For high-net-worth individuals, generating retirement income is only one part of a broader strategy. Equally critical is maximizing your net retirement income.

This requires proactive tax planning, but the strategy behind your withdrawals is vital. How they are structured and timed throughout your retirement can materially affect portfolio longevity and the trajectory of your wealth. It follows that a thoughtful, deliberate retirement income strategy can add years to a portfolio’s lifespan and reduce the level of taxes you’ll pay over your lifetime.

Most retirees today rely on multiple income sources, each with very different tax treatment. Taxable brokerage accounts, traditional IRAs and 401(k)s, Roth accounts, pensions, deferred compensation plans, annuities and Social Security all interact differently with the tax code.

When these sources are treated independently rather than as parts of a coordinated system, retirees often pay more in lifetime taxes than necessary. For affluent households, the impact of these decisions is magnified by larger balances, higher marginal tax rates and the cumulative effect of decades-long retirement horizons. And while many retirees recognize the challenge of managing these variables, this same complexity can easily lead to missed opportunities for wealth preservation.

A forthcoming study documents retiree spending behavior in the context of the “retirement consumption puzzle.” The study found that married couples 65 and older withdraw an average of just 2.1% per year from their retirement savings, which is well below the traditional ~4% that has historically supported sustainable income over long retirement periods[i].

For higher-net-worth households, the gap between what retirees could spend and what they actually spend was even more pronounced, with some able to spend hundreds of thousands of dollars more over the course of retirement, while still preserving wealth for future generations.

Solving the “retirement consumption puzzle” means building a strategy.

First, it’s important to map out the order in which assets are withdrawn. Strategic sequencing can help smooth taxable income across years, potentially reducing exposure to higher marginal brackets and preserving flexibility around discretionary spending. The strategy will vary by family, but as a general principle, withdrawing from taxable accounts first, managing distributions from tax-deferred accounts carefully and preserving Roth assets for later years can significantly improve portfolio longevity compared with less intentional approaches.

Required Minimum Distributions (RMDs) add another layer of complexity. Beginning at age 73, withdrawals from traditional IRAs and employer retirement plans become mandatory and fully taxable. These distributions can push retirees into higher tax brackets, increase the taxation of Social Security benefits and trigger higher Medicare premiums through income-related surcharges. Many retirees treat RMDs as “spendable income” even when cash is not needed, which can unintentionally accelerate taxes later in retirement if not planned for in advance.

This is where proactive strategies, such as partial Roth conversions earlier in retirement, can play a meaningful role. While conversions create an immediate tax cost, it’s also true that spreading conversions over time—particularly in lower-income years before RMDs begin—can reduce future required distributions, diversify tax exposure and lower lifetime taxes. Roth conversions are rarely an all-or-nothing decision, though. Instead, they are about managing trade-offs carefully and maintaining long-term flexibility.

Charitable planning can also support tax-efficient retirement income. Qualified Charitable Distributions (QCDs) allow individuals age 70½ and older to transfer funds directly from IRAs to charity, satisfying RMD requirements while excluding the amount from taxable income. Other approaches, such as donating appreciated securities or front-loading gifts into donor-advised funds, can help manage adjusted gross income in higher-income years while supporting philanthropic priorities. When coordinated properly, giving becomes both values-driven and tax-aware.

Perhaps most importantly, retirement income planning is not a one-time exercise. Spending patterns evolve, tax laws change and personal priorities shift. The study referenced shows that while spending often declines with age, many retirees still worry about outliving their resources. This reinforces the need for a clear strategy that remains flexible as retirement circumstances change.

A tax-efficient retirement income strategy is most effective when financial advisors, CPAs and estate planning attorneys collaborate. Together, a strong team can help you ensure that withdrawal decisions remain aligned with your broader goals, reflect changing tax rules and adapt as your circumstances change.

A sustainable retirement plan is essential, but being deliberate about your taxes is what makes that plan work harder. For affluent retirees, the right withdrawal order and proactive planning help protect flexibility and keep more wealth intact. The ultimate goal is to make informed decisions that keep your money working as a tool for the life you’ve built.

[i] Source: “Even Rich Retirees Fear Outliving Their Money,” The Wall Street Journal, December 29, 2024.

IMPORTANT DISCLOSURES:

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. In addition, information presented in this presentation is believed to be factual and up to date, but Newport Capital Group, LLC does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed.

This presentation includes forward-looking statements and opinions, including descriptions of anticipated market changes and expectations of future activity. Forward-looking statements and opinions are inherently uncertain, and actual events or results may differ materially from those reflected in the forward-looking statements. In addition, all expressions of opinion are subject to change without notice in reaction to shifting market conditions. Therefore, undue reliance should not be placed on such forward-looking statements and opinions.

The tax and estate planning information offered by Newport Capital Group is general in nature.  It is provided for informational purposes only and should not be construed as legal or tax advice.  Always consult an attorney or tax professional regarding your specific legal or tax situation.

Past performance is no guarantee of future performance.