Fee-Only Retirement Income Planning for HNW Families

Withdrawal sequencing: which account pays you first

The default advice says spend taxable first, tax-deferred second, Roth last. It is a reasonable starting point and a poor finished plan. Draining taxable accounts entirely can leave you with nothing but ordinary-income withdrawals later, right when required minimum distributions arrive and push you into higher brackets.

We usually blend. In many years the plan draws from taxable accounts for the bulk of spending while deliberately pulling enough from the IRA to fill the lower brackets, or converting that amount to Roth instead. Roth dollars stay in reserve for high-tax years, large one-time expenses, and the survivor years, when the same income lands on a single filer's bracket schedule.

The order also affects how much of your Social Security is taxable and where your Medicare premiums land, because both are driven by the income your withdrawals create. Sequencing is a tax decision wearing an income costume.

Sources: IRS: Roth IRAs

Guardrails instead of a static 4 percent

The 4 percent rule was a research finding, not an income plan. It answered a narrow question: what fixed, inflation-adjusted withdrawal rate survived the worst historical 30-year periods. Useful context. But it assumes you never adjust, and real households adjust constantly.

We prefer guardrail rules. You start with a withdrawal rate, and the plan defines bands around it in advance. If the portfolio outruns the plan, spending gets a raise. If it falls behind, spending takes a modest, pre-agreed trim. Small cuts made early are what help prevent large cuts made under duress later.

The point of guardrails is not precision. It is that the decision rules are written down before markets get emotional, so a bad year triggers a procedure instead of a panic.

RMD mechanics and timing

Required minimum distributions force money out of tax-deferred accounts on the government's schedule, not yours. Under current law the required beginning age is 73 for most of today's retirees, scheduled to rise to 75 for those born in 1960 or later. The first distribution can be delayed until April 1 of the following year, but doing so stacks two taxable distributions into one tax year, which is rarely the right trade.

Missing an RMD triggers a stiff excise tax under current law, reduced when the miss is corrected promptly. We would rather plan than correct. The years before RMDs begin are often the best window to shrink future RMDs through partial Roth conversions, and after age 70 and a half, qualified charitable distributions can satisfy part of the requirement without adding to income.

Sources: IRS: Retirement plan and IRA required minimum distributions FAQs

The Social Security bridge

For each year you delay Social Security past full retirement age, the benefit grows by a fixed credit until age 70, and that larger check is inflation-adjusted for life. For married couples the case is often stronger, because the higher earner's benefit becomes the survivor benefit.

Delaying creates bridge years: a stretch where the portfolio carries more of the spending load than it will later. That elevated early withdrawal rate looks alarming on a statement, and it is often exactly what the plan intends. We fund the bridge deliberately, usually from taxable and tax-deferred accounts, which has the side effect of opening bracket room for Roth conversions in the same years.

Delay is not automatic. Health, family longevity, and the shape of the rest of the balance sheet all matter. This is a modeled decision, not a rule of thumb.

Sources: Social Security Administration: Delayed retirement credits

An honest word on pensions and annuity income floors

Some households want a floor: enough contractual monthly income, from Social Security, a pension, or an insurer, to cover essentials without depending on markets. A pension plus Social Security often builds that floor on its own. When it does not, an annuity is one way to fill the gap, and we will say so when the math supports it.

We rarely recommend annuities, and we are fee-only, so we earn nothing when one is purchased. Most contracts we review carry costs, surrender schedules, and complexity that outweigh the comfort. When a floor genuinely helps, the simplest version, a plain single premium immediate annuity covering a specific spending gap, is usually the honest candidate. If you already own a contract, we plan around it rather than reflexively replacing it.

Sequence-of-returns risk

Two retirees can earn the same average return and end up in very different places if the order of returns differs. Withdrawals turn early losses into permanent ones, because the shares sold in a down year never recover. The first five to ten years of retirement carry most of this risk.

Our defenses are structural. A cash and short-term bond reserve covers near-term spending so equities are not sold at lows. Guardrails trim withdrawals when the portfolio lags. Discretionary spending is identified in advance as the flexible layer. None of this eliminates the risk. It is designed to keep one bad market from rewriting the whole plan.

Related Reading

• Retirement isn't an age. It's a cash flow.
• Why we rarely recommend annuities
• Why staying invested beats timing the market
• The forgotten 401(k): how inaction costs real money

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