Retirement Planning in Colorado

Retirement planning in two stages

Think of retirement as two jobs. The first is building a pile of savings and steady income. The second is turning that pile into monthly spending without running out. Most of the risk lives in the second job, because early mistakes are hard to reverse. A planner starts with what you expect to spend, subtracts what Social Security and any pension will pay and sizes the gap that savings must fill.

According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, about 15.6 percent of Colorado residents are 65 or older, a lower share than in many states because so many younger workers have arrived for jobs. Even so, the number of retirees is growing, about 66.2 percent of homes are owner occupied and the median home value is about $539,400. Housing equity is often the largest asset a Colorado retiree owns.

Colorado’s retirement income subtraction

Colorado allows people of a certain age to subtract some pension and annuity income, and in some cases taxable Social Security benefits, when they compute state taxable income. The amount you can subtract rises when you turn 65. Qualifying income generally includes pensions, IRA and 401(k) withdrawals and military retirement pay. The practical effect is that your effective state tax rate in retirement can be lower than during your working years, and the age at which you begin withdrawals can change the outcome. The rules and limits have been adjusted over time, so confirm current details with the Colorado Department of Revenue or a tax professional before relying on any figure.

Colorado also taxes income at a single flat rate, so there are no state brackets to manage. Your planning energy goes to federal tax: how much of your Social Security is taxable, when required minimum distributions begin and whether partial Roth conversions in lower-income years make sense.

PERA and other public pensions

Many Colorado retirees spent careers with school districts, state agencies, counties or cities. Most belong to the Public Employees Retirement Association, called PERA, which has divisions for school, state, local government, judicial and Denver Public Schools employees. PERA pays a lifetime benefit based on years of service and average salary, and it also offers a defined contribution plan and a voluntary 457 option. Some employers, including certain police and fire departments and the City and County of Denver, use their own plans. A new hire’s rules can differ from those of someone who joined decades ago, so read the details for your own tier.

PERA and Social Security together

Many PERA members, especially school employees, did not pay Social Security tax on their public wages. Until recently two federal rules could shrink Social Security benefits for people with such pensions. Congress repealed those rules in early 2025, so many retired teachers who earned benefits through other jobs or through a spouse should check whether they are owed more. Gather your PERA statement, your Social Security earnings record and your spouse’s records, and confirm what applies. Survivor choices matter too: the option you pick at retirement generally sets what a spouse receives later, and it usually cannot be changed.

Choosing when to claim Social Security

You can claim as early as 62, at full retirement age or as late as 70. Waiting past full retirement age raises the monthly amount by roughly eight percent per year until 70, while claiming at 62 reduces it permanently. A married couple in Loveland where one spouse earned much more should look at both benefits, since the larger one becomes the survivor benefit. Create an account at ssa.gov to see your own estimate. Our retirement planning guide explains the basics.

Where in Colorado to retire

Front Range suburbs offer hospitals and airports but high housing costs. Colorado Springs and Pueblo cost less and have military and veteran services. The Western Slope, including Grand Junction and Montrose, offers lower home prices and orchards, with fewer specialists nearby. Mountain towns give you scenery and snow but steep housing costs and altitude that some people find harder with age. Many retirees try a seasonal stay before buying. A planner can estimate your costs in each place and show how a move changes your plan.

Healthcare in retirement

Medicare starts at 65. Original Medicare covers hospital and doctor services but leaves gaps, so most people add a supplement or choose Medicare Advantage. Plan options and provider networks differ by county, and in rural and mountain areas fewer specialists may accept a given plan. Check that your doctors and nearest hospital are in the network before enrolling, and review the choice each fall. Our guide to retirement covers the enrollment periods that can trigger late penalties.

Long-term care and Health First Colorado

Medicare pays for short skilled stays, not for years of help with bathing, dressing or memory care. Costs come from savings, long-term care insurance or Health First Colorado, the state Medicaid program, once assets are low enough to qualify. Rules about transfers made in the five years before applying are strict, so do not give away assets without advice. An elder law attorney and a planner can lay out choices before a crisis forces them.

Housing, property tax and downsizing

Colorado has a property tax exemption for qualifying older homeowners who have lived in their homes for a set number of years, and for some disabled veterans. Apply through your county assessor. A retiree in Arvada who sells a large family home may fund a good part of retirement from the equity, but sale proceeds can bring a capital gains question, so ask a tax professional. Also look at insurance: hail and wildfire have raised premiums in many areas, and fixed incomes feel that quickly.

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Military and federal retirees

Colorado Springs and the nearby bases are home to many veterans and military families, and retired service members generally qualify to count military retirement pay toward the state retirement income subtraction. Retirees also use TRICARE, and the interaction with Medicare at 65 needs care. Federal civilian retirees have their own pension and health plan choices. If you fall into either group, ask your advisor how they have handled these benefits for clients.

Withdrawal order and taxes

A common approach is to spend from taxable accounts first, then traditional accounts, leaving Roth money for last. In practice, the right order depends on your tax brackets. Drawing from a traditional IRA in years when you have low income can fill up lower brackets cheaply. Required minimum distributions begin in your seventies and can push income higher, so many people shift some money to Roth accounts earlier. Our investing guide explains how stocks and bonds behave during withdrawals.

Questions to ask a retirement advisor

1. Do you act as a fiduciary? Get the answer in writing.
2. How will you set my withdrawal order?
3. How are you paid? Ask for the total fee in dollars.
4. How do you handle a PERA or other pension?
5. How do you plan for long-term care?
6. How often will we update the plan?

Beneficiaries and documents

Retirement accounts pass to the person named on the form, not through your will. Review those forms after any marriage, divorce, birth or death. Colorado permits a beneficiary deed for real estate, which can pass a home without probate. Have powers of attorney and a medical directive in place, and tell your family where they are kept. Most non-spouse heirs must empty an inherited retirement account within ten years under current federal rules. Our estate planning guide covers the main documents.

A sample retirement year

Take a couple in Fort Collins, both 64, with a combined $1,100,000 in 401(k) and IRA balances, a $2,400 a month PERA pension for one spouse and a paid-off home. They plan to stop work at 65. Their advisor might suggest a cash reserve of two years of spending, delaying Social Security for the higher earner until 68, and drawing from the IRA in the first years while their taxable income is low. After 65 the state subtraction rises, which improves the case for pulling traditional account money in those years. This is an example, not a rule, but it shows how state tax, pension timing and Social Security fit together.

Inflation and the cost of staying active

Retirement in Colorado often means skiing, hiking, golf or travel. Those habits cost money, and prices rise over time. Plan for spending to start higher in the early, active years, flatten in the middle and rise again with healthcare late in life. Add a margin for home repairs after hail and for higher insurance premiums. PERA benefits can include annual increases, but they may not keep up with every price rise, so check how your own tier handles them.

Ranch, orchard and cabin owners

Some Colorado retirees hold land more than securities: a few acres near Palisade, a cattle operation on the Eastern Plains or a cabin that three generations use. Land can carry water rights, which are valued and sold separately, and it often produces little cash. A plan should show whether the property supports your income or draws on it, who will take over and whether the heirs can afford the upkeep. Talk with an attorney who knows Colorado water law before any transfer.

Keeping the plan current

Revisit the plan every year in the fall, when Medicare open enrollment gives you a reason to look at costs. Check the pension statement, update the budget for last year’s real spending and see whether tax law has shifted. Retirement lasts thirty years or more for many people, so small course corrections early on matter more than a perfect first forecast.

Frequently asked questions