Most Retirees Misjudge the Order They Should Spend Savings
A common miscalculation among retirees involves the sequence of account withdrawals, which affects both tax bills and quality of life.
A striking majority of retirees — roughly nine in ten — are making a critical error in how they draw down their savings, according to a report highlighted by MarketWatch. The mistake centers not on how much money retirees spend, but on the order in which they tap different accounts.
Financial planners have long emphasized that withdrawal sequencing — the strategy governing which accounts a retiree pulls from first — carries significant tax consequences. Drawing from taxable brokerage accounts, tax-deferred IRAs, and Roth accounts in the wrong order can push retirees into higher tax brackets unnecessarily, eroding wealth that took decades to accumulate.
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Beyond the tax implications, improper sequencing can also undermine a retiree's ability to enjoy their savings when it matters most. Research consistently suggests that retirees tend to spend more actively in early retirement when they are healthier and more mobile, making the timing of accessible funds a quality-of-life issue, not just a financial one.
The miscalculation is widespread in part because retirement account rules are complex and counterintuitive. Many retirees default to spending taxable accounts first and preserving tax-advantaged accounts, assuming that deferring taxes is always the superior strategy — a rule of thumb that does not hold in every financial situation.
Advisers recommend that retirees revisit their withdrawal strategy regularly, particularly as tax laws evolve and personal circumstances change. Continue reading at MarketWatch.com
