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Is $5 million enough to retire at 55? Yes, $5 million can work for retirement at 55 based on our own internal research outlined below—but only if you withdraw about $166,000-$184,000 starting in year one and stay flexible when markets dip. The real challenge isn't the math; it's managing healthcare costs before Medicare kicks in and making smart tax moves. Media often takes a simple approach (“$5M = $100k for 50 years”) and stops there. That’s directionally useful but incomplete because it ignores sequence‑of‑returns risk , pre‑Medicare health costs, and taxes, which matter a lot  to early retirees.  We wrote this piece to go deeper than the typical “rule of thumb” article and to be more rigorous than the popular coverage you’ve likely seen, including SmartAsset’s take on this topic. Is $5 Million Enough to Retire … Download Free: 15 Free Retirement Cheat Sheets to Help Avoid Costly Mistakes [New for 2025] We’ll use current research on safe withdrawal rates , show practical spending guardrails, and map the health‑care and tax decisions that make $5M feel either abundant or tight.  Key Takeaways $5 Million can fund retirement at 55—if you manage it right.  A safe withdrawal range is $166,000–$184,000 in year one  (about 3.1%–3.5%), with adjustments for inflation and flexibility in down markets. The “4% rule” doesn’t fit a 40-year retirement.  Research from Morningstar shows 30-year plans support ~3.7%, but stretching to 40 years lowers the safe starting rate to ~3.32% based on our own research at Covenant Wealth Advisors. Healthcare is the wild card.  Retiring at 55 means 10 years of private insurance before Medicare. Expect to budget around $592,000  for lifetime healthcare costs (excluding long-term care), and watch for ACA subsidy changes after 2025. Taxes are your silent portfolio killer.  The years between 55 and 70 are your “golden window” for Roth conversions, harvesting gains, and managing MAGI for subsidies and IRMAA. Miss it, and you could pay hundreds of thousands more in lifetime taxes. Sequence of returns risk can sink you early.  Protect yourself by keeping 7–10 years of essential expenses  in bonds, T-bills, or TIPS, so you’re not forced to sell stocks in a downturn. Dynamic withdrawal “guardrails” work better than static rules.  They let you take raises when markets are strong and trim spending when markets fall—keeping you on track for 40 years. Delaying Social Security is powerful.  Waiting until 70 increases social security benefits by ~8% per year past full retirement age and strengthens survivor benefits. Yet only 8% of retirees do it. Long-term care and lifestyle spending matter.  Assisted living averages ~$70,800/year, and nursing homes exceed $127,000. Combine this with variable lifestyle goals (like travel) and your plan needs flexibility. The difference between success and failure isn’t $5M—it’s planning.  Most retirees who run into trouble don’t start with too little. They withdraw too much, too early, without adjusting for markets, taxes, and healthcare. Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. Table of Contents Key Takeaways Here's What Most People Get Wrong Your Three Biggest Expenses (That Can Derail Everything) Is $5 Million Enough to Retire at 55? 4 Case Studies The Dynamic Spending Strategy That May Help Your $5 Million Portfolio Last The Social Security Power Move That Only 8.3% of Retirees Use How to Retire at 55 with Your $5 Million Portfolio: Your Action Plan Advanced Strategies for Retirees With $5 Million+ Important Limitations: What These Numbers Don't Tell You FAQs Conclusion Here's What Most People Get Wrong You've probably heard the "4% rule"—withdraw 4% of your portfolio each year and you'll never run out of money. We even wrote an article about it here . But that rule was designed for 30-year retirements, not the 40+ years you might need if you retire at 55. The latest research from Morningstar  shows that for a 40-year retirement, you should start with just 3.1% withdrawals. On $5 million, that's $155,000 in year one. Then you adjust for inflation each year. Think that sounds low? You're not alone. But here's why it matters. For context, Morningstar's research reveals an important distinction: while 30-year retirements can support a 3.7% starting withdrawal rate, extending your timeline by just 10 years drops that "safe" rate significantly.  For example, we ran our own projections, outlined below, which reveals that a 40-year retirement with a $5 million starting portfolio may support a 3.3% starting withdrawal rate with a 90% probability of success . (Source: Download full projections with disclosures ) Some retirees may consider a TIPS ladder approach, which could support 4.4% withdrawals for 30 years —but that strategy completely depletes your capital by year 30, leaving nothing for emergencies, legacy goals, or living past 85. However, we’ve never encountered anyone who uses a pure TIPS ladder strategy in practice. “Many people think a $5 million portfolio automatically guarantees financial freedom at 55, but the reality is more nuanced. The real key is matching withdrawals to your lifestyle while planning carefully for taxes and healthcare. The number itself matters less than how you manage it.”  — Brennan CFP, CFP® Your Three Biggest Expenses (That Can Derail Everything) It seems simple enough to identify your starting withdrawal rate and start your spending based on that. But, retirement cash flow needs are rarely constant. Healthcare costs, navigating different tax brackets, and lifestyle desires can drastically change how long your money lasts in retirement.  Here’s a deeper dive on how these three obstacles may impact your plan. 1. Healthcare: The $592,000 Question From age 55 to 65, you're on your own for health insurance. No Medicare yet. A couple can easily spend $20,000 or more per year on premiums and out of pocket expenses through the healthcare marketplace prior to Medicare.  Critical deadline alert:  The current Medicare enhanced premium tax credits expire after 2025. If Congress doesn't extend them, your costs could double overnight. The ACA currently caps benchmark premiums at about 8.5% of income for subsidy-eligible households through 2025. Without these subsidies, premiums for a couple in their late 50s can easily exceed $20,000 annually, depending on your state and plan choice. After 65? Your cost of healthcare will decline when you transition from private insurance to Medicare. But, plan on budgeting another $5,000 to $6,000 person for Medicare premiums and out-of-pocket costs through retirement. This figure covers Medicare Parts B and D premiums, Medigap or Advantage plan costs, and typical out-of-pocket expenses—but many retirees are shocked to learn Medicare only covers about 60% of healthcare costs. Based on our own research, a couple retiring at 55 needs to budget $592,000 just for healthcare—that covers insurance premiums for the decade before Medicare, plus Medicare premiums and out-of-pocket costs for the rest of retirement.  Oh, and don't forget about Medicare's enrollment rules. You can and should sign up for Medicare at 65 even if you're delaying Social Security. Missing your initial enrollment period triggers permanent premium penalties that compound over time. And here's the kicker: this doesn't include a single dollar for potential assisted living or nursing home care.  “Healthcare is the one expense that catches early retirees off guard. Between 55 and 65, premiums and out-of-pocket costs can run into the hundreds of thousands of dollars. Building a dedicated healthcare budget up front gives families confidence their retirement plan will actually work.”  — Megan Waters, CFP® 2. Taxes: The Silent Portfolio Killer Here's what your CPA might not tell you: The fifteen years from 55 to 70 is golden for tax planning.  Why? You're not collecting Social Security yet, and Required Minimum Distributions don't start until 73 (moving to 75 by 2033). This gives you a rare window to: Convert traditional IRA money to Roth accounts at lower tax rates Harvest capital gains while staying in lower brackets Avoid future Medicare premium surcharges (IRMAA) Manage your Modified Adjusted Gross Income (MAGI) for ACA subsidies Establish a tax-efficient giving strategy for charitable intents Miss this window, and you could pay hundreds of thousands or more in lifetime taxes. The SECURE 2.0 Act extended this opportunity even further. With RMDs now starting later, you have more years to execute strategic conversions. But don't convert blindly— watch for trigger points.  Converting too much in one year can push you into higher brackets, trigger the Net Investment Income Tax (NIIT), or cause you to lose valuable ACA subsidies. Virginia residents face additional considerations. While Virginia doesn't tax Social Security benefits, it does tax most other retirement income. Strategic planning around state taxes  may save thousands annually. 3. The First 10 Years Make or Break You If the market crashes in your first decade of retirement, you may be in trouble without the right portfolio. Why? You're selling investments at low prices to fund your lifestyle, leaving less money to recover when markets bounce back. This " sequence of returns risk " is the a huge killer of early retirement plans. The solution: Keep 7-10 years of essential expenses in bonds, Treasury bills, or TIPS. Yes, that's conservative. But it lets you avoid selling stocks during the next 2008 or 2020. Consider this practical approach: divide your portfolio into three buckets. Your "immediate" bucket holds 1-2 years of expenses in cash or money market funds. Your "intermediate" bucket contains 5-8 years of expenses in high-quality bonds or a TIPS ladder. Your "growth" bucket holds the remainder in diversified stocks for long-term growth. While this is a good rule of thumb, how much of your $5 million portfolio you allocated to each bucket will depend on your own spending needs and comfort level with how much your portfolio moves up and down over time. Is $5 Million Enough to Retire at 55? (4 Case Studies) To determine if $5 million is enough to retire at 55, we stress-tested four different withdrawal strategies using Monte Carlo analysis —running 1,000 market scenarios for each approach.  Our hypothetical case studies account for many variables including market crashes, inflation, extended bull runs, and the critical decision to delay Social Security until age 70.  The four case studies below reveal a clear line between sustainable retirement spending and dangerous territory. Here's what each withdrawal rate actually means for your lifestyle over a 40-year retirement: Annual Withdrawal Before Taxes Starting Rate Probability Analysis for 40 Years $166,000 3.32% High Confidence - 90% Success Rate $176,000 3.52% Moderately High Confidence - 85% Success Rate $184,000 3.68% Moderate Confidence - 80% Success Rate $200,000+ 4.0%+ Low Confidence - 70% Success Rate & Requires backup plan All figures are pre-tax and adjust annually for inflation. Source and full disclosures for case study . Pro Tip:  Remember, these are starting points. Your actual sustainable withdrawal depends on several factors: Expected returns & portfolio mix Sequence-of-returns risk Time horizon & longevity Inflation & spending growth Withdrawal policy and spending flexibility Tax planning strategies For example, your long-run return drives how much you can safely pull without depleting principal. Both starting bond yields and stock valuations set the forward return bar. Your stock/bond split and the quality of diversification in your portfolio matters greatly. Too little in stocks throttles returns; whereas too much in stocks raises failure risk. In our experience here at Covenant Wealth Advisors, many robust plans live in a ~40–70% stock range with truly diversified bond exposure to help smooth out the ups and downs. A Dynamic Spending Strategy That May Help Your $5 Million Portfolio Last Static rules (like “always take 4% plus inflation”) can leave money unspent when markets do well—and force cuts too late when they don’t. A better approach to optimizing your $5 million portfolio could be a dynamic “guardrails” plan that tells you when to give yourself a raise and when to trim, based on what your portfolio is doing. Here’s the simple idea: start with a reasonable withdrawal, then watch your withdrawal rate (this year’s spending ÷ your current portfolio). If markets are strong and your withdrawal rate drops below a lower guardrail, give yourself about a 10% raise. If markets fall and your rate climbs above an upper guardrail, cut about 10% to protect the plan. These pre-set rules take emotion out of decisions and help you adjust early, when small changes matter most. What does research say?  Studies on the Guyton-Klinger guardrails—widely discussed in financial planning—show that retirees who follow rules like these can often start a bit higher than a fixed rule and still keep strong success rates, because they agree to make small, timely adjustments after bad markets. In plain English: you may be able to start higher, but you must be willing to trim for a year or two after big declines to stay on track. Bottom line: guardrails trade a little year-to-year flexibility for a safer, smarter spending path over a long retirement. The Social Security Power Move That Only 8.3% of Retirees Use Delaying Social Security from 67 to 70 increases your benefit by 24%—that's a guaranteed, inflation-adjusted return of 8% for each year you wait. Yet only 8.3% of retirees take advantage of this opportunity . Why? In our experience, most retirees simply haven't created a plan to bridge the income gap between retirement and when they claim Social Security. Without an alternative income source for those crucial years, they feel forced to claim early. The good news? With proper planning, you can join the successful minority who maximize their benefits. Here's the strategy: Draw from your portfolio between ages 55 and 70, then reduce those withdrawals once your enhanced Social Security payments begin. This single move can add years to your portfolio's longevity. For married couples, the strategy becomes more nuanced. Consider having the higher earner delay until 70 while the lower earner claims earlier. This approach maximizes the survivor benefit—a critical consideration since one spouse typically outlives the other by several years. Every situation is unique, so it's essential to develop a personalized retirement strategy. If you'd like guidance determining your optimal approach, request a free retirement assessment from our firm here. How to Retire at 55 with Your $5 Million Portfolio: Your Action Plan Step 1: Build Your Spending Floor Start by calculating your absolute minimum expenses—what we call your "Needs." These include housing, food, insurance, and basic lifestyle costs. Add in property taxes, maintenance, utilities, and replacement reserves for cars and home systems. Your Annual Spending Breakdown: Needs (Must-Haves): Fixed expenses: $100,000 Healthcare expenses: $20,000 Total Needs: $120,000 Wants (Flexible Spending): Travel expenses: $25,000 Charitable giving: $10,000 Total Wants: $35,000 Total After-Tax Spending: $155,000 Important Tax Consideration:  The $155,000 represents what you'll actually spend (after-tax dollars). However, you'll need to withdraw more than this from your retirement accounts to cover taxes. In this example, if you need $176,000 in pre-tax income to net $155,000 after taxes, you'll pay approximately $21,000 in state and federal income taxes. The Safety Rule:  Keep your total pre-tax withdrawal needs below $176,000 to maintain a comfortable margin of safety in your retirement plan. Step 2: Create Flexibility Rules When markets drop 20%, cut discretionary spending (your “wants”) by 10%. When markets rise 20%, give yourself a 5% raise. These "guardrails" can boost the likelihood of your money lasting in retirement. Write these rules down now, while markets are calm and emotions aren't running high. Step 3: Lock In Healthcare Coverage Before retiring: Research ACA marketplace premiums in your state Calculate your Modified Adjusted Gross Income to maximize subsidies Budget for the worst-case scenario (no subsidies after 2025) Consider COBRA for 18 months if it's cheaper than marketplace options Explore health sharing ministries as alternatives (though these aren't insurance) Step 4: Optimize Your Investment Mix Forget the "age in bonds" rule which says you should keep a percentage of bonds in your portfolio that is equal to your age. Personally, I’ve never seen this used in practice and there are so many more factors to consider. Kick this “rule of thumb” to the curb.  Conversely, research shows 20-50% of a $5 million portfolio invested in stocks actually provides the most reliable income for long retirements. The key is having enough safe assets to weather any storm. An evidence supported allocation: Years 1-3:  Cash and money markets (immediate bucket) Years 4-10:  High-quality bonds and TIPS (intermediate bucket) Years 11+:  Globally diversified stocks (growth bucket) Don't overlook international bonds and stocks. Geographic diversification reduces risk and can boost returns. Consider holding 30-40% of your stock allocation in international markets. Step 5: Plan for the Expensive Surprises Long-term care costs average $70,800 yearly for assisted living and $127,750 for nursing homes nationally. But costs vary dramatically by location—urban Northeast facilities can cost twice the national average. Either buy insurance, earmark an additional $500,000, or accept the risk. Other overlooked expenses that derail retirements: Adult children needing financial support (increasingly common) Major home repairs or modifications for aging in place Divorce or separation (gray divorce rates have doubled since 1990) Extended family caregiving responsibilities Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. Advanced Strategies for Retirees with $5 Million+ Partial Annuitization While not for everyone, consider using 10-20% of your portfolio to purchase an immediate or deferred income annuity after age 65. This creates a pension-like income floor, reducing pressure on your remaining portfolio. While you sacrifice liquidity and upside, you gain peace of mind and can invest the remainder more aggressively. Tax Loss Harvesting Continues Just because you've retired doesn't mean tax loss harvesting stops. In fact, it becomes more valuable when you're managing MAGI for ACA subsidies or avoiding IRMAA surcharges. Systematic harvesting can save $3,000-$5,000 annually. Order of Withdrawals Which account you tap first can make or break your retirement. Many retirees drain taxable accounts first, then IRAs, then Roth—triggering unnecessary taxes and Medicare surcharges. The smarter approach: strategically blend withdrawals from taxable accounts with Roth conversions during your low-income years (55-70), before Social Security and RMDs lock you into higher tax brackets. Asset Location Asset location is a tax optimization strategy  that places different types of investments in the most tax-efficient account types to maximize your after-tax returns. The basic principle is to hold tax-inefficient investments (like bonds that generate taxable interest, REITs, and actively managed funds that create frequent taxable events) in tax-sheltered accounts like IRAs and 401(k)s, while keeping tax-efficient investments (such as index funds, ETFs, and stocks you'll hold long-term for capital gains treatment) in taxable brokerage accounts.  