The 'First Year of Retirement' Rule
The "first year of retirement" rule says the 12 months after you leave work set the tone for your entire later life — so it's vital to approach them mindfully.
While the first year of retirement generally features fewer keg parties, football tailgates and all-nighters, it shares one unique similarity with college: It's a new beginning.
For thousands of new retirees every day, it's a time to spread their wings and discover — or rediscover — their sense of self. And, like college, if you take too much advantage of that freedom and neglect your responsibilities, it can hurt the whole experience.
That was the case for one woman who retired with a large pension after 30 years at a major corporation. Within six months, she'd traveled extensively, gifted her adult children money and was considering a second home — all without a financial plan. A surprise tax bill soon followed, and the risk of "dropping out" of retirement became very real.
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Fortunately, with a financial adviser's help, she got her finances back on track, allowing her to still enjoy her savings but with greater intention.
"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 the helpful adviser of this story. "It's not just about leaving the workforce — it's about creating a new identity, routine and relationship with money."
Research shows many are unprepared for this transition. In fact, the Financial Planning Association's 2025 Trends in Retirement Planning survey reports that just more than half of planners think their clients are financially prepared for retirement, and only 11% believe they are emotionally prepared.
Retirement, of course, isn't a four-year stint. It could span a third of your life. And while every year matters, experts say the first may stand apart. It can trigger mistakes that snowball, or set the stage for a fulfilling second act.
After all, you don’t want to live the same year 30 times and call it a retirement.
Why the 'first year of retirement' rule matters
Scott Van Den Berg, president of Century Management, puts it this way: "In my experience, the first year of retirement sets the tone — both financially and emotionally. Old routines fall away, and new habits — good or bad — start to take hold."
This period is often referred to as the "go-go years," when retirees are most likely to spend money on things like travel, recreation and bucket-list experiences.
According to the 2024 Consumer Expenditure Survey, average annual spending for adults aged 65-74 is $65,149. By age 75, that figure drops by nearly 20% to $53,031.
There's a risk of getting too comfortable with this early level of spending, potentially jeopardizing savings intended to last for decades.
But the opposite risk is also real: scaling back too far and living in "preservation mode," which could mean missing out on goals and experiences you could otherwise afford to enjoy.
Research shows retirees are significantly more comfortable spending guaranteed income than non-guaranteed income, a behavioral trait that may encourage underspending even when it isn’t necessary.
The first year also brings a physical and mental boost, often referred to as the "honeymoon phase." But that boost may be shorter-lived than many expect. One study found that after just two years in retirement, that effect had largely disappeared, as retirees adapted to their new reality.
Some then reverse course, even returning to work within a year. The pandemic spurred 2.4 million "excess retirements" in 2020, according to a T. Rowe Price analysis of Federal Reserve data. But by March 2022, about 1.5 million retirees had already "unretired."
And it's not always for the money. A recent survey found that one in eight older adults planned to return to work. While rising living costs topped the list of reasons, "boredom" ranked a close second.
That's why the first year of retirement matters. It's when patterns take root. And the habits you form — financially, socially, emotionally — can greatly influence your retirement future.
Aligning your finances with the 'first year of retirement' rule
In the excitement of newfound freedom and a well-stocked nest egg, it's tempting to splurge. Van Den Berg calls this the "victory lap phase."
That's why he advises: "Pause before making any big, irreversible decisions in the first 6–12 months." He stresses the importance of giving yourself time to adjust, both emotionally and financially, before locking in major choices like large gifts, home renovations or claiming Social Security.
Collins echoes this advice, emphasizing the need for a retirement income plan to avoid overspending.
"Newly minted retirees might receive a lump sum from a pension or 401(k), feel a false sense of security, and start spending freely without understanding the long-term impact or tax consequences," she says. "This can create problems that are hard to reverse, especially when those funds are meant to last decades."
Part of the solution, Collins says, is building a realistic and sustainable withdrawal strategy that replaces your paycheck and provides clarity about what you can safely and comfortably spend.
It also helps guard against a common danger in the early stage of retirement: the sequence of returns risk, or selling investments at a loss during a market downturn. Doing so can drain your portfolio and make recovery harder, potentially shortening how long your money lasts.
To reduce the risk, Van Den Berg suggests holding 12-18 months of income in cash or low-risk investments. Essentially, this "bucketing" approach enables you to weather market volatility without prematurely dipping into long-term investments.
However, for many retirees, managing money differently isn’t the hardest adjustment. The bigger challenge? Rebuilding structure and purpose in daily life.
"Most people overestimate what they can achieve in a year and underestimate what they can achieve in ten years." — Bill Gates
Living by the rule
The first year of retirement is when people either lean into purpose, or drift into uncertainty.
Consider that research finds that those who retire based on aspirational motivations and positive circumstances (i.e., on their own terms) experienced significantly lower rates of depression. In contrast, those retiring under negative circumstances (i.e., forced to retire) were more likely to see their mental health decline.
"For those with abrupt transitions," says Dana Anspach, founder of Sensible Money, "that first year of retirement is critical to what comes next."
She encourages a mindset of exploration: "Be curious. Explore new activities. Try new things. Say yes to everything, but don't make any long-term commitments. Pay attention to what gives you energy and do more of it."
Relationships also play an outsized role. Studies consistently show that loneliness contributes to both physical and mental decline. That's why Anspach strongly urges retirees to stay connected: "Engage in group activities — yes, even if you're an introvert. Retirees with strong social ties report far greater fulfillment."
Routine can help, too. Van Den Berg advises, "Retirement doesn't need to be tightly scheduled, but some rhythm prevents the days from simply blurring together."
Anspach says some retirees can also expect an emotional adjustment. "You may go through the stages of grief — denial, anger, bargaining, depression and finally, acceptance. Give yourself grace to work through these natural emotional cycles."
She recalls one client who reluctantly retired after a return-to-office mandate. Though he enjoyed some initial travel, he soon missed the social connections and sense of purpose work provided. Moving to a 55+ community helped. After joining a softball league and building new friendships, he found renewed meaning — and now encourages other new retirees to keep exploring until they find their own new place.
And there may be more time to explore than many realize.
For a 65-year-old couple today, there’s a 50% chance that one partner will reach 90, and a 20% chance that one will reach 100. With rapid advances in healthcare and technology, the odds of living a healthy, active life late into old age are improving.
Perhaps the better way to view retirement isn’t in terms of years, but decades. As Bill Gates once said, "Most people overestimate what they can achieve in a year and underestimate what they can achieve in ten years."
Still, how you shape the first 12 months can shape the decades to come.
More Retirement Rules
- Generate guaranteed income: The Rule of 240 Paychecks in Retirement
- Manage inflation: The Rule of the Shrinking Dollar in Retirement
- Managing time in retirement: The Rule of 1,000 Hours in Retirement
- How to handle "time drift" in retirement: The 'Second Law' of Retirement Rules
