequence of returns risk. Losses in the first few years can lock in lower balances, which can reduce lifetime income. If this sounds abstract, think of it like building home equity. If housing prices drop right after you buy, much of your equity can disappear overnight, and it can take years to rebuild. But if values dip after you’ve owned your home for decades, the impact is far less severe.

For a clear primer, see Schwab’s guide on sequence-of-returns risk. The timing of returns matters, especially if you need to sell investments to fund your spending.

Smart ways to reduce the risk:

• Keep 2 to 3 years of planned withdrawals in cash or short-term bonds or DTC CDs for diversification. This gives you breathing room in market downturns.
• Use a simple bucket strategy for asset allocation. One bucket for cash and near-term spending, one for bonds, one for long-term growth. This approach promotes diversification to mitigate sequence of returns risk. U.S. Bank explains the approach well in their piece on bucketing to manage sequence risk.
• Avoid overspending during downturns. Lower withdrawals in down years help your portfolio recover.

A quick example: If you need 40,000 per year from your portfolio, set aside 80,000 to 120,000 in cash and short bonds. When stocks fall, draw from this reserve, not from equities. It is a simple habit, but it prevents selling low.

2. Create a Sustainable Withdrawal Plan

The 4 percent rule for withdrawal rates gives a starting point, not the final answer. It came from historical data that looked at a typical 30-year retirement. Today, inflation swings more, bond yields shift, and lifespans keep rising. So use 4 percent as a benchmark, then tweak it to meet your needs.

What works better in practice:

• Dynamic withdrawals. Spend a little less in down years, then catch up when markets recover – guardrails.
• A floor and ceiling. Set a minimum needed to cover essentials, then a flexible range for travel and fun.
• Annual stress tests in your planning. Check the plan against higher inflation, longer life, and a few bad market years.

Utilizing the Guyton-Klinger guardrails approach for retirement withdrawals is a great strategy to follow. It helps define upper and lower guardrails (i.e. withdrawal rates) as the market fluctuates. This allows you to keep your buckets in balance. Refill your cash bucket after strong years, not during weak ones.

3. Control Taxes from the Start

Taxes can take a quiet toll. A few tax-smart strategies in your 60s can save a lot in your 70s and 80s.

Key points to tackle early:

• Maximize catch-up contributions to retirement accounts (See recent post on New 401K Rules) for those approaching retirement, boosting these in your 60s can enhance tax-deferred growth and provide more flexibility for future withdrawals.
• Plan for Required Minimum Distributions before they hit. Large pre-tax balances can force big withdrawals later, which leads to higher taxes and higher Medicare premiums.
• Consider Roth conversions in low-tax years – right after you retire. Converting portions of your IRA to Roth while your income is modest can reduce future RMDs and give you tax-free income later. Start small, keep an eye on your tax bracket, and watch how it affects your Medicare costs. We started working with our accountant and financial advisor last year to begin these conversions. It takes a lot of planning but is worth it.
• Watch Medicare IRMAA surcharges. Higher income can push you into a higher premium tier for Parts B and D. This includes capital gains, IRA withdrawals, and Roth conversions. Model the impact before year-end.

I like to map a 10-year tax window on a single page, perhaps with the guidance of a financial advisor. Put estimated Social Security start or delay, RMD age, pension income, and large one-time expenses on the timeline. Then plan conversions and withdrawals around that. It removes a lot of guesswork and reduces surprises.

For more perspective on early-retirement risk, Kiplinger’s explainer on sequence-of-returns risk also touches on spending and planning choices that affect taxes over time.

4. Healthcare and Insurance Protection

Medicare starts at 65 for most people, but planning for healthcare costs starts earlier. Miss a step and you can face penalties or gaps. We are looking at all this right now for my husband. I will have a post on Medicare soon but in the meantime;

Medicare basics at a glance:

• Part A covers hospital care, usually premium-free if you worked enough years.
• Part B covers outpatient care and doctor visits, with a monthly premium tied to income.
• Part D covers prescriptions, which you buy through private insurers.
• Medigap or Medicare Advantage fills the gaps. Medigap pairs with Original Medicare, Advantage replaces it with a network plan (HMO). Compare costs, networks, and travel needs. Make sure you review both thoroughly – and remember NOTHING is FREE!

Long-term care is both a money issue and a family issue, with significant healthcare costs that can impact your financial security. Not everyone needs insurance, but everyone needs a plan. You can self-fund by earmarking savings or using an HSA as a tax-advantaged tool for covering future medical expenses, you can buy a traditional policy, or you can consider hybrid life plus long-term care policies. Start this conversation in your early 60s while coverage is more affordable.

Avoid gaps in coverage if you retire before 65. COBRA, ACA marketplace plans, or a spouse’s plan can bridge the years between work and Medicare, though early withdrawals from retirement funds like a 401(k) might be necessary to cover gaps if not fully prepared. Keep a simple checklist: when does employer coverage end, when does the new plan start, and which doctors and medications are covered.

5. Balance Lifestyle and Security

The first decade often sets your financial rhythm. I have seen people underspend out of fear and regret it. I have also seen the opposite and watched stress creep in by year three. There is a middle lane.

Practical ways to balance joy and safety:

• Allocate intentionally. List your top three experiences for the next 2 to 3 years. Fund those first.
• Set guardrails for withdrawal rates. For example, cap total withdrawals at 4.5 percent in normal years, drop to 3.5 percent if markets fall 15 percent, and allow up to 5 percent after strong years. Put the rules in writing as part of your planning so you do not decide during stress.
• Use a simple budget sheet. I like a one-page “Retirement Budget Starter Sheet,” with columns for essential, discretionary, and occasional spending. Revisit it twice a year.
• Consider if you need to downsize home to reduce fixed costs and increase security.

A quick prompt: Which expenses, if cut by 10 percent, would not reduce your happiness? Cut those first in down years. It is simple and it works.

6. Estate and Legacy Planning

Estate and legacy planning documents are not only for the wealthy. They ease stress and give your wishes legal weight.

Core actions to take:

• Update your will, powers of attorney, and health directives. Make sure someone you trust can act if needed.
• Check all beneficiaries. Retirement accounts, checking accounts, insurance, and annuities pass by beneficiary form, not by your will. Review them every few years and after major life events.
• Consider a trust if you want control over timing, privacy, or special needs. A basic revocable trust can also help your family manage assets smoothly if you become ill.
• Talk with family. Share where accounts are held, who to call, and the “why” behind your choices. Clear talks today prevent confusion later.

A simple letter of instruction can be a gift to your loved ones. Include contact info for your financial advisor, accountant, and attorney, plus account lists and key passwords stored in a secure manager.

Bringing It All Together

The first 10 years set the tone. Protect against early market shocks in your investing with cash reserves and a bucket plan. Spend with a flexible rule set, not a fixed habit. Shape taxes in your 60s to avoid regret in your 70s. Build a clear healthcare map. Put your estate basics in order. Each step takes a bit of effort, but my hope is it will be a big payoff later, leveraging your savings for more freedom to enjoy the life you worked for in retirement.

If you want to take action this week, pick one item. Top off your cash bucket, schedule a Roth conversion check (the fourth quarter is a great time to look at this!), or book a Medicare review. Small moves, made early, create space for the good stuff later. What will you tackle first?