Accumulating and distributing are different problems.

Sequence-of-returns risk

Two retirees can experience identical average returns over thirty years and end with wildly different outcomes, purely because of the order in which those returns arrived. Withdrawals taken during an early drawdown sell more shares to raise the same dollar, and those shares are not there to participate in the recovery. The damage is permanent and it is concentrated in the first several years of retirement.

This is the reason capital preservation matters more, not less, as retirement begins, and it is the same argument that runs through our investment approach.

What the withdrawal-rate research says now

The familiar “4% rule” comes from research published in 1994 using historical U.S. returns. More recent work updates the starting figure for current valuations and yields: Morningstar’s 2024 edition of The State of Retirement Income put the starting safe withdrawal rate at roughly 3.7% for a balanced portfolio over a 30-year horizon at a high probability of success.¹

These are research findings under stated assumptions, not guarantees and not a recommendation for your situation. Their practical value is as a reference point: a plan that requires 6% out of the portfolio in year one is making an assumption worth surfacing before retirement rather than after.

Which account the money comes from

The conventional sequence (taxable first, then tax-deferred, then Roth) is a default, not an answer. The better sequence is usually the one that fills up the lower tax brackets in the gap years between retirement and required distributions, because those years are frequently the lowest-bracket years a household will ever have.

Sequencing has to be solved against several constraints at once:

• Marginal bracket this year versus the bracket the RMDs will create later
• The provisional-income thresholds that determine how much Social Security becomes taxable
• The Medicare IRMAA cliffs, on a two-year lag
• Capital gain rates, loss carryforwards, and the basis step-up available at death
• Charitable intent, including qualified charitable distributions from an IRA at 70½

Required minimum distributions

Required minimum distributions currently begin at age 73 and are scheduled to begin at 75 for those born in 1960 or later, under SECURE 2.0.² Missing one is expensive: the excise tax is 25% of the shortfall, reduced to 10% if corrected within the statutory correction window.³

The strategic point is not compliance, it is arithmetic. Every dollar left in a tax-deferred account is a future required distribution at whatever rate applies then, and those distributions land on top of Social Security and drive Medicare surcharges. Partial Roth conversions in low-bracket years are one lever; qualified charitable distributions are another. Both need to be modeled, and both are time-limited opportunities.

Building an income floor first

We generally want the non-discretionary spending (housing, food, insurance, health care) supported by income that does not depend on the market’s cooperation in any given year. Social Security, pension income, and where appropriate a contractual income source form that floor; the portfolio funds the discretionary layer above it. Our income planning page covers how that floor gets built.