The question is moot, because people would generally not say either sentence. Rather, it would be expressions like:
"After I retire, I'm planning to read a lot."
"After I retire, I'm just gonna play golf, and read."
Nevertheless, we can consider your original examples.
What is intended to be communicated? If it's the meaning of sentence 1, then the choice should be sentence 1. The second sentence appears to be awkward, unusual, and somewhat incorrect.
Yes, perhaps you could imagine a scenario "I will probably be out tending the garden, when the tornado comes and destroys the town."
And that is indeed similar to "I will probably be reading, when the hour passes that I actually enter retirement." However, there are problems with that:
- You will be reading a book, not "many books", when the moment occurs. So you should remove the "many books" part.
- This is a funny meaning, and probably not what 99% of people are trying to say. Rather, they intend sentence 1.
The other interpretation you suggested is "as I stated before that reading books is my plan for the retirement." For that, I think it's not the best choice. The selection between "future simple" and "future continuous" is governed by many rules. How to Use the Future Continuous Tense covers the topic in some detail.
One way to think about it, is that the "simple future tense" is the default choice. You should prefer the "future simple" unless you have a specific reason to switch to "future continuous". For example "You will be doing X, when Y happens". That shows the events overlap. So it's a valid reason. Is your "reading many books" overlapping with something? No, because really you mean "after you retire", not "when you retire". And, reading (over many years) is not one event in time.
Nevertheless, it's a tricky topic. By rephrasing the sentence, you could probably find some ways to convert it to "future continuous".