For example, you might keep high-dividend stocks and corporate bonds in your IRA where they can grow tax-deferred, while holding tax-managed index funds in your taxable account where they generate minimal annual taxes and qualify for favorable capital gains rates when sold. This strategy can add meaningful value over time—studies suggest proper asset location can boost after-tax returns by 0.20% to 0.50% annually—without changing your overall portfolio risk or allocation. Important Limitations: What These Numbers Don't Tell You Before you commit to early retirement based on the analysis above, you need to understand what our models can—and can't—predict. Even the most rigorous planning has blind spots. Models Are Tools, Not Crystal Balls The withdrawal rates and success probabilities we've outlined come from Monte Carlo simulations—sophisticated models that run 1,000 different market scenarios to estimate outcomes. They're excellent planning tools, but they're not guarantees. What the models capture well:  Historical patterns of market returns, inflation cycles, and typical volatility. What they miss:  Policy shocks, extreme tail events (think 2008 but worse), personal health crises, family emergencies, or the kind of "black swan" events we can't predict. The 2020 pandemic, for example, created healthcare and economic disruptions that no pre-2020 model anticipated. Real life doesn't follow historical averages. You might face three bear markets in your first decade, or enjoy a 15-year bull run. Your actual experience will differ from the median scenario, sometimes dramatically. Your "Safe" Rate Depends on Shaky Assumptions Those withdrawal rates of 3.1%–3.5% rest on assumptions about future returns that may be too optimistic. Consider: If stock returns over the next 40 years average 7% instead of 10%, or if bond yields stay structurally lower than historical norms, today's "safe" rates become tomorrow's portfolio-killers. Current market valuations matter. When stocks trade at historically high price-to-earnings ratios (as they have in recent years), forward returns tend to be lower. The same applies to bonds—when you're locking in a 30-year Treasury at 4%, you're setting your fixed income return ceiling for decades. What this means for you:  Build in more cushion if you're retiring into elevated valuations. A 3.5% withdrawal rate based on historical returns might need to be 3.0% or lower when markets are expensive. Healthcare Costs Are More Variable Than Our Estimates Suggest We estimated $592,000 for lifetime healthcare costs, excluding long-term care. That's a reasonable middle-ground figure, but your actual costs could vary by hundreds of thousands of dollars. Geographic lottery:  Healthcare costs in Manhattan or San Francisco can run 40-50% higher than in smaller cities. The ACA marketplace premiums we discussed? They can swing wildly by state and even by county. Health status:  If you or your spouse develops a chronic condition in your 50s—diabetes, heart disease, autoimmune disorders—medication and treatment costs can explode. Some specialty drugs cost $5,000+ monthly even with insurance. Legislative risk:  Medicare and ACA subsidies exist at Congress's pleasure. Major reforms could increase your costs overnight or change eligibility rules. The enhanced ACA subsidies expire in 2025 unless extended—doubling premiums for some couples. The long-term care wildcard:  We mentioned that assisted living averages $70,800 annually and nursing homes exceed $127,000. But those are national averages. In high-cost areas, memory care facilities can exceed $200,000 per year. And if one spouse needs care for 5-7 years? You're looking at $350,000 to $1,000,000+ in additional costs that aren't built into our baseline models. The prudent approach: Add a 20-30% buffer to healthcare estimates, or dedicate separate funds specifically for long-term care scenarios. Life Doesn't Follow Your Spending Assumptions Our models assume a relatively stable lifestyle with predictable "needs" and adjustable "wants." Real life is messier. Major life transitions  can shatter carefully laid plans: Adult children who need financial support (job loss, divorce, medical issues) Elderly parents requiring care or financial assistance Divorce or separation in retirement (increasingly common—"gray divorce" rates have doubled since 1990) Relocations for health, family, or lifestyle reasons Career changes or unexpected business opportunities You might plan to spend $155,000 annually, but then your daughter goes through a difficult divorce and moves back home with two kids. Or your aging mother needs to move in, requiring home modifications. Or you discover a passion for extended international travel that doubles your original budget. The "wants" bucket that seems so flexible on paper? It's harder to cut than you think when those wants include seeing grandchildren, maintaining friendships, or pursuing passions you've deferred for decades. Behavioral Risk Is the Silent Plan-Killer The math is easy. The psychology is brutal. Sticking to guardrails sounds simple:  Take a 10% pay cut after your portfolio drops 20%. But when you're actually living through a bear market—watching CNBC report doom daily, seeing your friends panic, feeling your portfolio bleed—making rational decisions becomes exponentially harder. Human psychology sabotages plans through: Recency bias:  After years of gains, you convince yourself higher withdrawals are safe Loss aversion:  You refuse to cut spending after market drops, hoping for a quick recovery Lifestyle creep:  Spending gradually increases beyond plan guardrails Decision fatigue:  After years of active management, you stop rebalancing, skip Roth conversions, and let the plan drift Studies show that investors consistently underperform their own funds by 1-2% annually due to behavioral mistakes—buying high, selling low, abandoning strategy during volatility. The solution:  Automate as much as possible. Set up systematic rebalancing. Create trigger-based spending rules you commit to in advance. Better yet, work with an advisor who can be the rational voice when emotions run high. Tax and Policy Assumptions Can Change Overnight Much of our tax strategy—Roth conversions in low-income years, managing MAGI for subsidies, optimizing around IRMAA thresholds—assumes relatively stable tax law. But tax policy is political:  A new administration or Congress could: Raise or lower tax brackets Change Roth conversion rules or eliminate the "backdoor" Roth Modify IRMAA thresholds, increasing Medicare costs for higher earners Overhaul ACA subsidies (or eliminate them entirely) Change Social Security taxation or benefits Alter capital gains treatment or introduce wealth taxes We plan using today's rules, but you'll be retired for 40 years. Expecting zero major tax reforms over four decades isn't realistic. Social Security and Medicare face funding challenges:  The Social Security trust fund faces depletion in the 2030s without congressional action. Potential "fixes" include raising the retirement age, reducing benefits for higher earners, increasing payroll taxes, or means-testing benefits. Any of these changes could reshape your retirement income. Medicare faces similar pressures. Future reforms might increase premiums, raise eligibility ages, or expand means-testing beyond current IRMAA surcharges. What You Should Do With These Limitations Don't let these cautions paralyze you—they're meant to sharpen your planning, not discourage early retirement. Build in buffers:  If models suggest 3.3% is safe, start at 3.0%. If healthcare costs average $592,000, budget $750,000. Give yourself room for reality to deviate from assumptions. Stay flexible:  The greatest asset isn't your $5 million—it's your willingness to adjust. Keep skills sharp. Maintain relationships. Be ready to consult, work part-time, or defer expenses if needed. Review annually:  Meet with your financial advisor every year to stress-test assumptions against reality. Markets change. Your health changes. Tax law changes. Your plan must change too. Diversify your risks:  Don't let your entire retirement hinge on portfolio performance. Consider part-time work, rental income, annuities for a spending floor, or geographic arbitrage (moving to lower-cost areas). Accept uncertainty:  You'll never have perfect information. The goal isn't to eliminate all risk—it's to make smart decisions despite incomplete information and build a plan resilient enough to survive surprises. The difference between successful and failed retirements often isn't the starting portfolio size—it's the ability to adapt when reality diverges from the plan. FAQs Q: How does the balance of my tax-deferred, tax-free, or taxable accounts impact my withdraw rate? A: How your $5 million is split between tax-deferred (IRAs/401ks), tax-free (Roth), and taxable accounts directly affects your withdrawal rate because taxes change how much you actually keep. Two people with the same $5 million portfolio could have very different sustainable withdrawal rates depending on where the money is held. Q: What if I want to spend $250,000 per year from my $5 million portfolio? A:  That's 5% of $5 million—risky for 40 years. You'll need part-time income, aggressive investing, or the flexibility to cut spending dramatically in bad markets. Consider working part-time for 5 years to let your portfolio grow untouched. Q: Should I work part-time to make my $5 million last?   A: Even $30,000 in annual income lets you delay portfolio withdrawals and keep health insurance through an employer. Five years of part-time work could add years to your portfolio. Plus, staying professionally engaged provides purpose and social connection—both linked to longer, happier retirements. Q: Should I implement Roth conversions in retirement?   A: Whether or not you implement Roth conversions depends on your personal tax rates in retirement. Generally speaking, we find that Roth conversions can work well up to the 24% ordinary income tax rate for married couples. Every situation is different so be sure to build a personalized tax plan before you convert. Q: Should I pay off my mortgage? A:  If your mortgage rate is below 4%, keeping it might make sense—especially if you can earn more in bonds or stocks. But the psychological benefit of being debt-free in retirement is powerful. Run both scenarios and choose what helps you sleep better. Conclusion Is $5 million enough to retire at 55? Yes, your $5 million portfolio can be enough to retire at 55. But, the concept is easier than the actual implementation of actually making it happen in the first place. Here’s what you need to do to make it happen: Keep initial withdrawals near $155,000-$185,000 Stay flexible when markets struggle Plan meticulously for pre-Medicare healthcare Optimize taxes during your 55-70 window Delay Social Security to maximize benefits Build in buffers for healthcare inflation and long-term care The difference between success and failure isn't the amount—it's the planning. Most retirees with $5 million who run out of money didn't start with too little—they withdrew too much, too early, without adjusting for market conditions, taxes and quality of life desires like travel, giving and unexpected purchases. Don't have $5 million? Read our article: Is $2 Million Enough To Retire At 60? [5 Case Studies] Do you want my team to just do your retirement planning for you? Request a free Strategy Session , today! It could be the best step you take this year. About the author: Mark Fonville, CFP® CEO and Senior Financial Advisor Mark is the CEO of Covenant Wealth Advisors and a Senior Financial Advisor helping individuals age 50+ plan, invest, and enjoy retirement comfortably. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule your free Strategy Session today   Disclosures:   Download our full case study here. Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

Executive Summary: Welcome to this weekend's edition of The Retirement Brief—we're leading with a stark reality check from the 2025 Natixis Global Retirement Index: 46% of global investors say "it will take a miracle" to achieve retirement security , driven primarily by inflation anxiety that's "killing retirement dreams" for 38% of savers worldwide. Yet hidden within this weekend's research lies a powerful counternarrative—affluent retirees who understand the convergence of sequence-of-returns risk , tax optimization windows, and Medicare cost surges can transform 2025's final quarter into their most valuable planning period ever. The mathematics of early retirement are unforgiving but navigable. Our featured analysis reveals that $5 million can fund retirement at age 55 —but only with withdrawal rates of 3.1%-3.7%, strategic three-bucket positioning, and ruthless exploitation of the "golden" 15-year tax window before RMDs begin. This precision matters profoundly because timing determines everything: identical portfolios with identical returns can produce 40-year success or 25-year failure based solely on when market downturns strike relative to retirement date. With Medicare Part B premiums jumping 11.6% in 2026  and enhanced ACA subsidies potentially expiring, the window for action closes December 7, 2025. Beyond financial mechanics, this week's research illuminates fundamental shifts in how affluent Americans approach their retirement years. Luxury travel spending is surging toward $390 billion by 2028  while luxury goods sales decline—a cultural validation that experiences matter more than possessions when time flexibility meets financial security. Meanwhile, Stanford's breakthrough research on cognitive aging  reveals that spatial navigation decline isn't inevitable, offering hope that proactive planning around independence, travel capability, and housing decisions can preserve the very lifestyle that makes retirement meaningful. The common thread binding these insights: 2025's final quarter represents a rare strategic inflection point where Medicare enrollment deadlines, tax planning windows, and market positioning decisions converge with life-changing consequences . The affluent retirees who thrive won't be those with the largest portfolios, but those who recognize that sophisticated planning across healthcare, taxes, withdrawal strategies, and lifestyle creates compounding benefits that dwarf the impact of investment returns alone. Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. 2025 Global Retirement Index - The Top Countries for Retirement Security Author:  Natixis The 2025 Natixis Global Retirement Index evaluated 44 developed nations across 18 performance indicators, revealing that 46% of global investors say "it will take a miracle" to achieve retirement security—though notably, American optimism has improved with only 21% sharing this view, down from 41% in 2021. Norway reclaimed the top position with an 83% score, driven by superior health outcomes (83-year life expectancy), low unemployment, high income equality, and the world's best governance scores. Ireland surged to second place (82%), Switzerland fell to third (81%), with Iceland fourth and Denmark fifth rounding out the top tier. The devastating inflation impact dominates retiree psychology: 66% report saving less due to higher everyday costs, 69% say inflation has eroded their retirement nest egg's future value, and 38% admit inflation is "killing their retirement dreams." Additional fears include insufficient savings (25% worry they'll never save enough), potential government benefit cuts as public debt rises (one-third concerned), long-term healthcare costs, and longevity risk exceeding savings duration. The United States rose one spot to 21st overall—its first upward move after years of decline—benefiting from strengthening financial conditions and longer life expectancy offsetting a cooling labor market. The report identifies critical lessons for affluent retirees: smaller countries consistently outperform larger ones on retirement security due to their ability to reach consensus on key policies (only Germany at 8th broke into the top 10 among large nations). The assessment framework evaluates four dimensions: Finances in Retirement (interest rates, inflation, tax burden, government debt), Material Wellbeing (unemployment, income per capita) Health (life expectancy, healthcare costs) Quality of Life (happiness, environmental factors, governance)—providing a comprehensive retirement security blueprint beyond just financial metrics. For high-net-worth Americans taking concrete action, 64% are saving more and cutting expenses, 47% creating long-term financial plans, and 69% of those who worked with advisors report it as their most helpful step toward retirement security. Top 10 Countries for Retirement Security 2025: Norway (83%) Ireland (82%) Switzerland (81%) Iceland (79%) Denmark Netherlands Australia Germany Luxembourg Slovenia Key Takeaway for Affluent Retirees: While the U.S. improved to 21st, the dramatic gap between top performers and America underscores why comprehensive planning addressing all four dimensions—not just portfolio value—determines retirement security. The inflation psychology data (38% feeling dreams are "killed") suggests emotional preparedness and dynamic spending strategies are as critical as financial preparedness. The 'Sequence of Returns' Risk Could Shrink Your Retirement Nest Egg Publication: Kiplinger