Editor’s note: This is part one of a two-part series on how financial professionals can help their clients avoid costly retirement mistakes.
For many pre-retirees, the transition into retirement doesn’t unfold as carefully as they expected.
After years of disciplined saving, the focus suddenly shifts to income — and that’s where things can feel rushed. Decisions are made quickly. Accounts are tapped without a clear sequence. Tax consequences show up later.
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In other words, their approach is: Ready, shoot, aim.
At Wealthcare Advisors (WCA), we believe retirement income planning isn’t something clients should figure out on the fly. This is where they need a skilled and knowledgeable financial advisor.
Before your client locks in their retirement date, there are several key questions — and more importantly, the how and why behind them — that deserve attention. That’s what we’ll look at in this two-part series.
Which accounts should you tap first — and why?
Retirement income doesn’t come from a single paycheck. It comes from a coordinated strategy across different types of accounts:
- Tax-deferred (IRAs, 401(k))
- Tax-free (Roth IRAs)
- Taxable brokerage accounts
The question for clients isn’t just, “Where do you pull money from?” It’s also, “Which order makes sense for your situation?”
A structured withdrawal strategy can prolong the life of their assets, smooth out tax exposure over time and create flexibility in future years.
For example, drawing only from tax-deferred accounts early may seem logical, but it can create larger required minimum distributions (RMDs) later, potentially pushing a client into higher tax brackets and increasing Medicare premiums.
On the other hand, using taxable or Roth assets strategically in earlier years may allow them to proactively manage their tax position before RMDs begin. The difference-maker is intentional design — not convenience.
How do market conditions affect withdrawal decisions — and how should advisors respond?
Market volatility doesn’t stop at retirement, but your client’s strategy should account for it differently. The biggest risk isn’t just market decline — it’s withdrawing income during that decline. That is where sequence of return, or sequencing, risk becomes a reality.
So, how should you respond? Collaborating with your team and developing a plan mitigates much of this quote unknown risk.
A thoughtful income plan may include maintaining a short-term income “buffer” to avoid selling assets in down markets, adjusting which accounts clients draw from based on current market conditions, and diversifying income sources so they’re not relying solely on portfolio withdrawals.
Instead of reacting emotionally, the goal is to build a system that anticipates market cycles and adjusts accordingly. You and your clients can’t control the markets — but together, you can control how and where they get their income.
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