Retirees Who Spend From the Wrong Account First Run Out About Three Years Sooner. Here’s the Order That Adds Six Figures.

Withdrawing money from the wrong account first can shave years off a retiree's portfolio and cost hundreds of thousands of dollars in lifetime wealth. Draining the taxable brokerage account first leaves the traditional IRA untouched, which then grows without restraint. This forces larger required minimum distributions (RMDs) at age 73, potentially pushing retirees into the 22% tax bracket.

The ideal solution is to draw from the 12% tax bracket with IRA withdrawals or Roth conversions before RMDs begin, while harvesting taxable gains at 0%. Many financial professionals are salespeople focused on pushing products, not on ensuring their clients end up wealthier. A fiduciary, on the other hand, is legally obligated to prioritize their clients' interests.

Advisor.com offers a free matching tool that connects retirees with vetted fiduciaries from major national firms in under three minutes. This tool is highly sensitive to the assumptions used in the model. For example, a 65-year-old couple with $1.5 million split between a taxable brokerage, traditional IRA, and Roth could see their portfolio longevity shortened by three years if they withdraw from the wrong account first.

However, following a more optimized strategy could leave them with an additional six figures in wealth over a 30-year retirement. This outcome varies significantly depending on factors like the asset mix, spending level, and tax bracket. A retiree with most of their assets in one account type sees little impact. The common advice of withdrawing from taxable accounts first before tax-deferred accounts is based on the assumption that tax-deferred accounts will compound longer and that taxable withdrawals often qualify for lower long-term capital gains rates.

However, this approach can lead to larger RMDs at age 73, which can push retirees into a higher tax bracket and trigger Medicare surcharges. The more sophisticated approach is to fill the 12% tax bracket with IRA withdrawals or Roth conversions before RMDs begin, while harvesting taxable gains at 0%. Many financial professionals are salespeople focused on pushing products, not on ensuring their clients end up wealthier.

A fiduciary, on the other hand, is legally obligated to prioritize their clients' interests. Advisor.com offers a free matching tool that connects retirees with vetted fiduciaries from major national firms in under three minutes.