Sequence of returns risk —the danger of market declines during retirement's early years—can permanently damage your portfolio even if average returns eventually match expectations. U.S. Bank's compelling study shows two investors with identical $1 million portfolios and identical long-term returns but different timing: one retired into three years of gains and sustained withdrawals for 40 years, while the other retired into one down year and ran out of money after just 25 years. The solution involves a three-bucket strategy. Bucket one holds 1-2 years of expenses in high-yield savings, CDs, and short-term bonds earning 4%+ today—avoiding forced stock sales during downturns. Bucket two maintains a diversified 50/50 or 60/40 stock-bond mix for medium-term needs, while bucket three pursues long-term growth. The critical insight: with cash reserves providing flexibility, you can delay withdrawals from declining assets and tap investments that have held up instead. Additional protection comes from reducing withdrawal rates from 4% to 3% during early retirement years and incorporating this risk assessment into comprehensive financial planning before leaving the workforce. As Rob Haworth of U.S. Bank notes, "once you start spending your nest egg, you're more sensitive to market drawdowns"—making defensive positioning during retirement's vulnerable first decade essential for long-term security. Key Statistics from Article: Only 4 periods since 1929 have seen back-to-back calendar year declines in U.S. stocks S&P 500 up almost 12% in 2025, but history shows markets can "turn dark" quickly Medicare open enrollment brings sharp cost increases Publication: Healthline Medicare Part B premiums will jump 11.6% from $257 to $288 monthly in 2026, with cascading implications for affluent retirees subject to IRMAA surcharges. The two-year MAGI lookback means 2024 income (reported in 2025) determines 2026 surcharges—making immediate tax planning critical. Meanwhile, Part D premiums decrease from $38 to $34 for stand-alone plans, and the annual out-of-pocket drug cap increases from $2,000 to $2,100. Critical action window: October 15 - December 7, 2025  for open enrollment. Several major insurers (UnitedHealthcare, Humana, Aetna/CVS) are reducing plan offerings and service areas, forcing some members to find new coverage or return to Original Medicare with separate Medigap and Part D policies. Research from eHealth suggests comparison shopping during open enrollment can save $1,800+ annually. The expiration of telehealth programs on October 1, 2025 (Congress didn't renew) limits coverage to rural areas again, affecting access to convenient healthcare. Remember, if you are a client of Covenant Wealth Advisors, we can connect you with our Medicare team to help you navigate your Medicare policy decisions. We recommend that you do this upon registering for Medicare and every two years thereafter. Why our mental maps deteriorate with age Publication: Standford Medicine Stanford Medicine research reveals the medial entorhinal cortex—the brain's GPS system—becomes less stable and less attuned to environments in elderly individuals, particularly when navigating between different familiar locations. The hopeful finding: significant variation exists among elderly subjects, with some "super-agers" maintaining exceptional spatial memory comparable to younger people, suggesting decline isn't inevitable. Scientists identified 61 genes with higher expression in mice with unstable brain cell activity, including Haplin4, which may help protect spatial memory—opening pathways for future personalized treatments. The practical impact: this explains why older adults navigate familiar spaces (home, neighborhood) successfully but struggle learning new environments even with experience. For affluent retirees planning longevity, spatial navigation abilities directly impact independence, driving safety, and the ability to travel and explore new places—all central to retirement quality of life. Understanding cognitive trajectory helps with long-term care planning and housing decisions between aging in place versus supportive environments. Luxury travel eclipses luxury goods for the wealthy Author: FTN News A fundamental shift in high-income spending patterns is underway: Bain & Company forecasts a 2-5% drop in global luxury goods sales in 2025 , while McKinsey projects luxury accommodation spending will surge from $240 billion (2023) to $390 billion by 2028. Chase Travel recorded 20%+ annual increases in first-class and business-class bookings during summer 2025, and 820 private jets will be delivered globally in 2025 (7.3% increase from 2024). The cultural driver: designer apparel and handbags have become accessible to upper-middle-class consumers worldwide, reducing exclusivity, while one-off journeys costing thousands per day (private safaris, Antarctic expeditions) still convey rarity and prestige. Luxury brands are pivoting into hospitality —LVMH launching Belmond luxury sleeper trains and a 230-meter Orient Express yacht with 54 suites departing France in 2026; Bulgari and Armani now operate branded hotels. For affluent retirees with time flexibility that working professionals lack, this validates investing in travel and unique experiences during retirement years rather than accumulating possessions. 4 The potential risk: global luxury hotel room supply will rise from 1.8 million to 2.2 million by 2030, potentially diluting exclusivity and suggesting booking premium experiences now while availability and relative value exist. Can $5 million actually fund retirement at 55? Author:  Covenant Wealth Advisors The answer is yes, but only with surgical precision. Covenant Wealth Advisors' comprehensive analysis reveals that early retirement requires withdrawal rates of 3.1%-3.7%  ($166,000-$184,000 annually from $5M), dramatically lower than the traditional 4% rule. The critical insight: a 40-year retirement horizon versus 30 years fundamentally alters sustainability mathematics through Monte Carlo analysis showing 90% confidence at just 3.32% withdrawal rates. The three portfolio destroyers identified:  Healthcare costs averaging $592,000 lifetime (including a decade without Medicare), taxes becoming "the silent portfolio killer" yet offering the greatest opportunity through strategic Roth conversions during ages 55-70, and sequence-of-returns risk in the first decade that can "sink you early." The solution involves maintaining 7-10 years of essential expenses in bonds or T-bills  using a three-bucket approach, while implementing dynamic guardrails that adjust spending 10% based on portfolio performance rather than rigid withdrawal schedules. The most valuable insight for affluent retirees: the 15-year window from ages 55-70 represents "golden" tax planning years  before Social Security and RMDs force higher brackets. Missing this window through delayed action could cost hundreds of thousands in lifetime taxes. Enhanced ACA premium tax credits expire after 2025, potentially doubling healthcare costs overnight if Congress doesn't extend them—making immediate healthcare strategy review essential. Final Thoughts This week's research converges on a single powerful truth: retirement security in 2025 isn't determined by portfolio size alone, but by the precision and timing of decisions made in the months ahead. The Natixis Index reveals widespread anxiety—38% feel inflation is killing their dreams—yet the solution lies not in despair but in recognizing that sophisticated planning creates advantages far exceeding the impact of market returns. Three critical insights emerge from this week's reading. First, timing matters profoundly across every dimension of retirement planning. Sequence-of-returns risk shows identical portfolios can produce vastly different outcomes based solely on when you retire relative to market cycles. The "golden" tax window between ages 55-70 closes permanently once RMDs begin. Medicare's open enrollment deadline of December 7, 2025, combined with 2026's sharp premium increases and potential ACA subsidy expiration, creates urgency that cannot be deferred. Second, the shift from accumulation to purposeful deployment reshapes how we think about wealth. Luxury travel surpassing luxury goods validates that affluent retirees with time flexibility should prioritize experiences over possessions—the very experiences that Stanford's cognitive research suggests help maintain the independence and spatial abilities central to quality of life. Third, comprehensive planning addressing all four retirement security dimensions—finances, material wellbeing, health, and quality of life—separates thriving retirees from struggling ones, regardless of net worth. The most valuable takeaway: Q4 2025 represents a strategic convergence that won't exist in 2026. Between now and year-end, affluent retirees can optimize Medicare coverage (saving $1,800+ annually), execute tax-advantaged Roth conversions before the ACA subsidy cliff, establish sequence-of-returns protection through bucket strategies, and secure premium travel experiences before luxury hospitality supply dilutes exclusivity. These aren't isolated tactics but interconnected strategies that compound over decades. The difference between proactive action this quarter and reactive adjustment next year could exceed six figures in lifetime financial impact—while simultaneously preserving the cognitive health, travel capability, and independence that make retirement worth planning for in the first place. We hope you enjoyed this week's reading. Have thoughts on these articles or suggestions for future topics? We'd love to hear from you. Maintaining financial security through retirement can be challenging. Would you like our team to handle your retirement planning? Request a free Strategy Session today! Wishing you a wonderful weekend, About the author: Mark Fonville, CFP® CEO and Senior Financial Advisor Mark is the CEO of Covenant Wealth Advisors and a Senior Financial Advisor helping individuals age 50+ plan, invest, and enjoy retirement comfortably. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule your free Strategy Session today   Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

Video Script: If you’re 65 or close and you have meaningful savings, the most expensive Medicare mistake usually isn’t the plan you pick. It’s the plan you keep without checking the fine print. In the next few minutes, I’ll show you how to avoid the costliest Medicare Open Enrollment mistakes I see with $1 million‑plus households in Richmond, Williamsburg, and Reston, so you can protect your access to care and your retirement cash flow. I’m Mark Fonville, CEO of Covenant Wealth Advisors , where we help individuals with over $1 million in retirement savings retire with peace of mind through a lifetime of clarity inside and partnership. If clear, tax‑smart retirement guidance helps you, please like this video and subscribe so you never miss a weekly tip. Every fall, from October fifteenth to December seventh, Medicare lets you review and change your health and drug coverage for the next year. Changes take effect January first. If you picked a Medicare Advantage plan and later regret it, there’s a second window from January first to March thirty‑first where you can switch Advantage plans once, or go back to Original Medicare with a drug plan. Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. The most common and costly mistake is letting your plan auto‑renew. Each fall your plan mails you an Annual Notice of Change. It lists next year’s premium, copays, the drug list, pharmacy network, and rules. If you don’t read it, January first can bring higher costs or new limits you didn’t expect. The fix is simple. Gather your drug list with doses and how often you take them. List your preferred pharmacies and your doctors and hospitals. Then use Medicare’s plan comparison tool to check total yearly cost, which means the premium plus the copays you’re likely to pay, before December seventh. Next, not checking your doctors and hospitals when considering Medicare Advantage. Advantage plans use networks, and those networks change. Many services also need prior authorization, which means the plan must approve them first. That can slow things down for bigger items like hospital stays or certain drugs. If you like your current doctors, call the office and ask if they’re staying in‑network next year for the exact plan you’re considering. Also check the plan’s maximum out‑of‑pocket limit. That’s the most you would pay in a year for Part A and Part B services before the plan pays one hundred percent. Make sure that number fits your risk comfort. Here’s a mistake that trips up frequent travelers and snowbirds. People assume they can buy Medigap, also called Medicare Supplement, whenever they want with no questions asked. Outside your first six months on Part B, or certain special situations, most states allow medical underwriting. That means you can be denied or charged more. If you want the broadest access nationwide, choose Original Medicare with Medigap when you first enroll in Part B, or check your state rules before you try to switch later. Another high‑dollar area is prescriptions. Part D, which is the drug benefit, changed in a big way. There’s now an annual out‑of‑pocket cap for covered drugs. It’s $2,000 in 2025 and $2,100 in 2026. There’s also a payment plan option that lets you spread what you owe for covered drugs into monthly bills from your plan. It doesn’t lower the total, but it can prevent a big shock at the pharmacy. If you take expensive meds, run your drug list through the comparison tool and look closely at rules like step therapy, prior authorization, and quantity limits. Prices can vary a lot across pharmacies, and preferred pharmacies often have lower copays. Let’s talk about taxes and premiums, because this is where higher‑asset retirees can overspend without realizing it. IRMAA, which stands for Income‑Related Monthly Adjustment Amount, is a surcharge added to your Medicare Part B and Part D premiums if your income is above certain levels. Medicare looks back two years at your tax return, so your twenty‑twenty‑five premiums are based on your 2023 income. If you converted a large amount to Roth, sold a business, or realized big gains, you may see a higher premium bracket two years later. One dollar over a threshold can move you into a higher surcharge. If your income fell due to a life‑changing event, like retirement or the death of a spouse, you can ask Social Security to reduce the surcharge by filing form SSA‑44 and providing proof. The key is to plan conversions and withdrawals with those future brackets in mind. If you’re still working at 65, here’s a quick HSA note. Once you’re enrolled in any part of Medicare, you can’t contribute to a Health Savings Account. Part A can be retroactive up to six months, so to avoid penalties, stop HSA contributions at least six months before you apply for Medicare or Social Security. You can still spend HSA dollars on Medicare premiums and medical bills. Another mistake is picking a plan for the freebies. Dental, vision, and gym benefits can be helpful, but don’t let them distract you from the basics: your doctors, your hospitals, your drugs, prior authorization rules, and your out‑of‑pocket limit. If you need access to a specific specialist or an academic medical center, check network status and any referral requirements before you enroll. If you’ve delayed Part D because you had other coverage, keep proof that your coverage was creditable. Without it, a late enrollment penalty can follow you for life. If you lose creditable coverage, sign up within sixty‑three days to avoid that penalty. Vaccines are easy to miss but important. Recommended adult vaccines like shingles and RSV are covered with no copay under Part D. Flu, COVID, and pneumococcal shots are covered under Part B at no cost. If you’re due, schedule them during the enrollment season and don’t pay cash outside your plan. Here’s a simple five‑step checklist you can follow this week. Read your Annual Notice of Change and list all medications, doses, and how often you take them, plus your preferred pharmacies and the doctors and hospitals you want to keep. Estimate your income for this year and compare it to the IRMAA thresholds two years out, because that will affect your future premiums. On the Medicare plan comparison tool, enter your ZIP code and drug list, confirm pharmacy pricing, and compare plans based on total yearly cost and rules. If you’re considering Medicare Advantage, call your doctors’ offices to confirm next year’s participation for the exact plan name. Pick the plan that balances access, risk, and total cost, not just the lowest premium, and submit your change before December seventh. Let’s make this real with a short example. Say you’re a Richmond couple with a $1.8 portfolio and a small pension. You both take a few brand‑name meds. Your current drug plan raised one of those drugs to a higher tier next year, and your pharmacy is no longer preferred, so your out‑of‑pocket would jump by over a thousand dollars. With ten minutes on the comparison tool, you find another plan where your exact drug list costs far less at a preferred pharmacy nearby. A quick change during open enrollment saves real money without changing a single dose. Another example. You switched to an Advantage plan last year for lower premiums, but your Williamsburg cardiologist is moving out of network next year. If you discover that in November, you can still switch plans before December seventh. If you don’t realize it until January, you can use the January to March Advantage open enrollment to make one switch or return to Original Medicare with a drug plan. Either way, the earlier you verify providers, the fewer surprises you’ll face. Here are the three takeaways. Don’t auto‑renew. Match the plan to your life and your doctors. Plan with taxes in mind. If this was helpful, please like this video and subscribe for weekly retirement strategies tailored to high‑net‑worth households in Virginia. If you want help pressure‑testing your choices and mapping the tax impact over the next two years, get your free Strategy Session now. We’ll look at your coverage, your income plan, and your projected premiums so your health care supports the life you want in retirement. And if you’d like a simple checklist to follow step by step, download our 15 Free Retirement Planning Checklists . They’ll help you make a confident decision before December seventh. Thanks for watching. I’ll see you next week. About the author: Mark Fonville, CFP® CEO and Senior Financial Advisor Mark is the CEO of Covenant Wealth Advisors and a Senior Financial Advisor helping individuals age 50+ plan, invest, and enjoy retirement comfortably. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule your free Strategy Session today   Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

