The first year of retirement generally features fewer barrel parties, soccer tailgates and all-njitters, but shares one unique similarity with the university. It’s a new beginning.
For thousands of new retirees every day, it’s time to spread their wings and discover or rediscover their sense of self. And, like in college, if you have too many advantages of that freedom and ignore your responsibility, it can hurt the whole experience.
That was the case of one woman who retired from a large corporation on a large pension 30 years later. Within six months, she had traveled extensively, gifted money to an adult child and considered a second home. The surprising tax bill quickly followed, making the risk of a “stopping” of retirement very realistic.
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Luckily, with the help of a financial advisor, she was able to get her finances back on track and still enjoy her savings, but with greater intentions.
“The first year of retirement is one of the most defining periods in a person’s financial life,” says Renee Collins, founder of Retire Ready Inc. and a helpful advisor to the story. “It’s not just about leaving the workforce. It’s about creating new identity, everyday and relationships with money.”
Research shows that many people are not prepared for this transition. In fact, the 2025 trend in the Financial Planning Association’s retirement planning survey shows that over half of planners believe their clients are financially prepared for retirement, and only 11% believe they are emotionally prepared.
Of course, retirement is not a four-year stint. It can cover a third of your life. And, while important every year, experts say the first one might leave. You can either make the snowman wrong or set the stage for a fulfilling second act.
After all, you don’t want to call it a retirement because you don’t want to live 30 times in the same year.
Why is the “first year of retirement” rule important?
“We are pleased to announce that we are committed to providing a range of services and services to our customers,” said Scott Van Den Berg, president of Century Management. “In my experience, the first year of retirement is to set your tone financially and emotionally. Older routines fall, and new habits begin to settle for you – good or bad.”
This period is often referred to as the “go-go year,” where retirees are most likely to spend money on travel, recreation, bucket listing experience, and more.
According to the 2024 Consumer Expense Survey, the average annual spending for adults aged 65-74 is $65,149. By the age of 75, that figure fell nearly 20% to $53,031.
There is a risk of getting used to this early level of spending, potentially putting your savings at risk for decades.
However, the opposite risk is also realistic. Too small and living in “save mode” can mean missing out on goals and experiences you can otherwise afford to enjoy.
Research shows that retirees are significantly more comfortable spending guaranteed income than unguaranteed income, and behavioural traits that may promote spending even when not necessary.
The first year also brings a physical and mental boost, the so-called “honeymoon phase.” But that boost could be shorter than most people would expect. One study found that, just two years after retirement, the effects had almost disappeared as retirees adapted to their new reality.
You may then reverse the course and even return to work within a year. According to a T. Rowe price analysis of Federal Reserve data, the pandemic spurred 2.4 million people in 2020. However, by March 2022, approximately 1.5 million retirees have already “not retired.”
And it’s not always for money. A recent survey found that one in eight elderly people are due to return to work in 2025. The rising cost of living exceeded the list of reasons, but “boring” ranked nearly two seconds.
That’s why the first year of retirement is important. This is when the pattern takes root. And the habits you form can have a major impact on your retirement future, financially, socially and emotionally.
Adjust your finances to the “first year of retirement” rules
Sprinkling is fascinating amidst the excitement of newly discovered freedom and stock-rich nest eggs. Vandenberg calls this the “Victory Rap Phase.”
That’s why he advises: “We’ll pause before making a big irreversible decision in the first six to 12 months.” He stresses the importance of giving time to adjust emotionally and financially before locking in key options such as large gifts, home renovations, and social security claims.
Collins reflects this advice and highlights the need for a retirement income plan to avoid overexpenditure.
“Newly created retirees may receive a lump sum from their pension or 401(k), feel false security and may begin spending freely without understanding the long-term impact or tax outcome,” she says. “This can create difficult issues to reverse, especially if these funds are intended to last for decades.”
Part of the solution is to create a realistic and sustainable withdrawal strategy that replaces your pay and makes clear what you can spend safely and comfortably.
It also helps protect you from common dangers early in retirement. Lose investments during the market slump and sell investments. Doing so could lead to portfolio emissions, making recovery more difficult and shorten how long the money lasts.
To reduce risk, Vandenberg suggests holding 12-18 months of income in cash or low-risk investments. Essentially, this “bucket” approach allows you to survive market volatility without immersing yourself in long-term investments early.
But for many retirees, money management is not a different adjustment. A big challenge? Reconstructing structures and objectives in everyday life.
Living by rules
The first year of retirement is when people leaning on purpose or falling into uncertainty.
Consider that research has shown that people who retire based on ambitious motivation and positive circumstances (i.e., on their own terms) have significantly lower rates of depression. In contrast, those resigning under negative circumstances (i.e. forced to retire) were more likely to see a decline in their mental health.
“For those who are making sudden transitions,” says Dana Anspach, founder of Sensible Money.
She encourages the exploration mindset. “Be curious. Explore new activities. Try new things. Say it’s all yes. But don’t make long-term commitments.
Relationships also play an extraordinary role. Research has consistently shown that loneliness contributes to both physical and mental decline. Therefore, Anspach urges retirees to remain connected. “I’ll be engaged in group activities. Yes, even if you’re an introvert.
Routines are also useful. Van Den Berg said, “There’s no need to schedule a strict retirement, but some rhythms simply prevent them from being blurred together.”
Anspach says some retirees can also expect emotional adjustments. “You may go through the stages of sadness — denial, anger, negotiation, depression, and finally accept. Give yourself to work through these natural emotional cycles.”
She recalls one client who reluctantly retired after a delegation to return to the office. He enjoyed his first trip, but soon missed out on the job of social connection and purpose. It helped me move to more than 55 communities. After joining the Softball League and building new friendships, he found new meaning. And now we are encouraging other new retirees to continue exploring until they find their new location.
And there may be more time than many people understand.
For a 65-year-old couple today, there is a 50% chance that one partner will reach 90, while a 20% chance that one will reach 100. Rapid advances in healthcare and technology have improved the odds of living a healthy, active life in geriatric age.
Perhaps a better way to see retirement is not in decades, not years. As Bill Gates once said, “Most people overestimate what can be achieved in a year and underestimate what can be achieved in a decade.”
Still, how to shape the first 12 months can shape the next few decades.
