Most Retirees Miscalculate Savings Withdrawals, Study Finds
The sequence in which retirees draw down savings affects both tax liability and quality of life, a new analysis warns.
A significant majority of retirees are mismanaging the order in which they tap their savings, according to a MarketWatch report, a mistake that carries consequences not only for their tax bills but for their overall retirement experience.
The core issue centers on withdrawal sequencing — which accounts retirees pull from first, whether traditional IRAs, Roth accounts, or taxable brokerage holdings. The order is not financially neutral. Drawing from the wrong accounts at the wrong time can push retirees into higher tax brackets, trigger larger Medicare premium surcharges, or erode the tax-free growth potential of Roth savings.
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Financial planners have long emphasized that a tax-efficient withdrawal strategy can meaningfully extend the life of a retirement portfolio. Yet the MarketWatch analysis suggests roughly nine in ten retirees are not optimizing this sequence, leaving potential savings on the table at a stage of life when income is largely fixed and financial flexibility is limited.
Beyond the tax dimension, the sequencing error also affects lifestyle. Retirees who deplete more flexible or accessible funds early may find themselves constrained later, potentially curtailing spending on travel, family, or healthcare precisely when those expenditures matter most.
Financial advisers generally recommend a coordinated drawdown strategy tailored to individual tax situations, account balances, and anticipated longevity — a plan that many retirees appear to be entering retirement without. Continue reading at MarketWatch.com