Understanding how to pay taxes on Roth IRA conversion isn't just about writing a check to the IRS—it's about choosing the payment method that preserves the most value in your retirement accounts. You've done the analysis. You know a Roth conversion makes sense for your situation. But here's what many affluent investors miss: how  you pay the tax bill can be just as important as whether you convert at all. Consider this: A poorly timed conversion payment strategy can trigger Medicare IRMAA surcharges of $2,100 to $12,700 annually per person—a stealth tax that arrives two years after your conversion and catches even sophisticated investors off guard. At Covenant Wealth Advisors, we've seen clients execute flawless conversion strategies only to undermine them with payment timing mistakes. Withholding taxes from the conversion itself? That reduces the amount growing tax-free. Skipping estimated payments? That triggers underpayment penalties. Making a large Q4 conversion without adjusting withholding? That can mean scrambling for cash in April. This guide walks you through the three primary methods for paying Roth conversion taxes, explains how to avoid underpayment penalties, and reveals the lesser-known factors that affluent investors must consider—including Medicare premium impacts and Social Security taxation. Key Takeaways ●     Three primary payment methods exist:  federal withholding from the conversion, quarterly estimated payments, or increased W-2/pension withholding ●     Paying from outside funds is generally superior  because it maximizes the amount converted to tax-free status ●     The safe harbor rules protect you from penalties  if you pay 100% of last year's tax (110% if AGI exceeded $150,000) ●     December withholding is treated as paid throughout the year  by the IRS—a powerful planning tool ●     IRMAA surcharges hit two years after conversion —model Medicare impacts before executing large conversions ●     The pro-rata rule affects anyone with existing traditional IRA balances  and must be calculated on Form 8606 Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. How Do You Pay Taxes on a Roth IRA Conversion? You can pay Roth conversion taxes through three primary methods: (1) federal tax withholding from the conversion amount, (2) quarterly estimated tax payments, or (3) increasing withholding from W-2 wages or pension income. Most financial advisors recommend paying from non-retirement funds to maximize the amount converted and preserve tax-free growth potential. Method 1: Federal Withholding from the Conversion When you request a Roth conversion, your custodian will ask if you want taxes withheld. You can elect 10%, 20%, or any percentage up to 100%. Why most advisors discourage this approach: ●     Every dollar withheld is a dollar that doesn't go into your Roth IRA ●     You lose the tax-free compounding on that amount permanently ●     If you're under 59½, the withheld amount may be subject to the 10% early withdrawal penalty (since it's technically a distribution that wasn't converted) Example:  You convert $100,000 and elect 22% withholding. Only $78,000 goes into your Roth IRA. The $22,000 withheld never enjoys tax-free growth. Over 20 years at 7% growth, that's approximately $85,000 in lost tax-free accumulation. Method 2: Quarterly Estimated Tax Payments The IRS expects taxes to be paid as income is earned. If your conversion creates a significant tax liability, you may need to make estimated payments to avoid underpayment penalties. Estimated payment deadlines for 2026: ●     Q1: April 15, 2026 ●     Q2: June 15, 2026 ●     Q3: September 15, 2026 ●     Q4: January 15, 2027 The challenge:  If you complete a conversion late in the year (October-December), the income technically occurred in that quarter, but you may not have made estimated payments earlier in the year. This creates potential penalty exposure. Method 3: Increased W-2 or Pension Withholding Here's where sophisticated planning creates real value. "There's a little-known IRS provision that makes December conversions strategically valuable," explains Matt Brennan, CFP®  at Covenant Wealth Advisors. "Federal withholding from W-2 income or pensions is treated as paid evenly throughout the year—even if you increase it in December. This can help clients avoid underpayment penalties without making quarterly estimates for a conversion they just completed." How it works: If you complete a $150,000 Roth conversion in November, you can increase your December pension or W-2 withholding to cover the additional tax. The IRS treats this withholding as if it were paid ratably throughout the year, eliminating any underpayment penalty exposure. This is particularly powerful for retirees receiving pension income who can adjust Form W-4P withholding. What Are the 2025 Tax Brackets for Roth Conversion Planning? For 2025, a married couple filing jointly can convert up to $96,950 in taxable income at the 12% rate, up to $206,700 at 22%, and up to $394,600 at 24%. Understanding these thresholds is essential for "bracket filling"—converting just enough to reach the top of a favorable bracket without spilling into the next tier. 2025 Federal Income Tax Brackets (Married Filing Jointly) Tax Rate Taxable Income Range Cumulative Tax at Top of Bracket 10% $0 – $23,850 $2,385 12% $23,851 – $96,950 $11,157 22% $96,951 – $206,700 $35,302 24% $206,701 – $394,600 $80,398 32% $394,601 – $501,050 $114,462 35% $501,051 – $751,600 $202,154 37% Over $751,600 — Source:   IRS Revenue Procedure 2024-40 Bracket-filling strategy:  If your other taxable income (wages, pensions, Social Security, investment income) totals $150,000, you could convert an additional $56,700 and remain entirely within the 22% bracket ($206,700 - $150,000 = $56,700). How Do You Avoid Underpayment Penalties on Roth Conversion Taxes? The IRS safe harbor rules protect you from underpayment penalties if you pay at least 90% of your current year tax liability OR 100% of your prior year tax (110% if your prior year AGI exceeded $150,000). Meeting either threshold—through withholding, estimated payments, or both—eliminates penalty risk regardless of how large your conversion. Understanding the Safe Harbor Rules The IRS doesn't expect you to predict your exact tax liability. Instead, they provide "safe harbors"—payment thresholds that guarantee no penalty: Safe Harbor Option 1:  Pay at least 90% of your current year tax liability through withholding and estimated payments combined. Safe Harbor Option 2:  Pay at least 100% of your prior year tax liability (or 110% if your prior year AGI exceeded $150,000). Why Option 2 is often preferable for conversion planning:  If your 2024 tax was $45,000 and your AGI exceeded $150,000, you need to pay $49,500 (110% × $45,000) through 2025 withholding and estimates—regardless of how large your 2025 conversion is. This creates predictability. The Form 2210 Annualized Income Method If you complete a large conversion late in the year and didn't make quarterly payments, you may still avoid penalties using Form 2210's annualized income installment method. This allows you to demonstrate that your income wasn't earned evenly throughout the year, so earlier quarterly payments weren't required. How Does the Pro-Rata Rule Affect Conversion Taxes? The pro-rata rule requires that any Roth conversion includes a proportional mix of pre-tax and after-tax dollars based on the aggregate balance across ALL your traditional, SEP, and SIMPLE IRAs. You cannot selectively convert only after-tax contributions—the IRS treats all your traditional IRAs as one account for this calculation, reported on Form 8606. Why This Matters for Backdoor Roth Users If you have $500,000 in a traditional IRA from old 401(k) rollovers and you make a $7,000 non-deductible contribution hoping to do a "clean" backdoor Roth conversion, the math doesn't work in your favor. Calculation: Total traditional IRA balance = $507,000. Non-deductible basis = $7,000. Taxable percentage = $500,000 ÷ $507,000 = 98.6%. If you convert the $7,000, approximately $6,902 is taxable (98.6% × $7,000), defeating the purpose of the backdoor strategy. The Solo 401(k) Workaround If you have self-employment income (even part-time consulting), you may be able to roll your traditional IRA balances into a Solo 401(k). Employer plans are NOT included in the pro-rata calculation, effectively "clearing the decks" for clean backdoor Roth conversions. How Do Roth Conversions Affect Medicare Premiums? Roth conversion income increases your Modified Adjusted Gross Income (MAGI), which determines Medicare Part B and Part D premiums through IRMAA—the Income-Related Monthly Adjustment Amount. Because IRMAA uses a two-year lookback, a 2025 conversion affects your 2027 premiums. Surcharges range from $74 to $443.90 per month for Part B alone. 2025 IRMAA Thresholds and Surcharges MAGI (Single) MAGI (MFJ) Monthly Part B Surcharge Annual Part B Impact ≤ $106,000 ≤ $212,000 $0 $0 $106,001–$133,000 $212,001–$266,000 $74.00 $888 $133,001–$167,000 $266,001–$334,000 $185.00 $2,220 $167,001–$200,000 $334,001–$400,000 $295.90 $3,551 $200,001–$500,000 $400,001–$750,000 $406.90 $4,883 > $500,000 > $750,000 $443.90 $5,327 Source:   CMS 2025 Medicare Parts A & B Premiums and Deductibles Critical planning insight:  A married couple converting $250,000 could push their MAGI from $200,000 to $450,000, triggering the $406.90 monthly surcharge tier. That's $9,766 in additional Medicare premiums for both spouses ($4,883 × 2)—in addition to the conversion taxes themselves. "Many clients are surprised when their Medicare premiums spike two years after a large Roth conversion," cautions Scott Hurt, CFP®, CPA . "A $250,000 conversion in 2025 could add $4,400 or more to your 2027 Medicare costs—money that comes out of your Social Security check automatically. We model IRMAA impacts for every conversion recommendation." Medicare premiums increase in steep tiers as your income rises, rather than gradually. Even a small amount of additional income, such as a Roth conversion or capital gain, can push you into the next bracket and trigger a significantly higher Medicare cost. How Do Roth Conversions Affect Social Security Taxes? Roth conversion income increases your "provisional income"—the calculation determining how much of your Social Security benefits are taxable. For married couples filing jointly, provisional income above $44,000 causes up to 85% of Social Security benefits to be taxed. This creates a "tax torpedo" effect where each additional dollar of conversion can generate $1.85 in taxable income. The Tax Torpedo Effect Provisional income = Adjusted Gross Income + Tax-exempt interest + 50% of Social Security benefits For a married couple with $30,000 in Social Security benefits: ●     Below $32,000 provisional income:  $0 of Social Security taxed ●     $32,000–$44,000:  Up to 50% taxed ●     Above $44,000:  Up to 85% taxed The hidden cost:  If you're in the phase-in range, each $1 of Roth conversion income can cause $0.85 of Social Security to become taxable—creating an effective marginal rate far higher than your stated bracket. Source:   SSA.gov – Taxation of Benefits Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. Frequently Asked Questions How do you pay for Roth IRA conversion taxes? You can pay Roth conversion taxes through federal withholding from the conversion amount, quarterly estimated tax payments (Form 1040-ES), or by increasing W-2 or pension withholding. Most advisors recommend paying from non-retirement funds to maximize the amount that converts to tax-free status and preserve long-term compounding benefits. Do you have to pay taxes immediately on a Roth conversion? No, taxes aren't due at the moment of conversion. The converted amount is added to your taxable income for that calendar year, and taxes are due by April 15 of the following year (or your extended filing deadline). However, you may need to make estimated payments throughout the year to avoid underpayment penalties. Do I need to report Roth IRA conversion on taxes? Yes. Roth conversions are reported on IRS Form 8606 (Nondeductible IRAs) and Form 1040. Your custodian will send you Form 1099-R showing the distribution. The taxable portion of the conversion appears on Form 1040, Line 4b. Accurate reporting is essential, especially if you have basis from non-deductible contributions. Should you withhold taxes when you do a Roth conversion? Generally, no. Withholding reduces the amount that converts to your Roth IRA, permanently reducing tax-free growth potential. Additionally, if you're under 59½, the withheld amount may trigger a 10% early withdrawal penalty. Instead, consider paying taxes from non-retirement accounts or using the December withholding strategy through W-2 or pension income. Conclusion Paying taxes on a Roth conversion requires more than just having cash available in April. The payment method you choose—and when you execute it—directly impacts how much wealth ultimately grows tax-free in your Roth IRA. For high-net-worth investors, the stakes are higher. Large conversions can trigger IRMAA surcharges, accelerate Social Security taxation, and create complex pro-rata calculations that require careful Form 8606 reporting. The most successful conversion strategies integrate tax payment planning from the beginning—not as an afterthought. Would you like our team to just do your retirement planning for you?   Contact us today for a complimentary retirement roadmap experience. About the author: Adam Smith, CFP® Senior Financial Advisor Adam is a Senior Financial Advisor with Covenant Wealth Advisors  and a CERTIFIED FINANCIAL PLANNER™ practitioner. He has over 17 years of experience in the financial services industry in the areas of financial planning for retirement, tax planning, and investment management. Schedule your free Strategy Session today   Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

If you’re wondering about the worst way to withdraw from retirement accounts, it usually isn’t one exotic tax trick gone wrong. It’s a series of seemingly reasonable decisions that slowly turn into higher taxes and Medicare costs. Most affluent retirees have done a great job saving. The gap is usually in how they spend. A large IRA withdrawal to remodel a home, turning on Social Security because “it’s there,” ignoring Required Minimum Distributions (RMDs) until a reminder letter appears, each choice feels small, but together, they may quietly erode after‑tax wealth. Meanwhile, the rules have shifted. The SECURE 2.0 Act raised the RMD age to 73 (and eventually 75), adjusted penalties, and added new exceptions to the 10% early‑distribution tax. At the same time, Medicare premiums and IRMAA surcharges are rising, and up to 85% of your Social Security benefits can still be taxable depending on your provisional income. Let’s walk through what “the worst ways to withdraw” from retirement accounts actually look like for affluent retirees—and what a more intentional approach might entail. Key Takeaways Poorly timed, tax‑blind withdrawals can stack income taxes, RMD penalties, Social Security taxation, and Medicare IRMAA surcharges in the same year. The worst way to withdraw from retirement accounts  is to treat each account in isolation instead of coordinating across pre‑tax, Roth, and taxable assets. Affluent retirees may benefit from a multi‑year distribution strategy that manages brackets, IRMAA thresholds, and legacy goals, not just this year’s cash need. Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. What Are the Worst Ways to Withdraw From Retirement Accounts? The worst ways to withdraw from retirement accounts are ad‑hoc, tax‑blind withdrawals that ignore age‑based penalties, Required Minimum Distributions (RMDs), Social Security taxation, and Medicare IRMAA thresholds. For affluent retirees, those patterns may trigger multiple taxes and surcharges at once, quietly shrinking long‑term after‑tax wealth. 1. Raiding Pre‑Tax Accounts Before 59½ Without a Plan For most qualified plans and IRAs, withdrawals before age 59½ are “early distributions” and generally face a 10% additional tax on top of regular income tax, unless an exception applies. That means a $100,000 early distribution could easily cost $35,000+ between federal income tax and the additional tax, depending on your bracket. In many cases: You lose future tax‑deferred growth. You compress taxable income into a single year. You may also push capital gains and other income into higher brackets. There are exceptions, such as Internal Revenue Code Section 72(t) “substantially equal periodic payments” or new SECURE 2.0 Act exceptions for emergency personal expenses and domestic abuse—but each comes with strict rules and real trade‑offs. You can also access a group retirement plan account, such as a 401(k), if you retire between the ages of 55 - 59 ½.  As one of our lead advisors Adam Smith, CFP® , often warns clients, “Just because the tax code lets you access money doesn’t mean it’s wise. While it may appear that early distributions can solve a short‑term cash issue, doing so can create a long‑term tax and retirement‑income problem.” 