Retirement Income Planning
How to Not Run Out of Money in Retirement
Running out of money in retirement is one of the most common fears among people approaching their later years, and it is a legitimate concern. A coordinated strategy that addresses withdrawal sequencing, Social Security timing, tax-efficient income, and required minimum distributions can meaningfully extend how long your savings last. This guide outlines the core levers available to pre-retirees and retirees with $1 million or more in savings.
What You Will Learn
Key Takeaways
Making retirement savings last is not a single decision. It is a set of coordinated choices made before and during retirement that compound over decades. Understanding the major risk factors and planning levers is where longevity planning begins.
- 1 Sequence-of-returns risk in the first years of retirement can have an outsized and lasting impact on how long a portfolio lasts, independent of average annual returns.
- 2 Delaying Social Security — even by one to three years — may significantly increase lifetime guaranteed income, depending on individual health and circumstances.
- 3 The order in which you draw from taxable, tax-deferred, and tax-free accounts affects both your tax burden and how long your money lasts.
- 4 RMDs from tax-deferred accounts can push you into higher tax brackets if not planned for in advance — a risk that is manageable with the right strategy.
- 5 Healthcare and inflation are the two expenses most likely to grow faster than expected during retirement, and both require proactive planning.
Understanding the Problem
Why Retirees Run Out of Money
According to the Employee Benefit Research Institute, a significant share of retirees exhaust their financial assets within the first two decades of retirement. The causes are rarely a single event. They are usually a combination of factors that compound quietly over time.
Sequence-of-Returns Risk
Poor market performance in the early years of retirement, combined with ongoing withdrawals, can permanently reduce a portfolio's ability to recover. A 20% loss in year one has a materially different impact than the same loss in year fifteen.
Longevity Risk
According to the Social Security Administration, a 65-year-old today has roughly a 50% chance of living to age 85, and a meaningful chance of reaching 90 or beyond. A 20-to-25 year retirement is not unusual. Most retirement plans are not built to reflect this reality.
Inflation Risk
Even modest inflation of approximately 3% per year cuts the purchasing power of a dollar in half over roughly 24 years. Retirees on fixed income streams or overly conservative portfolios are disproportionately exposed to this erosion over time.
Healthcare Cost Risk
Fidelity estimates that an average retired couple may need approximately $315,000 (as of 2023) to cover healthcare costs in retirement, not including long-term care. Healthcare inflation consistently outpaces general inflation, making this one of the most underestimated line items in retirement planning.
Withdrawal Rate Risk
Withdrawing too much too soon is one of the most common and consequential mistakes in early retirement. Without a structured drawdown strategy, it is easy to underestimate how quickly distributions compound into a portfolio shortfall over a 20-to-30 year horizon.
Tax Drag Risk
Withdrawing from the wrong accounts at the wrong time can create unnecessary tax events that accelerate portfolio depletion. Connecticut taxes a portion of retirement income for higher earners, which adds a layer of planning complexity specific to residents of this state.
Strategy 1
Build a Withdrawal Strategy Before You Retire
The transition from accumulating assets to distributing them is one of the most consequential financial shifts you will make. Without a withdrawal plan, most people default to taking money from wherever is most convenient — which often means paying more in taxes and drawing down the wrong accounts first.
A withdrawal strategy addresses three interconnected questions: how much to take out each year, in what order to draw from your accounts, and how to adjust the plan as circumstances change. These decisions interact directly with your tax situation and your investment portfolio, which is why they are best addressed as part of a coordinated plan rather than in isolation.
The often-cited 4% withdrawal guideline — drawing down approximately 4% of your portfolio in the first year of retirement and adjusting for inflation each year after — originated from research designed for 30-year retirements. It may not apply cleanly to your situation, particularly if you retire early, have a large tax-deferred balance, or expect above-average healthcare costs. Treat it as a starting framework, not a rule.
Withdrawal Sequencing: A Common Starting Framework
The order in which you draw from accounts matters as much as the amount. A general framework — which should be customized to your tax situation — often follows this sequence:
Required income from Social Security and pensions
Establish your guaranteed income floor first to reduce the portfolio withdrawal burden.
