The New Math of Retirement: A Modern Approach to Planning

1. Increasing longevity and rising healthcare costs

Living longer is a gift but one that comes with a price tag.

Today, it’s not uncommon to plan for 25 to 30 years or more. That longevity stretches not only our savings but also our assumptions about health and lifestyle.

Healthcare costs are rising fast and, contrary to popular belief, Medicare doesn’t cover everything. Out-of-pocket expenses for premiums, prescriptions and procedures can climb well into six figures over the course of retirement. Slawny is always surprised how often people underestimate healthcare costs when putting together their savings strategy. “If you plan to retire at 65, yes, you will be eligible for Medicare for some health expenses, but if you say, 'no, I’d really like to retire at 62,' I’ll tell you to add an extra $25K for those three additional years", Slawny states. With around a 5.5% rate of inflation, plus needing more support as we age, healthcare costs are almost always under planned.

The implication is clear: Retirement plans must now factor in evolving health needs, extended spending horizons and proactive investment in both physical and financial well-being.

2. The quiet threat of inflation

Inflation continues to be a persistent threat—and it can be potentially devastating, especially for retirees on fixed incomes.

Following the pandemic, inflation spiked and has remained stubbornly above historical norms. This erodes purchasing power and impacts everything from groceries to medical care. Even with Social Security’s Cost-of-Living Adjustments (COLA), many retirees find those increases fall short of real-world cost surges.

Static income assumptions are no longer safe.

While rising interest rates can create challenges in certain areas of the economy, one meaningful silver lining is the improved income potential for savers and retirees. Higher rates mean that fixed-income investments—like bonds, CDs and annuities—now offer significantly better yields than they have in over a decade. For those living on interest and income from conservative portfolios, this shift provides a welcome boost in cash flow, helping to sustain retirement spending without dipping as deeply into principal.

Today’s imperative: Build portfolios that are inflation-resilient, with assets that adjust to economic conditions and income strategies that can adapt. Slawny offers one strategy she shares with clients fairly frequently in the current environment, "When I evaluate portfolios today for people nearing retirement, I often find they can pull back on their equity allocations, taking risk off of the table, and still have a successful outcome. In some cases, their probability of success actually increases with a reduction in equities." Conversely, she says, "If you’re planning for the long term, investments like equities or real assets—think real estate—can offer growth potential while also helping to guard against inflation."

3. Navigating economic volatility

Volatility isn’t just a market buzzword—it’s a real challenge for retirees.

Market downturns early in retirement can have a disproportionate impact on lifetime outcomes, but Jim Clement, Vice President Retirement Plan Education Manager at Associated Bank, offers a bit of reassurance citing that “historically, the markets have rewarded long-term investors.”

Meanwhile, interest rates—long suppressed—have become more volatile, challenging traditional portfolio structures. Is the 60/40 mix still reliable? The answer depends on your goals, your time horizon and your comfort level with risk.

While a 60/40 split may make good sense for someone at or near retirement age, Clement says this may not be appropriate for individuals starting their careers." For younger investors, they may be missing investing opportunity. One or two additional percentage points of investment return, long-term, can have a dramatic impact."

Slawny ensures her clients can make a “clear delineation between risk tolerance versus risk capacity. Risk tolerance is the ‘stomach factor’ while risk capacity is how your plan holds up when the markets become unpredictable.”

Diversification matters more than ever. So does dynamic risk management. That means regular rebalancing, diversifying across asset classes and income types and using dynamic withdrawal strategies to respond to market conditions.

Slawny reminds investors of all ages that it’s not just about asset diversification, but tax diversification too. “Tax now, tax later, tax never,” is an invaluable mantra she shares with her clients. “When I'm preparing a plan for someone, I will look at their tax buckets.

Tax now is like your bank savings account. Any interest or growth is taxed. Tax later includes those pre-tax 401(k)s and pre-tax IRAs—yes, the money that you're contributing pre-tax is growing tax deferred, but when you pull the money out later, it's all taxable income.

Then, tax never. Those are your Roth accounts—Roth 401(k)s, Roth IRA, your health savings account (HSA), if you're in a high-deductible health plan. So often when I do financial plans, that tax later bucket is really big. It seems like a good idea at the time, but then they realize they’re actually going to be in a higher tax bracket later. That’s why you need to manage tax diversification well while you're saving by putting money into all three of those buckets.”