2. Taking Big, One‑Time IRA Withdrawals in High‑Income Years Another “worst way” is treating your IRA or 401(k) like an ATM for big projects in years when your income is already high. A six‑figure lump‑sum withdrawal can: Push you into a higher marginal tax bracket. Increase your provisional income, making up to 85% of your Social Security benefits taxable. Push your MAGI over Net Investment Income Tax (NIIT) thresholds, adding a 3.8% tax on investment income. Trigger a higher Medicare Income-Related Monthly Adjustment Amount (IRMAA) bracket, raising Part B and Part D premiums for at least one year based on income reported two years earlier and potentially in later years if your MAGI stays above the applicable thresholds. On paper, you’re “just” taking money out of an IRA. In practice, you may be stepping on several tax and healthcare landmines at the same time. 3. Ignoring RMDs Until It’s Too Late Under current IRS rules, you generally must begin RMDs at age 73, with the age increasing to 75 in 2033 under the SECURE 2.0 Act. Miss an RMD, and you may owe an excise tax of 25% of the amount not taken—reduced to 10% if corrected in a timely manner and reported, typically via IRS Form 5329. The “worst way” here is: Letting balances grow unchecked in pre‑tax accounts. Delaying your first RMD to April 1 of the following year—then being forced to take two RMDs in the same year, potentially driving up both income tax and IRMAA. We recorded a video about avoiding two withdrawals in your first RMD year here. Ignoring RMDs turns what could have been a controlled, multi‑year tax strategy into a rushed exercise with penalty risk. 4. Draining Roth Accounts Early and Losing Flexibility From a behavioral standpoint, Roth money feels “free” because qualified withdrawals are tax‑free. Yet for affluent retirees, spending Roth assets first can be another worst‑way pattern: You lose a powerful “tax‑free shock absorber” for later high‑tax years. You limit your ability to manage brackets, NIIT, and IRMAA once RMDs start. You may reduce the after‑tax value of what you leave to heirs, who often prefer Roth assets. Roth dollars are often most valuable later, when other income sources are harder to control. As CWA's own Mark Fonville, CFP® , puts it: “For many high‑net‑worth families, Roth accounts are the most flexible dollars they own. Spending them first may feel painless—but it can quietly reduce your future tax planning options.” How Can Poor Withdrawal Timing Trigger Extra Taxes and Medicare IRMAA? Poor withdrawal timing can push your income over key thresholds in a single year, increasing ordinary income tax, making more of your Social Security benefits taxable, triggering the 3.8% Net Investment Income Tax (NIIT), and bumping you into higher Medicare IRMAA brackets. The result may be thousands of dollars in cumulative, avoidable costs. The Stack: Brackets, Provisional Income, NIIT, and IRMAA For affluent retirees, the big risk is stacking multiple thresholds: Ordinary income brackets: Large IRA distributions may bump you into higher federal and state brackets. Long-term capital gains rates: Many people don't realize that ordinary income is counted first. It fills up the lower tax brackets, which can push your long-term capital gains from the 0% rate into the 15% or even 20% range. Provisional income: Adding IRA withdrawals on top of portfolio income and Social Security can make up to 85% of your benefits taxable. NIIT thresholds: At MAGI above $250,000 (married filing jointly) or $200,000 (single), the Net Investment Income Tax adds a 3.8% layer to investment income. IRMAA brackets: Higher MAGI may trigger Medicare IRMAA surcharges on Part B and Part D premiums based on income from two years prior. A single poorly timed Roth conversion or large IRA distribution can hit all four. Example: IRMAA and Large Withdrawals To show how this plays out, consider the 2026 Medicare Part B IRMAA brackets for a married couple filing jointly, based on 2024 MAGI: 2024 MAGI (MFJ) 2026 Part B IRMAA (extra per person / month) 2026 Total Part B Premium (per person / month) ≤ $218,000 $0.00 $202.90 $218,001 – $274,000 $81.20 $284.10 $274,001 – $342,000 $202.90 $405.80 $342,001 – $410,000 $324.60 $527.50 $410,001 – $749,999 $446.30 $649.20 ≥ $750,000 $487.00 $689.90 Source: Social Security Administration (SSA) Imagine a couple with a projected MAGI of $210,000 who decides to take an extra $15,000 IRA distribution near year‑end to upgrade a vacation home. That extra withdrawal can push their MAGI over $218,000, increasing each spouse’s Part B premium by $81.20 per month—or about $1,948.80 per year combined, just from crossing a line. Now layer in the income tax on the withdrawal itself, possible NIIT, and higher taxation of Social Security, and the “cost” of that home project looks very different. Why This Matters for Affluent Investors For investors with $1.5M+ and multiple income sources, the timing of withdrawals often matters more than the exact fund or ETF you use. Poor timing might be manageable in one year, but repeated over several years, it can: Raise lifetime taxes substantially. Reduce flexibility to handle future health events or family needs. Underfund legacy or charitable goals because more dollars go to taxes and premiums. The key is to design withdrawals around your current tax bracket, IRMAA thresholds, and RMD schedule—not around whatever cash needs happen to pop up. How Should Affluent Retirees Prioritize Which Accounts to Tap First? There is no single “right” withdrawal order for everyone, but a common approach (and often incorrect) for affluent retirees is to draw from taxable accounts first, then a mix of tax‑deferred and Roth accounts while managing brackets, RMDs, and IRMAA. The goal is to flatten lifetime taxes, not just minimize this year’s bill. Classic Rules of Thumb vs. Reality Many rules of thumb suggest: Spend taxable accounts first. Then use tax‑deferred (traditional IRA/401(k)). Leave Roth for last. This sequence can be reasonable, but for high‑net‑worth households facing large future RMDs and potential IRMAA and NIIT exposure, blindly following it may create the very “worst ways” we just discussed. Instead, sophisticated planning typically considers: Current and projected marginal tax brackets. Future RMD obligations under the SECURE 2.0 Act. The value of preserving Roth assets for flexibility and heirs. How withdrawals impact provisional income, NIIT, and IRMAA. A More Nuanced Framework Here’s a high‑level, non‑prescriptive sequence that many high-net-worth retirees we serve explore with their advisors here at Covenant Wealth Advisors: Taxable Accounts (but smartly). Use cash and high‑basis positions first to manage capital gains. Harvest losses when available to offset gains. Be mindful of generating extra investment income that could interact with NIIT. Strategic Pre‑Tax Withdrawals Before RMD Age. In lower‑income “gap years” between retirement and RMDs (or before Social Security), consider modest IRA/401(k) withdrawals or partial Roth conversions to shrink future RMDs. We often advise clients to withdraw from their IRA up to the 12% or 22% ordinary income tax brackets. But, every situation is different. These withdrawals can be sized to “fill” lower tax brackets without pushing you over NIIT or IRMAA thresholds. Roth Accounts as a Flexibility Tool. Use Roth distributions to fund large one‑time expenses in years when additional taxable income would be especially costly (e.g., high medical expenses, sale of a business, large capital gains). Consider Roth assets as a hedge against higher future tax rates and as a tax‑efficient legacy. After RMDs Begin. Take RMDs as required to avoid the excise tax and report them properly—often via IRS Form 5329 if there’s a shortfall or a reasonable‑cause waiver. Coordinate additional withdrawals or conversions with IRMAA brackets and NIIT thresholds each year. This framework involves real trade‑offs. Converting or withdrawing more now can increase near‑term taxes; waiting may increase future RMDs and IRMAA risk. Markets, life expectancy, and future tax law all add uncertainty. At Covenant Wealth Advisors, we typically build multi‑decade cash‑flow and tax projections so clients can see these trade‑offs numerically—rather than guessing based on rules of thumb. Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. Frequently Asked Questions What is the 4% withdrawal rule? There isn’t an official IRS “4% withdrawal rule.” In practice, people may be referring to a 4% withdrawal rule of thumb—the idea that you can withdraw about 4% of your portfolio annually in retirement. Research suggests that a greater than 4% initial withdrawal  can be aggressive and may increase the risk of depleting assets, especially for long retirements or volatile   safe withdrawal rate  portfolios. What is the best way to withdraw from retirement accounts? There is no single “best” way that fits everyone. We often find that filling the lower tax brackets with tax-deferred account withdrawals (e.g. IRAs, 401(k)s) and then tap taxable accounts for mid to higher tier tax brackets. Use Roth IRAs strategically for one off purchases to help manage tax bracket creep from year to year. Make strategic withdrawals or Roth conversions from pre‑tax accounts before RMD age . Use taxable accounts and realized gains intentionally. Preserve Roth assets for flexibility and legacy, Remember to continuously monitor tax brackets, RMD requirements, NIIT thresholds, and IRMAA brackets. The optimal strategy depends on your income, health, goals, and time horizon. What is the biggest retirement withdrawal mistake? The biggest mistake affluent retirees make is treating each year in isolation—taking withdrawals only when cash is needed, without looking at the long‑term tax and healthcare picture. That often leads to: Large, unplanned IRA distributions in high‑income years, Missed RMDs  and potential excise taxes, and Higher Social Security taxation and Medicare premiums than necessary. A multi‑year withdrawal plan, revisited annually, may reduce the risk of those compounding mistakes. How do I avoid paying taxes on retirement withdrawals? You generally cannot   avoid taxes entirely , but you may manage them: Use Roth accounts for qualified withdrawals, subject to 5‑year and age rules. Coordinate withdrawals to stay within targeted tax brackets. Consider   Qualified Charitable Distributions (QCDs)  at eligible ages to satisfy RMDs while sending funds directly to charity. Be mindful of how withdrawals affect provisional income, NIIT, and IRMAA. Because strategies can backfire if misapplied, it’s important to   coordinate with a tax professional  before making large moves. Conclusion The real “worst way” to withdraw from retirement accounts isn’t a single misstep—it’s drifting year after year without a coordinated plan. For affluent households with seven‑figure portfolios, the stakes are higher: you’re dealing with multiple tax codes, evolving RMD rules, Net Investment Income Tax, and rising   Medicare IRMAA surcharges , all at once. Done thoughtfully, your withdrawal strategy can support lifestyle, manage risk, and align with the legacy you want to leave. Done reactively, it may quietly funnel more of your hard‑earned savings toward taxes and premiums than you intended. If you’d rather not build all of this alone, you’re not required to. At Covenant Wealth Advisors, our CFP® professionals regularly help clients analyze withdrawal options over decades, in coordination with their CPAs and estate attorneys. Would you like our team to just do your retirement income and tax planning for you?   Contact us today for a complimentary retirement roadmap experience. About the author: Scott Hurt, CFP®, CPA Senior Financial Advisor Scott is a Financial Advisor for Covenant Wealth Advisors , a CERTIFIED FINANCIAL PLANNER™ practitioner and a Certified Public Accountant (CPA). He has over 17 years of experience in the financial services industry in the areas of financial planning, tax planning, and investment management. Schedule your free Strategy Session today   Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible, no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

Are bonds a good investment for retirement, or did the last few years prove they’re too volatile to trust? If you’re wondering whether bonds still deserve a seat in your portfolio, you’re not alone, especially now that yields look very different from the near‑zero era we just lived through. The reality is more nuanced: bonds aren’t “safe” or “broken,” they’re tools. Used well, they can still play a critical role for affluent investors age 55+ with seven‑figure portfolios. Key Takeaways Bonds remain a powerful way to reduce volatility, fund near‑term spending, and temper sequence of returns risk—but only if maturity, credit quality, and account location are aligned with your plan. The jump in 10‑year Treasury yields from 0.89% (2020) to 4.21% (2024) significantly improves long‑run expected returns for high‑quality bonds versus the prior decade. Affluent retirees should pay close attention to taxes: bond interest is generally ordinary income under IRS Publication 550 (Investment Income and Expenses) and can push you into higher brackets or Medicare IRMAA surcharges. Not all bonds are equal. Duration risk, credit risk, and structure (individual bonds vs funds vs ladders) can dramatically change how “conservative” a position really is. A thoughtful fixed‑income design should integrate RMD age 73 rules, future RMD changes, and your broader estate and tax plan. Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. Are Bonds Still a Good Investment for Retirement? Yes—bonds can still be a valuable investment for retirement, but we believe they are no longer a simple, set‑and‑forget “safe” bucket. Their real value today comes from shaping your cash‑flow strategy, managing volatility, and coordinating with taxes, not from blindly following a fixed stock‑bond ratio. After 2022’s painful bond losses, many retirees understandably asked, “What’s the point?” When both stocks and bonds fall together, it’s easy to question whether bonds still do their job. Yet the key is how  you own bonds, not whether you own them. Historically, high‑quality fixed income has: Reduced portfolio drawdowns when equity markets sell off. Provided more stable income than dividends alone. Created psychological comfort that helps investors stay invested. Those roles haven’t disappeared. What changed is the starting yield and the interest‑rate environment. According to Federal Reserve data, the average 10‑year Treasury yield was just 0.89% in 2020 but climbed to 4.21% by 2024. Higher yields mean: More income for each dollar allocated to high‑quality bonds. A better starting point for long‑term total returns. Greater cushion against price declines than when yields were near zero. Vanguard’s research echoes this: despite recent volatility, bonds remain “an important staple in retirement portfolios” and higher yields “may be good for many retirement investors” over time. So the question for affluent retirees isn’t whether bonds are “good” or “bad.” It’s: Do you have the right mix of bond types, maturities, and account locations for your  spending, taxes, and risk tolerance? How Have Bond Yields Changed in Recent Years? Bond yields have risen dramatically since 2020, resetting expectations for future returns. The 10‑year Treasury’s annual average yield climbed from 0.89% in 2020 to 4.21% in 2024, making today’s high‑quality bonds far more compelling as income and diversification tools than they were in the previous decade. One of the most important shifts for retirees is invisible day‑to‑day, but obvious in the data: Year 10‑Year Treasury Yield (Annual Avg, %) 2020 0.89 2021 1.08 2022 2.95 2023 3.96 2024 4.21 Source: Board of Governors of the Federal Reserve System, via FRED series RIFLGFCY10NA (annual averages, updated January 2, 2025). What this means in plain language: In 2020–2021, many retirees held bonds paying less  than inflation. Their main job was volatility reduction, not income. By 2024, yields around 4–5% on high‑quality bonds provided a more reasonable starting point for both income and long‑term returns. Meanwhile, Series I savings bonds, which combine a fixed rate and an inflation component, offered a 4.03% composite rate with a 0.90% fixed rate for bonds issued November 2025–April 2026, a huge improvement over the 0% fixed rates that dominated the 2010s. Higher yields don’t eliminate risk. They change the trade‑offs: Price sensitivity (especially for long‑maturity bonds) is still meaningful. But the income component is now large enough that, over time, it may dominate price swings—particularly in diversified benchmarks like the Bloomberg U.S. Aggregate Bond Index. For affluent investors, this yield reset is the central reason to revisit your bond strategy now. Which Types of Bonds Make the Most Sense for Affluent Retirees? Affluent retirees often focus on high‑quality, short‑to‑intermediate‑term bonds. Treasuries, TIPS, investment‑grade corporates, and municipal bonds using riskier credit (like high yield or private credit) only as modest “satellite” exposure. The right mix depends on your tax bracket, income needs, and tolerance for volatility. Let’s break down the main categories. 1. U.S. Treasuries and TIPS Treasury bills, notes, and bonds are backed by the U.S. government for timely payment of principal and interest, and their interest is taxable federally but exempt from state and local income tax. Treasury Inflation‑Protected Securities (TIPS) add explicit inflation adjustment to principal and interest, making them a powerful tool for long‑term spending needs when real yields are positive. When real yields (yields above inflation) on TIPS are positive—as they have been recently—retirees can lock in a level of inflation‑adjusted income potential that simply wasn’t available during the ultra‑low‑rate years. 2. Municipal Bonds For many high‑net‑worth retirees, municipal bonds can play a significant role in taxable accounts: Interest is generally exempt from federal income tax, and may be exempt from state tax if you live in the issuing state. This can be especially attractive if you’re in a high marginal bracket and have already filled tax‑advantaged accounts. The trade‑offs: credit risk (municipal finances vary widely), call features, and often lower nominal yields versus taxable bonds. In some cases, the after‑tax yield on high‑quality corporates or Treasuries may still compare favorably, particularly for investors in lower tax brackets. 3. Investment‑Grade Corporate Bonds Investment‑grade corporates may offer higher yields than Treasuries, but introduce credit risk—the risk that a company defaults or its perceived creditworthiness declines. For many retirees, corporates can: Provide incremental yield in bond funds or ladders. Fit best as a portion of the fixed‑income allocation, not the entire core. 4. High‑Yield Bonds and Private Credit (Use with Care) The SEC’s Investor Bulletin on high‑yield corporate bonds highlights that their higher coupons come with meaningfully higher default and credit risk, making them more volatile and equity‑like. That doesn’t make them “bad,” but for affluent retirees they usually belong in the “satellite risk bucke t” , not as the main engine of income. 