Taxable brokerage accounts
Drawing from taxable accounts first allows tax-deferred assets to continue compounding while managing capital gains exposure.
Tax-deferred accounts (IRA, 401(k))
Withdrawals are taxed as ordinary income. Timing and amount affect bracket exposure and RMD calculations.
Tax-free accounts (Roth IRA)
Roth assets are generally preserved as long as possible, providing tax-free income later and flexibility in high-income years.
This sequence is illustrative. Individual tax situations, RMD obligations, and income sources may call for a different approach. Results vary by individual circumstances.
Strategy 2
Social Security Timing Is One of Your Most Powerful Levers
The decision of when to claim Social Security is one of the most consequential — and most frequently mishandled — decisions in retirement planning. Claiming at 62 versus 70 can produce a difference of approximately 76% in your monthly benefit, according to the Social Security Administration. For higher earners with $1 million or more in savings, the math of delaying is often compelling.
Delaying Social Security to age 70 allows your benefit to grow by approximately 8% per year between full retirement age and age 70. For a retiree in good health with a reasonable life expectancy, delaying often results in significantly more cumulative lifetime income, though the right answer depends on your health, other income sources, and tax situation.
For couples, the coordinated claiming decision becomes even more nuanced. The higher-earning spouse's claiming age affects the survivor benefit — meaning a delay by the higher earner can provide meaningfully more income to a surviving spouse, which is a longevity risk management tool in its own right.
Social Security Claiming Age: What Changes
| Claiming Age | Benefit Impact | Consideration |
|---|---|---|
| 62 (earliest) | Reduced by up to 30% | More years of income, but permanently lower monthly amount |
| Full Retirement Age (66-67) | 100% of earned benefit | Baseline; no reduction or delayed credits |
| 70 (maximum delay) | Up to 32% above FRA benefit | Highest monthly income; requires bridging from savings during delay period |
Source: Social Security Administration. Benefit percentages approximate and subject to individual earnings record. Consult a financial professional before making claiming decisions.
Strategy 3
Plan Around Required Minimum Distributions Before They Arrive
Required Minimum Distributions (RMDs) begin at age 73 under current IRS rules (as of 2024, per the SECURE 2.0 Act). For individuals with large 401(k) or traditional IRA balances, RMDs can produce unexpected taxable income that pushes you into a higher bracket, triggers Medicare surcharges (IRMAA), and increases the taxable portion of your Social Security benefit — all at once.
For retirees with $1 million or more in tax-deferred accounts, proactive RMD planning often involves a combination of Roth conversions in the years between retirement and age 73, strategic use of qualified charitable distributions (QCDs) for charitably inclined retirees, and careful coordination with other income sources to manage bracket exposure.
The window between retirement and age 73 is often the most valuable planning period of a retiree's financial life. It is when income is typically lower, tax rates are favorable, and the opportunity to reposition assets from tax-deferred to tax-free is at its widest. Failing to use this window purposefully is one of the most common and costly oversights in retirement planning.
Roth Conversions in the Pre-RMD Window
Converting a portion of traditional IRA or 401(k) assets to a Roth account in lower-income years may reduce future RMDs and create tax-free income later. Whether this makes sense depends on your current and projected future tax rates, state income tax exposure, and estate planning goals. Results vary by individual circumstances.
Qualified Charitable Distributions (QCDs)
If you are age 70.5 or older and charitably inclined, QCDs allow you to direct up to $105,000 per year (as of 2024, per IRS guidance) from your IRA to a qualified charity, potentially satisfying part of your RMD without the amount counting as taxable income.
Connecticut Retirement Income Tax Considerations
Connecticut taxes a portion of pension and 401(k) income for residents above certain income thresholds. This adds a state-level layer to federal RMD planning that is specific to CT retirees and warrants dedicated attention in a comprehensive income plan.