“An overlooked part of financial planning is not accounting for high enough cash buffers,” according to Jeff Edwards, Senior Vice President and Senior Financial Advisor at Associated Investment Services. “Cash on hand, whether that's in CDs or money market accounts, is actually very important because you don't want to have to pull from portfolios during rough market conditions.”

4. The retirement system, then and now

Yesterday’s retirees relied on pensions; today’s must largely go it alone.

The shift from defined benefit plans to defined contribution vehicles like 401(k)s has placed the onus of retirement planning squarely on individuals. At the same time, tax policy is shifting—with legislative changes like the SECURE 2.0 Act, new Required Minimum Distribution (RMD) ages and expanded Roth opportunities adding both complexity and opportunity.

One of the provisions of SECURE Act 2.0 is related to catch-up contributions. For people over the age of 50, they have their base 401(k) limit, and then there's a catch-up that's available. There's also a new super catch-up—if you're 60, 61 or 62—you can put even a little bit more in your 401(k). But Slawny says it’s imperative for investors to know that “beginning in 2026, catch-up contributions have to be Roth. So, they cannot be pre-taxed.”

Clement explains that pre-tax and employer contributions avoid tax now, but will be taxed when distributed in the future. "If invested long-term, these pre-tax sources may produce taxable balances far greater than what was originally invested. Qualified Roth distributions are tax-free, are not subject to Required Minimum Distributions (like pre-tax and employer sourced)."

In terms of withdrawals, what about the trusty 4% rule? Once the gold standard, it now faces scrutiny. In a world of low yields and high volatility, flexible withdrawal frameworks may offer more responsive, sustainable solutions. Traditional withdrawal strategies often suggest a fixed annual amount—like the 4% rule—but, while simple, that approach doesn’t account for market downturns or changes in your lifestyle. Flexible withdrawal frameworks offer more control and resilience. For example, you might reduce withdrawals in down markets or increase them when returns are strong. This helps preserve your portfolio over time.

With all the focus on building your nest egg as large you can, Edwards says it’s equally important to provide peace of mind for clients so they can give themselves permission to get out there, spend and enjoy their retirement. “We’re all taught we need to save for retirement, but once we build that savings, how do we adequately draw from it so we can provide income in retirement, whether it’s that 4% withdrawal rate or greater?”

5. A personalized approach: one size does not fit all

Today’s retirees are rewriting the narrative—and no two stories are alike.

Some are downsizing to travel the world. Others are supporting adult children or caring for aging parents. Many are working part-time, freelancing or monetizing hobbies well into their 70s. Modern retirement includes a mix of income sources—from Social Security to rental properties to the gig economy, which has grown significantly over the past several years.

“If you’re healthy enough, working in retirement can be very beneficial—mentally, physically, socially.” Clement highlights the positives of taking a job in retirement. “It may boost your income, yes, but your engagement and activity level too.”

Health, family and legacy preferences further differentiate every plan. Cognitive decline, caregiving responsibilities and estate goals must all be part of the planning process. These factors influence not just your financial needs during retirement, but also the legacy you hope to leave behind.

Edwards shares that “many clients are not yet aware of the new inheritance laws concerning IRA accounts and the 10-year withdrawal rule. We encourage them to begin taking proportional withdrawals from their portfolio(s) because we know if they don’t, their children will get taxed down the road at the higher marginal income tax rates.” And if an estate plan hasn't accounted for this, the end result may be a smaller legacy than originally intended.

Whatever your plan, Slawny emphasizes the importance of remaining nimble. “Once you have the plan, realize that that it is not set in stone, things will change, and you need to flow with it. Tax legislation will change. Investments will change. Your goals may change. So having that plan, having the starting point and then being able to revisit and adjust it along the way is key.”

Fortunately, technology is aiding that agility. Today’s digital tools offer real-time scenario planning, customized risk analysis and personalized income projections—enabling advisors and clients to make smarter, more responsive decisions—together.

A call to modernize

Retirement planning is indeed more complex—but also more customizable, flexible and empowering than ever before.

By embracing new tools, staying informed and working with knowledgeable professionals, present-day retirees can build plans that aren’t just built to last—but built to live well.

Despite all that’s changed, Clement has not stopped sharing the sage advice, “Start as early as you can, and hit it as hard as you can.”

Then, revisit often. Personalize aggressively. And above all, partner with an advisor who understands that retirement is no longer a math problem—it’s a plan for the life you want to live. At Associated Bank, we go beyond the old rules to deliver a holistic, human-first approach to your financial future. Wherever you are on your journey, our teams are here to help you plan with confidence and ready to support you every step of the way. Let's start building your future - schedule an appointment today.