5. Savings Bonds (I‑Bonds and EE Bonds) I‑Bonds offer a composite rate based on a fixed rate plus an inflation rate, with tax deferral and exemption from state and local tax. Current composites of 4.03% with a 0.90% fixed rate make them more compelling than in past years. EE Bonds have their own guarantees (like doubling in value in 20 years for certain issues), but also come with holding‑period requirements. Interest on both is generally taxable at the federal level but can be deferred until redemption; rules are detailed in IRS Publication 550 (Investment Income and Expenses). As our own Megan Waters, CFP®  explains to clients: “For high‑net‑worth retirees, bonds aren’t just about yield, they’re about matching specific tools to specific jobs: Treasuries and TIPS to protect purchasing power, municipals for tax‑sensitive dollars, and just enough credit risk to make the overall plan work.” How Should Bonds Fit Into Your Overall Retirement Income Strategy? Bonds generally work best as part of a broader retirement income framework: aligning maturities with your spending timeline, using them to buffer stock volatility, and integrating them with RMDs, Roth strategy, and Social Security. The right allocation is personal, but most affluent retirees benefit from a structured, time‑segmented approach. 1. Bucketing by Time Horizon A common, planning‑friendly framework is to align your fixed‑income structure with time horizons: Years 0–3: Cash, Treasury bills, and ultra‑short bond funds for near‑term spending and emergency reserves. Years 4–10: Short‑ to intermediate‑term high‑quality bonds or a ladder of individual Treasuries and CDs, designed to cover planned withdrawals. Years 10+ : Intermediate‑term core bond funds (often tracking or resembling the Bloomberg U.S. Aggregate Bond Index) and TIPS for long‑term, inflation‑aware income potential. This structure helps manage sequence of returns risk by reducing how much of your early‑retirement spending depends on selling stocks when markets are down. 2. Integrating Bonds with RMDs and Roth Strategy Because RMDs now generally begin at age 73 (and later at 75 for younger cohorts under SECURE 2.0), many affluent retirees have a window in their 60s and early 70s to proactively manage taxes. Bonds influence this in several ways: Placing taxable bond funds in IRAs and Roth accounts, while using municipals or taxable‑efficient equity ETFs in brokerage accounts, can help control current taxable income. Thoughtful use of bonds in traditional IRAs can support Roth IRA conversions before RMD age, potentially smoothing lifetime tax brackets and mitigating future RMD spikes. 3. Watching Medicare IRMAA and Other Thresholds Interest income from bond funds and ladders can increase your Modified Adjusted Gross Income, potentially triggering Medicare IRMAA (Income‑Related Monthly Adjustment Amount) surcharges on Parts B and D. That doesn’t mean avoiding bonds—it means: Thinking carefully about how much fixed income sits in taxable accounts. Timing large realized gains, Roth conversions, or bond sales so they don’t all land in the same high‑income year. As Scott Hurt, CFP®, CPA , puts it: “For many of our retired clients, the real battle isn’t just market risk—it’s tax and healthcare creep. A well‑designed bond strategy can help manage volatility and keep you below key tax and IRMAA thresholds, instead of accidentally tripping them.” 4. Role of a Fiduciary Planner At Covenant Wealth Advisors , we help clients analyze their balance sheet, projected spending, tax picture, and risk capacity before we ever decide “how much in bonds.” The question isn’t “60/40 vs 70/30”—it’s how the fixed‑income portion can best support your specific goals over the next 30+ years. What Risks Should You Understand Before Relying on Bonds? Bonds carry several key risks—interest‑rate (price), duration, credit, inflation, and liquidity risk. Even U.S. Treasuries can lose value if sold before maturity. Understanding these trade‑offs is crucial so you don’t mistake “lower volatility” for “no risk,” especially when structuring bond funds versus individual bonds. 1. Interest‑Rate and Duration Risk The SEC is explicit: when interest rates rise, prices of fixed‑rate bonds generally fall, and vice versa. Interest‑rate risk is this inverse relationship. Duration risk measures how sensitive a bond or fund is to rate changes; the higher the duration, the larger the price move for a given rate shift. This is why long‑duration bond funds fell sharply when rates rose from their 2020 lows. If your “conservative” bucket is dominated by long‑duration exposure, you may be taking more risk than you realize. 2. Credit and Default Risk Corporate and high‑yield bonds introduce the risk that issuers: Miss interest payments. Default entirely. Become less creditworthy, causing prices to drop before maturity. The SEC’s guidance on high‑yield bonds emphasizes that higher yields come with higher default and credit risk; for most retirees, that level of risk generally means high‑yield bonds are better viewed as a supplemental, higher‑risk holding rather than the core stability anchor of a portfolio. 3. Inflation Risk If your bond income doesn’t keep up with inflation, your real spending power erodes. This is particularly important for long retirements that can easily span 25–35 years. Tools to address this include: TIPS (inflation‑linked principal and coupons). A mix of stocks and real assets alongside bonds. Avoiding over‑reliance on long‑term nominal bonds at low yields. 4. Liquidity and Call Risk Some bonds and bond‑like instruments: Can be called (redeemed early) if rates fall, leaving you to reinvest at lower yields. May trade in thin markets, causing spreads to widen during stress. Bond funds mitigate some of this by diversifying across many issues and providing daily liquidity—but that also means their prices fluctuate daily, and there is no maturity date at which you “get back to par.” 5. Behavioral Risk Finally, there’s behavioral risk: selling at the wrong time. Selling bond funds at the bottom of a rate spike can lock in losses just before higher yields start to work in your favor. Vanguard’s research underscores that, over longer periods,   bond investors  often benefit from reinvesting coupons at higher yields after rate increases, particularly in diversified indexes like the Bloomberg U.S. Aggregate Bond Index. Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. Frequently Asked Questions  Many sophisticated investors still have basic questions about how bonds fit into retirement. The FAQs below address whether bonds remain useful, how simple rules of thumb like “$1,000 a month” actually work, how prominent investors like Warren Buffett view bonds, and what long‑term saving math looks like. Are bonds still a good retirement investment? Yes—used thoughtfully, bonds can still be a powerful retirement tool. They may: Reduce volatility versus an all‑stock portfolio. Provide more stable income for near‑term withdrawals. Help manage sequence of returns risk in the first decade of retirement. But the specific mix of bond types, maturities, and account locations should be tailored to your spending, tax situation, and   risk capacity . What is the $1,000 a month rule for retirement? You’ll hear different versions, but a common shorthand is: how to lower your taxable income once you start taking required minimum distributions . For every $300,000 in diversified retirement assets, a 4% initial withdrawal rate may support roughly $1,000 per month in today’s dollars, adjusted annually for inflation— if markets cooperate . This is a rough rule of thumb, not a guarantee: It doesn’t reflect your personal longevity, tax rate, or asset allocation. It may be too aggressive or too conservative depending on when you retire and how flexible your spending is. What does Warren Buffett say about bonds? Warren Buffett has long argued that long‑term bonds at very low yields can be poor investments, calling them “terrible investments” when yields are low relative to inflation. In his widely discussed 90/10 strategy, he suggested that most of his own family’s long‑term money be invested 90% in a low‑cost S&P 500 index fund and 10% in short‑term U.S. Treasuries—a very equity‑heavy mix that may be too aggressive for many retirees. For affluent retirees, the takeaway isn’t “avoid bonds,” but: Be cautious about long‑duration bonds at low yields. Recognize that even Buffett keeps some portion in short‑term government bonds as a stabilizer. How much is $1,000 a month invested for 30 years? This depends entirely on your assumed rate of return. As a purely hypothetical illustration: At 4%  annual return, $1,000 per month for 30 years grows to roughly $694,000 . At 5% , about $830,000+. At 7% , around $1.2 million. These figures assume consistent contributions, no taxes or fees, and a smooth compound annual rate—none of which reflect real‑world volatility. They are not a promise of what your portfolio will earn, but they illustrate how time and compounding can work in your favor. Conclusion Bonds have not been “canceled” as a retirement investment. If anything, the sharp rise in yields has restored their ability to contribute meaningful income and diversification—provided you respect duration risk, credit quality, taxes, and your personal spending plan. For affluent retirees, the real work is less about picking the “best bond fund” and more about designing: A time‑segmented income plan. A tax‑aware bond and cash structure that respects RMD age 73, future rule changes, and Medicare IRMAA thresholds. A portfolio you can live with through both stock and bond market cycles. If this feels like a lot to coordinate on your own, that’s normal. Would you like our team to just do your retirement income and tax planning for you?   Contact us today for a complimentary retirement roadmap experience . About the author: Andrew Casteel, CFP® Chief Investment Officer Andrew is the Chief Investment Officer for Covenant Wealth Advisors and a CERTIFIED FINANCIAL PLANNER™ practitioner. He has over 11 years of experience in the financial services industry in the areas of wealth management and financial planning for retirement. Schedule your free Strategy Session today   Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible, no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

If you’ve been searching “which accounts should i withdraw from first in retirement”, you’re really asking a more sophisticated question: How do I turn my personal balance sheet into reliable cash flow while controlling taxes and Medicare costs?  For affluent retirees, the withdrawal “order” is rarely a simple “taxable dollars, then IRA dollars, then Roth dollar” story. It’s a tax strategy.  Because withdrawals change your income, and income changes your tax bill, and potentially your Medicare premiums, all of these factors must be considered.  At Covenant Wealth Advisors, we help clients coordinate retirement withdrawals with tax planning, Medicare considerations, and estate planning goals in mind. The strategy is designed to hold up not just in year 1, but in many years and hopefully across decades. Key Takeaways  Start with constraints first: RMD rules, pension cash flow, and Social Security timing set the baseline. Treat   “withdrawal order”  as MAGI management (Modified Adjusted Gross Income), especially around Medicare IRMAA tiers and the NIIT (Net Investment Income Tax) thresholds. Many retirees benefit from using taxable assets early—but only if they understand capital gains, NIIT exposure, and step-up in basis tradeoffs. Roth accounts are strategic: Roth IRA owners generally aren’t required to take withdrawals during life, which can provide flexibility later and help avoid   retirement mistakes . Roth conversions can be powerful in some years and counterproductive in others—because conversions can raise MAGI and trigger IRMAA tiers. Charitably inclined retirees may consider QCDs once eligible, since QCDs can count toward RMDs and may help manage taxable income (rules apply). Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. Which Accounts Should I Withdraw From First in Retirement? For many retirees, a common starting point is: use cash reserves first, then draw from taxable brokerage accounts, then tax-deferred IRA/401(k) accounts (including any required minimum distributions), all the while using Roth accounts strategically.  But for affluent households, the real “order” is often a planned mix designed around taxes, Medicare thresholds, and legacy goals—not a fixed sequence. Here’s the framework we use when building a withdrawal strategy that’s both practical and tax-aware. Step 1: Separate Your Accounts Into “Tax Buckets” Most retirees have some mix of: Taxable (brokerage) accounts Typically produce dividends, interest, and realized capital gains when you sell. Gains depend on your cost basis. Also relevant for step-up in basis planning for heirs. Tax-deferred accounts (traditional IRA, rollover IRA, 401(k), 403(b), etc.) Withdrawals are generally included in taxable income (with exceptions for after-tax basis). The IRS notes you generally must begin withdrawals at age 73 (or 75 if you were born in 1960 or later) via Required Minimum Distributions (RMDs). Roth accounts (Roth IRA; designated Roth 401(k)/403(b)) The IRS notes Roth IRAs generally do not require withdrawals while the owner is alive (beneficiaries have different rules). This isn’t just labeling. It’s how you  avoid accidental income spikes. Step 2: Identify Your “Must-Take” Income First Before you decide what to “withdraw first,” list what you’ll receive regardless of withdrawals: Pension income (if applicable) Social Security (if started) Interest/dividends that occur without selling RMDs once they apply RMDs matter because they turn a choice into a requirement. The IRS explains you generally must start taking RMDs from certain retirement accounts at age 73 (or 75 if born in 1960 or later), with timing rules for the first year. “In retirement, the question isn’t ‘Which account do I tap first?’ It’s ‘How do I draw from all accounts in a way that doesn’t create a tax surprise later?’” — Mark Fonville, CFP® Step 3: Understand Why “Taxable First” is Common (and When it Isn’t) Many sophisticated retirees start with taxable assets because: You may be able to control how much gain you realize (by choosing what to sell, and when). You can often harvest losses or manage gains (strategy-dependent). You don't like paying taxes now and don't have a grasp of the future tax impact of your decision. Inherited assets may receive a basis adjustment: the IRS explains basis of inherited property is generally the fair market value on the date of death (or an alternate valuation date in certain cases). But “taxable first” is not automatically right. Here are common reasons an affluent retiree might withdraw from tax-deferred earlier than expected: Lower-income years before RMDs: If you retire at 60 and RMDs start at 75, you may have a planning window where filling lower tax brackets (or doing partial Roth conversions) could reduce future RMD pressure. Reducing future Medicare premium exposure: Ironically, strategic IRA withdrawals (or conversions) in earlier years might reduce later RMDs that could push you into higher IRMAA tiers once you’re on Medicare (more on that below). If your spouse dies in the future, you could be catapulted into a higher federal tax bracket because you change from filing as married to filing as an individual. Your children are in a higher tax bracket than you and it's better to pay taxes now at your lower tax bracket than your children to pay taxes at their tax bracket upon inheritance. Step 4: Treat Roth as a “Strategic Reserve,” Not a Default Spending Account Because Roth IRAs generally don’t require lifetime withdrawals, Roth dollars can be uniquely valuable for: Managing MAGI (especially if you’re near Medicare IRMAA thresholds) Funding large one-time purchases without increasing taxable income as much (rules apply) Estate/legacy planning (depending on your goals and beneficiary situation) The IRS notes Roth IRA owners generally aren’t required to take withdrawals during life. Step 5: Don’t Ignore Mechanics: RMD Deadlines and Penalties Two details that should be explicitly in your plan: First RMD deadline: The IRS describes the “required beginning date” for your first RMD (often April 1 of the year following the year you turn 73 or 75, depending on your birth year, with plan-specific nuances). We recorded a video about the topic here. Penalty risk: The IRS notes a potential 25% excise tax on the amount not distributed as required (reduced to 10% if corrected within 2 years), and points to Form 5329 for reporting. Why this matters to “withdrawal order”: If you’re forced to take a large RMD later, it can compress your planning options and cascade into Medicare premium impacts, NIIT exposure, and Social Security taxation. How Do Medicare IRMAA and Other “Income Cliffs” Change the Withdrawal Order? If you have $1M+ in investable assets, your withdrawal order is often really an income-management plan. IRA withdrawals, Roth conversions, and large taxable gains can push Modified Adjusted Gross Income (MAGI) into higher Medicare IRMAA tiers, increase taxes on Social Security benefits, and potentially trigger the 3.8% Net Investment Income Tax—so timing and account selection matter. This is where many “generic” withdrawal articles fall short. For affluent retirees, income cliffs are often the hidden driver. The key concept: MAGI is the scoreboard. For Medicare IRMAA purposes, SSA guidance defines MAGI as AGI + tax-exempt interest (and notes the income used is generally from two years prior to the premium year). This is why a one-time income spike—such as a large IRA withdrawal, big capital gain, or Roth conversion—can have consequences beyond “just taxes.” Data visualization: 2026 Medicare IRMAA tiers (Part B + Part D) 2026 MAGI (Single) 2026 MAGI (Married Filing Jointly) Part B Total Monthly Premium (2026) Part D Monthly IRMAA Surcharge (2026) ≤ $109,000 ≤ $218,000 $202.90 $0.00 $109,001 – $137,000 $218,001 – $274,000 $284.10 $14.50 $137,001 – $171,000 $274,001 – $342,000 $405.80 $37.50 $171,001 – $205,000 $342,001 – $410,000 $527.50 $60.40 $205,001 – < $500,000 $410,001 – < $750,000 $649.20 $83.30 ≥ $500,000 ≥ $750,000 $689.90 $91.00 Source: CMS Medicare 2026 premiums/deductibles fact sheet (Part B premium totals and Part D IRMAA amounts). Interpretation (what affluent retirees should notice): These are step-ups, not smooth phase-ins. If you’re