Strategy 4
Build a Reliable Income Floor
One of the most effective frameworks for retirement income longevity is the income floor approach. The idea is to cover non-discretionary living expenses — housing, food, healthcare, utilities — with guaranteed or highly reliable income sources, so that your investment portfolio does not need to carry the full weight of your retirement.
Income Sources That Form a Reliable Floor
Why the Floor Approach Reduces Longevity Risk
When your essential expenses are covered by predictable income sources, you gain two things: the ability to keep your investment portfolio positioned for longer-term growth without being forced to sell in a down market, and the psychological stability to stay with a long-term investment strategy during periods of market volatility.
Forced selling during market downturns is one of the mechanisms through which sequence-of-returns risk converts paper losses into permanent portfolio damage. An income floor reduces the probability of that scenario. Like all retirement strategies, this approach involves trade-offs and may not be appropriate for every situation — it is best evaluated as part of a comprehensive plan.
Strategy 5
Account for Healthcare and Inflation as Dynamic Costs
Healthcare spending tends to increase significantly as retirees age, and it does so at a rate that consistently exceeds general inflation. According to the Centers for Medicare and Medicaid Services, healthcare spending per capita among adults aged 65 and older is approximately four times that of working-age adults. Planning for a static healthcare cost in retirement is one of the most common and consequential underestimates.
Long-term care is a related and frequently overlooked exposure. According to the U.S. Department of Health and Human Services, approximately 70% of people turning 65 today will require some form of long-term care services during their lifetime. The median annual cost of a private room in a nursing facility exceeded $100,000 as of recent surveys — a cost that can deplete even a well-funded retirement portfolio within a few years.
Inflation affects all retirees, but its impact is most pronounced for those on fixed income streams. Portfolios that are too heavily weighted toward low-growth assets may not keep pace with inflation over a 20-to-30 year retirement. This creates a tension between stability and purchasing power that a well-constructed plan seeks to balance — though every approach involves inherent trade-offs.
Key Healthcare Planning Considerations
- 1 Understand your Medicare coverage options (Parts A, B, D, and Medicare Supplement) and how they interact with your retirement income level.
- 2 IRMAA surcharges apply when modified adjusted gross income exceeds certain thresholds — a consideration that connects directly to RMD and Roth conversion planning.
- 3 Long-term care risk should be evaluated and addressed before it becomes an imminent need. Options include long-term care insurance, hybrid life/LTC policies, and self-insuring with dedicated reserves.
- 4 Health Savings Accounts (HSAs), if available during your working years, can be a uniquely tax-advantaged vehicle for funding future healthcare expenses in retirement.
Our Approach
Retirement Income Planning at Skinner Wealth Strategies
At Skinner Wealth Strategies, retirement income planning is not a single conversation — it is an integrated process that connects your investment portfolio, tax situation, income sources, and risk exposures into one coordinated strategy. Brian Skinner, CFP® and CRPC®, works primarily with individuals and families aged 50 and older who have $1 million or more in retirement savings and are navigating the transition from accumulation to distribution.
Every client engagement begins with a structured discovery process to understand your full financial picture before any recommendations are made. From there, a comprehensive assessment identifies gaps, opportunities, and the specific sequencing decisions that are most relevant to your situation. Plans are explained in plain language, without jargon, and revisited as your circumstances evolve.
As a fiduciary, Brian is obligated to act in your interest in every recommendation. Our work spans withdrawal sequencing, Social Security timing, RMD and Roth conversion planning, tax-efficient income distribution, and ongoing portfolio management — all coordinated under one roof, in Connecticut.
Our Three-Step Onboarding Process
Discovery
We learn your full financial picture, goals, concerns, and timeline before making any suggestions.
Assessment
We identify gaps in your current plan, risks you may not have accounted for, and opportunities specific to your situation.
Opportunity
We present a clear, plain-language plan with actionable next steps — and work with you to determine if we are the right fit before any engagement begins.
Who We Typically Work With
- + Pre-retirees and retirees aged 50 and older
- + Individuals and families with $1 million or more in retirement savings
- + High earners navigating the shift from saving to income distribution
- + Connecticut residents, with offices in Milford and Fairfield