close to a tier boundary, the “best account to draw from first” might be the one that gets you the cash you need without pushing MAGI into the next tier. Two additional “income cliffs” that commonly collide with IRMAA Social Security taxation (often overlooked in drawdown planning): SSA explains you may pay taxes on up to 85% of Social Security benefits if your “combined income” exceeds certain thresholds; combined income includes AGI + tax-exempt interest + ½ of Social Security benefits. Even if you’re financially sophisticated, it’s easy to underestimate how a large IRA withdrawal can make more of your Social Security taxable. Net Investment Income Tax (NIIT): The IRS explains the 3.8% NIIT can apply to individuals above MAGI thresholds (e.g., $250,000 for married filing jointly and $200,000 for single/head of household). This is why “spending from brokerage first” can be nuanced: selling appreciated positions can increase gains, which can increase MAGI, which can trigger NIIT and potentially IRMAA. “We see retirees focus on ordinary income tax brackets—but for higher-net-worth households, the real shock is often Medicare IRMAA and how quickly MAGI-driven costs can escalate.” — Scott Hurt, CFP®, CPA Practical Ways to Manage These Cliffs (Without Letting Taxes Run Your Life) Here are the levers many retirees consider (such as   Safe Withdrawal Rates , always in the context of a broader plan): Blend withdrawals across tax buckets instead of draining one bucket entirely. Example: some ordinary income from IRA + some cash needs from taxable basis + some from Roth, depending on your MAGI target. Time Roth conversions intentionally. A Roth conversion increases taxable income and MAGI in the year of the conversion, which can trigger IRMAA tiers. But in some scenarios, conversions earlier may reduce future RMD size. Use QCDs if charitably inclined and eligible. The IRS describes QCD eligibility (including the 70½ age rule) and notes a QCD can count toward an RMD. Also note: the IRS announced the aggregate amount of QCDs not includible in gross income increased from $108,000 to $111,000 for 2026. Avoid accidental “one-year income spikes” when possible. Large RMD timing decisions , concentrated stock sales, or big conversions can create spikes. Sometimes they’re unavoidable; the point is to model them. Risk/Tradeoff reminder: Optimizing for IRMAA or NIIT shouldn’t force you into holding an inappropriate asset allocation, taking excessive concentration risk, or delaying necessary spending. Taxes are important—but they’re one constraint among many. What is a Practical Year-By-Year Withdrawal Strategy for Affluent Retirees? A practical withdrawal strategy is built annually: forecast spending, map predictable income, estimate taxable income/MAGI, then choose a planned mix of withdrawals from taxable, tax-deferred, and Roth accounts.  The goal is to meet spending needs while managing RMD requirements, Medicare IRMAA thresholds, and long-term estate goals—knowing the “right mix” can change every year. Here’s a   repeatable process  you can run each planning season. The “Retirement Withdrawal Playbook” (annual workflow) Forecast next year’s cash need (and keep liquidity realistic)Start with a simple question: How much cash do we need from the portfolio this year? Then pressure-test it: One-time items (travel, renovations, vehicle, gifting) Health care expenses Taxes (federal + state) Portfolio rebalancing needs Risk note: Pulling from volatile assets to fund near-term spending can create sequence risk if markets are down. Having a liquidity plan (cash reserve, bond ladder, etc.) may reduce forced selling—but it also has opportunity cost. Build an income map: “guaranteed-ish” vs. variable. List the baseline income sources you expect: Social Security (if started) Pension (if applicable) Required distributions (if already age 73+) Interest/dividends/rents If you haven’t started Social Security yet, remember the decision interacts with withdrawals. SSA notes benefits stop earning delayed retirement credits at age 70. Estimate your MAGI (because MAGI drives more than income tax). For Medicare IRMAA purposes, SSA guidance explains MAGI is AGI plus tax-exempt interest, and the premium year is generally based on tax information from two years prior. So when you’re deciding “where to withdraw first,” the planning question becomes: What MAGI level are we comfortable with this year? Are we near an IRMAA tier edge? Are we near NIIT thresholds? Identify required actions and deadlines. If RMDs apply, map deadlines early: IRS: first-year RMD timing rules and “two distribution dates” issue (April 1 and December 31 timing). IRS: penalty risk for missing/under-withdrawing required minimum distributions ( RMD management for high-net-worth retirees ) (25% excise tax; reduced to 10% if corrected within 2 years). If you’re still working at 73 and participating in certain plans, the IRS describes that some employer plans may allow delaying RMDs until retirement (plan rules govern). Choose the withdrawal “mix” (not just the order). A practical approach many affluent retirees consider: Meet baseline spending with a combination of: Taxable (especially if you can sell lots with minimal gains). IRA/401(k) withdrawals up to a planned ordinary-income level. Roth as a “pressure valve” in years when income is already high. Layer in tax planning tools when appropriate: Roth conversion + Form 8606 considerations (especially if you have after-tax basis). QCDs if eligible and charitably inclined. Capital gains management in taxable accounts (including NIIT awareness). Protect estate planning optionality. If leaving assets to heirs is part of the plan, don’t ignore step-up in basis dynamics. The IRS explains inherited property basis is generally the fair market value on date of death (with certain exceptions/alternate valuation rules). For more on optimizing your retirement and legacy plans, consider these   IRA withdrawal strategies  to maximize your savings. A simplified example (hypothetical, not personalized advice): Assume a married couple, both 67, with: Taxable brokerage: $900k Traditional IRA/401(k): $1.7M Roth IRA: $400k Social Security started: $0 (planning to claim later) Spending need from portfolio: $120k/year A potential plan might look like   this guide on how often you should rebalance your portfolio in retirement : Use taxable sales (managing realized gains) for a portion of spending. Take IRA withdrawals to “fill” a planned ordinary-income level (and potentially do partial Roth conversions in lower-income years before RMDs). Use Roth as a reserve for years with unusually high income (to help manage MAGI and IRMAA exposure). Re-evaluate annually once Social Security begins and later once RMDs apply at 73. This isn’t about “taxable first” as a rule—it’s about matching each year’s cash need to that year’s tax and Medicare realities. Any withdrawal strategy has risks and constraints, including: Market risk and sequence risk: selling in a down market can permanently impair the portfolio if done aggressively. Tax-law and Medicare rule risk: thresholds and rules can change; strategies that work today may need adjustment. Liquidity constraints: some assets may have lockups, surrender charges, or unfavorable tax treatment if sold quickly. Concentration risk: avoiding capital gains at all costs can leave you overexposed to a single position. Roth conversion risk: conversions increase current taxable income (and potentially IRMAA exposure) even if they may reduce future tax-deferred balances. Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. Frequently Asked Questions In What Order Should I Withdraw From My Retirement Accounts? A common baseline order many retirees start with is: cash reserves → taxable brokerage → tax-deferred IRA/401(k) (including RMDs) → Roth accounts. But high-net-worth retirees often do better with a planned withdrawal mix designed around MAGI targets, Medicare IRMAA tiers, and long-term tax exposure—so the “right order” can vary year to year. The most important step is to model the next 1–3 tax years, not just pick a single universal sequence. What's the Best Order for Drawing Your Retirement Income? There isn’t one universally “best” order—because the best order depends on your tax bracket, your MAGI relative to Medicare IRMAA thresholds, whether Social Security is started, and whether RMDs apply. In practice, many affluent retirees use a blended approach: some taxable withdrawals, some tax-deferred income, and Roth strategically to manage income cliffs and flexibility. If you’re close to an IRMAA tier edge, the best “order” may be the one that meets spending needs without pushing MAGI over a threshold. What is the Best Withdrawal Strategy for Retirement? A strong retirement withdrawal strategy is a repeatable annual process: forecast spending, map guaranteed income, estimate taxable income/MAGI, then select withdrawals across account types to meet cash needs while managing RMD rules and income cliffs. The strategy should be revisited each year, because taxes, market returns, and life events can change the optimal mix. If you want a “single sentence”: it’s less about a fixed order and more about controlling the income that shows up on your tax return. What is the Number One Mistake Retirees Make? One of the biggest mistakes is treating withdrawals as a simple spending decision instead of a coordinated tax and Medicare decision. Large IRA withdrawals or conversions can raise MAGI, which may increase Medicare premiums (IRMAA), trigger NIIT, and increase taxation of Social Security benefits. The result is avoidable complexity and higher all-in costs. A second common mistake: ignoring RMD deadlines until the year they start. Conclusion The point of answering “which accounts should i withdraw from first in retirement” isn’t to memorize a universal rule, rather, it’s to build a system that coordinates RMDs, Medicare premiums, Social Security taxation, and portfolio risk—year after year. At Covenant Wealth Advisors, we routinely help affluent retirees build this kind of coordinated drawdown plan—so the strategy is intentional, documented, and easier to implement. Would you like our team to just do your retirement planning for you? Contact us today for a complimentary retirement roadmap experience. About the author: Matt Brennan, CFP® Senior Financial Advisor Matt is a Senior Financial Advisor with Covenant Wealth Advisors and a CERTIFIED FINANCIAL PLANNER™ practitioner. He has over 20 years of experience in the financial services industry in the areas of financial planning for retirement, tax planning, and investment management. Schedule your free Strategy Session today   Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

Executive Summary: Welcome to this weekend's edition of The Retirement Brief—we're leading with a sobering look at how 75% of alternative mutual funds have vanished , offering timeless lessons about avoiding investment hype just as fund companies rush to democratize private markets. This cautionary tale reminds us that the most sophisticated investment decision is often declining the latest trend, especially when lock-up periods and illiquidity could trap your retirement capital. This week's research also challenges conventional retirement wisdom: Americans are living longer but scoring poorly on longeviety preparedness , with wealthy individuals barely outperforming those with modest assets when it comes to planning for care, social connection, and daily living modifications. Meanwhile, the 2026 Social Security COLA announcement projected at 2.7-2.8% sounds encouraging until you realize Medicare Part B premiums may jump 11.6%, consuming most of the increase for many retirees. Tax planning takes center stage with a critical examination of how traditional 401(k)s and IRAs can become tax nightmares during retirement, as required minimum distributions push retirees into higher brackets, increase Social Security taxation, and trigger Medicare IRMAA surcharges. The "spousal tax trap" looms especially large, with surviving spouses often seeing their tax bills double overnight when forced into single-filer status, making strategic Roth conversions before retirement increasingly compelling. On the security front, the FBI's warning about "phantom hacker" scams that have stolen over $1 billion from elderly Americans underscores the growing sophistication of AI-powered fraud targeting retirement accounts. Yet there's encouraging news too: groundbreaking research reveals that volunteering actually slows biological aging at the cellular level, proving that retirement success extends far beyond portfolio performance to include purpose, connection, and community engagement. Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. This Week's Essential Reading 75% of Alternative Mutual Funds Have Died. There Are Lessons in That for Would-Be Private Market Investors Morningstar Of the 1,345 alternative mutual funds that existed in 2015, only 341 remain today—a staggering 75% mortality rate. These funds promised to act as "shock absorbers" during market turmoil, using strategies like hedging and market-neutral positioning. Yet most disappeared within years of launch, often taking investor returns with them. Morningstar's Jeffrey Ptak draws three critical lessons as fund companies now rush to offer private equity and debt strategies to retail investors. First, the more enthusiastic the sales pitch, the more skeptical you should be. Second, when everyone's piling into an investment area, that's often the worst time to follow. Third, understand that attractive risk-adjusted returns from private investments come partly from locking up your capital—you won't have the exit option that disappointed alternative fund investors had. For retirees with substantial portfolios, this history matters. Before committing to trendy, illiquid strategies, ask hard questions about fees, lock-up periods, and whether the risk-reward trade-offs truly fit your retirement income needs. Sometimes the most sophisticated investment is simply saying "no thanks." 🔗 Read the full article Americans are living longer, but many are making a costly mistake about old age CBS News A groundbreaking study from MIT AgeLab and John Hancock reveals that Americans are woefully unprepared for the realities of increased longevity, with the nation's population of seniors expected to surge 40% over the next 25 years. The inaugural Longevity Preparedness Index assessed readiness across eight critical domains—including social connection, finance, daily activities, care, home modifications, community access, health, and life transitions—and found that U.S. adults scored just 60 out of 100 overall. The weakest area was care planning, with an average score of only 42, highlighting that most people haven't identified who will assist them as they age or understood the costs involved. Long-term care can easily exceed $6,000 per month, yet many haven't even had basic conversations with family about future needs. Those with financial advisors scored significantly higher (65 versus 58) because good advisors discuss more than just wealth—they help clients anticipate housing modifications, transportation needs, and social engagement strategies. The study challenges the conventional wisdom that retirement preparation is primarily about money. While having less than $50,000 in investible assets correlated with lower preparedness scores (56), even wealthy individuals with over $3 million scored only 65, demonstrating that financial resources alone don't guarantee readiness for longer life. The research underscores that your zip code may be a better predictor of quality of life in old age than your 401(k) balance, as access to healthcare, stores, and recreation becomes increasingly important. 🔗 Read the full article Social Security COLA for 2026: Agency confirms when to expect announcement CNBC The Social Security Administration will announce the 2026 cost-of-living adjustment on October 24, with experts projecting an increase in the range of 2.7% to 2.8%—slightly higher than the 2.5% adjustment beneficiaries received in 2025. This translates to an estimated monthly increase of about $54 for the average retiree, though the actual impact on take-home benefits will depend heavily on Medicare Part B premium changes, which are typically deducted directly from Social Security checks. Medicare Part B premiums are projected to jump 11.6%—from $185 to $206.50 per month—according to Medicare trustees' estimates, potentially consuming a significant portion of the COLA increase for many beneficiaries. This creates a concerning scenario where the headline benefit increase doesn't translate to meaningful additional purchasing power, particularly for those on fixed incomes. Higher-income retirees face even greater challenges , as they pay income-related monthly adjustment amounts (IRMAAs) that further reduce their net benefit increase. The timing of both announcements remains uncertain due to the ongoing federal government shutdown, which may delay the release of critical inflation data needed to calculate the final COLA figure. A "hold harmless" provision protects beneficiaries from seeing their Social Security payments reduced due to Medicare premium increases, but this offers little comfort to those watching their cost-of-living adjustments eroded by rising healthcare costs. For affluent retirees already managing multiple income streams, understanding how these changes interact with tax planning and income thresholds becomes increasingly important. Contact us for a free Strategy Session if you'd like help. 🔗 Read the full article Will Taxes Shred Your 401(k) or IRA During Your Retirement? It's Very Likely Kiplinger Traditional 401(k)s and IRAs, celebrated as smart tax-deferred savings vehicles during working years, transform into some of the most heavily taxed assets once retirement begins—potentially subjecting retirees to multiple layers of taxation that can devastate carefully accumulated nest eggs. Required minimum distributions (RMDs) starting at age 73 can push retirees into higher tax brackets, increase the taxation of Social Security benefits (up to 85% may be taxable), and trigger Medicare IRMAA surcharges that dramatically raise healthcare premiums. The conventional wisdom that you'll be in a lower tax bracket in retirement is often a myth, especially for successful savers who maintain similar standards of living. A similar lifestyle requires similar income, which means similar—or even higher—tax rates when you factor in RMDs, limited deductions, and potentially rising tax rates. By the time retirees reach their 80s, RMDs can become so large they create a cascade of negative consequences, from forcing unwanted portfolio liquidations to dramatically increasing Medicare costs . The "spousal tax trap" adds another layer of complexity: married couples filing jointly enjoy favorable tax brackets, but when one spouse dies, the survivor moves to single-filer status with much higher effective tax rates—often seeing their taxes double overnight. Financial planners at Covenant Wealth Advisors increasingly advocate for Roth conversion strategies executed well before retirement , allowing retirees to pay taxes at today's known rates while positioning themselves for tax-free withdrawals, no RMDs, and greater flexibility in managing income thresholds that affect Medicare premiums and Social Security taxation. The key insight is simple but powerful: it's better to pay tax on the seed (contributions) rather than the harvest (withdrawals plus decades of growth). 🔗 Read the full article 'Phantom Hacker' Scam That Targets the Elderly Has Stolen Over $1B in the Past 12 Months AOL/The Independent The FBI is warning about a sophisticated "phantom hacker" scheme that has drained over $1 billion from elderly Americans' retirement accounts in just the past year. AI-powered voice mimicry and caller ID spoofing are making these scams dangerously convincing, even for savvy investors. The scam unfolds in three calculated stages. First, victims receive a fake tech support alert and install software giving scammers remote access to their computer. Next, an imposter posing as their bank claims their accounts have been compromised. Finally, a fraudster pretending to be from the Federal Reserve or another government agency directs them to transfer funds to a "secure" account—which the criminals control. Because victims initiate the transfers themselves while believing they're protecting their assets, recovering stolen funds is extremely difficult. The FBI urges three protective measures: slow down when you feel rushed or panicked, never grant remote computer access to unsolicited callers, and remember that legitimate companies never cold-call offering tech support. If something feels urgent, hang up and call your financial institution directly using a number you know is correct. 🔗 Read the full article The Surprising Way Retirees Could Slow the Aging Process Kiplinger Groundbreaking research published in the Journal of Social Science & Medicine reveals that volunteering doesn't just make retirees feel younger—it actually slows biological aging at the cellular level by affecting DNA methylation, a key marker of how the body ages over time. Using data from 20,000 adults aged 51 and older in the Health and Retirement Study, researchers found that volunteering had a direct and significant effect on multiple epigenetic clocks that measure biological age, showing that this simple activity can counteract the aging process in ways that exercise and diet alone cannot. The mechanism behind this remarkable effect relates to how volunteering addresses multiple aging accelerators simultaneously. When work no longer provides structured social connections, the resulting isolation can accelerate epigenetic aging—but volunteer work remedies this by creating new social bonds, providing renewed purpose, and offering meaningful opportunities for engagement. Past studies have documented reduced hypertension, improved cognitive function, and better stress regulation among older volunteers, but this represents the first research demonstrating that volunteering actually slows down biological aging at the DNA level. Perhaps most encouraging for busy or hesitant retirees: even minimal commitment yields benefits. Research showed that any level of volunteering—including as little as one hour per year—had beneficial effects on epigenetic aging, though cumulative engagement proved more powerful. At 200+ hours annually (roughly 4 hours weekly), health benefits become particularly significant for both retirees and working individuals. Practical resources like VolunteerMatch for nonprofits and Volunteer.gov for government agencies make finding suitable opportunities straightforward, whether retirees prefer local community centers, places of worship, or national organizations aligned with their interests and expertise. The research conclusion is unambiguous: retirees can simultaneously give back to communities and directly improve their health outcomes, creating the ultimate win-win scenario. 🔗 Read the full article Final Thoughts This week's reading crystallizes a fundamental truth about modern retirement: financial security and longevity success require equal attention to what you've accumulated and how you'll live with it. The alternative funds cautionary tale reminds us that investment sophistication sometimes means saying no, while the longevity preparedness research proves that even multimillion-dollar portfolios don't guarantee readiness for longer life without deliberate planning for care, community, and connection. As Social Security COLAs get eroded by Medicare premium increases and tax traps lurk in traditional retirement accounts, the need for comprehensive, proactive retirement planning has never been clearer. Perhaps most encouraging is the volunteering research—proof that the best retirement investments aren't always financial, and that giving back to your community can literally slow the aging process while adding meaning to extra years. As we head into the final quarter of 2025, now is an excellent time to assess not just your portfolio allocation, but your readiness across all dimensions of a longer, more complex retirement than previous generations experienced. Maintaining financial security through retirement can be challenging. Would you like our team to handle your retirement planning? Request a free Strategy Session today! Wishing you a wonderful weekend, About the author: Mark Fonville, CFP® CEO and Senior Financial Advisor Mark is the CEO of Covenant Wealth Advisors and a Senior Financial Advisor helping individuals age 50+ plan, invest, and enjoy retirement comfortably. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule your free Strategy Session today   Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

Maximizing your employer-provided benefits requires a strategic approach to retirement accounts, health savings vehicles, insurance coverage, and equity compensation—especially for high earners approaching retirement. Understanding tax implications, portability issues, and coordination strategies can potentially save you tens of thousands of dollars annually while building financial security. Introduction According to the U.S. Bureau of Labor Statistics , employer-provided benefits account for approximately 30% of total compensation for private industry workers—and can reach as high as 42% for union workers in manufacturing—yet many professionals approaching retirement leave significant value on the table. Whether you're navigating 401(k) contribution strategies, evaluating high-deductible health plans with HSAs, or trying to understand RSU grants, the complexity of modern benefits packages demands a systematic approach. For affluent professionals over 50, the stakes are particularly high. At this career stage, you're likely in your peak earning years, which means benefits decisions have outsized tax implications. You're also approaching retirement, making portability considerations and catch-up contribution opportunities critical to your long-term financial security. The 2025 benefits landscape offers unprecedented opportunities for wealth accumulation and tax optimization. Retirement account contribution limits have increased, HSA rules have evolved, and many employers now offer expanded fringe benefits from student loan assistance to fertility coverage. However, these opportunities come with intricate decision points that require careful analysis. This comprehensive guide walks you through the essential considerations across five major benefit categories: retirement plans, medical insurance and tax-advantaged accounts, life insurance, disability coverage, and equity compensation. By the end, you'll have a clear framework for evaluating your current benefits package and identifying areas where strategic adjustments could significantly improve your financial position. Key Takeaways Maximize employer matches first  – Contributing enough to capture your full employer match delivers an immediate guaranteed return that's difficult to beat with any other investment strategy Leverage catch-up contributions  – If you're 50 or older, additional contribution room in 401(k)s and IRAs provides accelerated retirement savings opportunities Coordinate tax-advantaged health accounts strategically  – Understanding the order of operations between HSAs, HRAs, and FSAs can prevent leaving money on the table while optimizing tax benefits Evaluate portability before adding supplemental coverage  – Employer-sponsored life and disability insurance often disappears when you leave your job, making personal policies worth considering Review equity compensation with a tax-focused lens  – ISOs, NQSOs, and RSUs each have unique tax treatment that dramatically affects your net benefit Don't overlook lesser-known fringe benefits  – Student loan assistance, mental health counseling, and fertility benefits can deliver substantial value when utilized strategically Assess total benefits annually during open enrollment  – Your circumstances change, and so do plan offerings; regular review ensures your elections remain optimal Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. Table of Contents Understanding Your Retirement Plan Options Optimizing Medical Insurance and Tax-Advantaged Accounts Evaluating Life and Disability Insurance Coverage Maximizing Equity Compensation Benefits Leveraging Additional Fringe Benefits Frequently Asked Questions Conclusion Understanding Your Retirement Plan Options Your employer-sponsored retirement plan represents one of the most powerful wealth-building tools available. For professionals approaching retirement, understanding contribution limits, tax treatment options, and investment selection becomes increasingly critical. Contribution Strategy and Employer Matching The foundation of any retirement plan strategy is capturing your full employer match. This represents free money that delivers an immediate 50-100% return on your contribution, depending on your employer's formula. According to the Investment Company Institute , the average employer match is approximately 4.7% of salary when employees contribute enough to receive the full match. For 2025, standard 401(k) contribution limits are $23,500 for individuals under 50, with an additional $7,500 catch-up contribution for those 50 and older. If your employer offers a 457(b) plan in addition to a 401(k) or 403(b), you may be able to contribute to both, as these accounts have separate contribution limits—a strategy that's particularly valuable for high earners looking to maximize tax-deferred savings. "Many professionals focus solely on investment returns, but contribution strategy and tax location decisions often have a much larger impact on retirement outcomes," notes Mark Fonville, CFP®, CEO of Covenant Wealth Advisors in Richmond, VA. "For clients in their peak earning years, coordinating multiple account types—traditional, Roth, and after-tax with in-plan conversions—can create significant tax arbitrage opportunities." Pre-Tax, Roth, and After-Tax Contributions Understanding the three contribution types available in many plans is essential for tax optimization: Pre-tax contributions  reduce your current taxable income and grow tax-deferred, with distributions taxed as ordinary income in retirement Roth contributions  are made with after-tax dollars but grow and distribute tax-free in retirement After-tax (non-Roth) contributions  can be converted to Roth through in-plan conversions or rolled to a Roth IRA, creating a "Mega Backdoor Roth" strategy Your current and anticipated future tax brackets should guide this allocation. High earners in peak earning years often benefit from traditional pre-tax contributions now, while those expecting similar or higher tax rates in retirement may favor Roth contributions. Investment Selection and Fee Management Review your plan's investment menu for appropriate diversification options and expense ratios. According to the Department of Labor , even a 1% difference in fees can reduce your account balance by more than 25% over 35 years on a $25,000 initial investment. Consider whether your plan offers: Low-cost index funds across major asset classes Target-date funds aligned with your retirement timeline Stable value or money market options for conservative allocations Self-directed brokerage accounts for expanded investment access Vesting Schedules and Portability Understanding your employer contributions' vesting schedule is crucial if you're considering a job change. Vesting schedules typically range from immediate to six years graded or three years cliff vesting. If you're close to a vesting milestone, the timing of a departure could mean forfeiting tens of thousands in employer contributions. Rollover Opportunities Many plans accept rollover contributions from previous employer plans or traditional IRAs. Consolidating old 401(k)s can simplify management, and rolling traditional IRA balances into your 401(k) can enable Backdoor Roth IRA  contributions by eliminating pro-rata tax complications. Pro Tip : If you have highly appreciated company stock in your 401(k), investigate Net Unrealized Appreciation (NUA) treatment before rolling over to an IRA. This strategy can convert ordinary income tax rates to long-term capital gains rates on the appreciation. Optimizing Medical Insurance and Tax-Advantaged Accounts Healthcare represents one of the largest expenses in retirement, making strategic benefits decisions during your working years increasingly important. The coordination between insurance plan selection and tax-advantaged savings vehicles can create significant long-term value. Health Plan Selection Framework When choosing between high-deductible and low-deductible health plans, consider these factors: Current health status and anticipated medical expenses  – Chronic conditions or planned procedures may favor low-deductible plans Risk tolerance and emergency fund adequacy  – High-deductible plans require covering more costs before insurance kicks in HSA eligibility and contribution appetite  – Only high-deductible health plans (HDHPs) qualify for HSA contributions Prescription drug coverage  – Compare formularies, particularly for expensive or specialized medications For healthy individuals with adequate emergency reserves, HDHPs paired with HSAs often provide superior long-term value due to the triple tax advantage. Health Savings Account (HSA) Optimization HSAs offer a unique triple tax benefit: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. For 2025, contribution limits are $4,300 for individual coverage and $8,550 for family coverage, with an additional $1,000 catch-up contribution for those 55 and older. "Many of our high-net-worth clients treat their HSA as a stealth retirement account," explains Matt Brennan, CFP®, at Covenant Wealth Advisors in Reston, VA . "By paying medical expenses out of pocket during working years and letting the HSA grow tax-free, they create a powerful tax-free income source in retirement. You can reimburse yourself for those expenses decades later with no documentation time limit." Strategic HSA approaches include: Maximizing contributions annually regardless of current medical expenses Investing HSA balances in diversified portfolios for long-term growth Keeping detailed records of unreimbursed medical expenses for potential future tax-free withdrawals Coordinating HSA withdrawals with overall retirement tax planning After age 65, HSA funds can be withdrawn for any purpose without penalty (though non-medical withdrawals are taxable as ordinary income), essentially functioning like a traditional IRA. Health Reimbursement Arrangement (HRA) Considerations HRAs are employer-funded accounts that reimburse employees for qualified medical expenses. Unlike HSAs, HRAs are owned by the employer, creating portability limitations. Key considerations include: Understanding how unused balances are treated when you leave employment Determining whether you must exhaust HRA funds before using FSA dollars Maximizing employer contributions tied to wellness activities Planning withdrawal order to optimize tax benefits Flexible Spending Account (FSA) Strategy FSAs allow pre-tax contributions for medical or dependent care expenses, but most operate under "use-it-or-lose-it" rules (though some employers offer small carryovers or grace periods). Strategic FSA management includes: Carefully estimating annual expenses to avoid forfeiture Front-loading large, planned expenses early in the plan year Understanding that you can use the full annual election immediately, even though contributions are made ratably throughout the year Coordinating with HSA usage if your employer's HRA documents require HRA exhaustion first For dependent care FSAs, the 2025 limit is $5,000 per household, which can provide significant tax savings for families with childcare expenses. Evaluating Life and Disability Insurance Coverage Employer-sponsored insurance provides convenient, often affordable coverage, but portability limitations and coverage gaps make personal policies worth considering for many professionals. Life Insurance Assessment Group term life insurance through your employer typically offers coverage at attractive rates, particularly for younger, healthier employees. However, several factors warrant careful evaluation: Portability challenges : Most employer policies terminate when you leave the company. If your health deteriorates during employment, you may become uninsurable or face significantly higher premiums for personal coverage. Coverage adequacy : Employer policies typically offer coverage ranging from one to five times your salary, which may fall short of your actual needs. According to the American Council of Life Insurers , the average life insurance coverage gap is approximately $200,000. Cost comparison : For professionals in excellent health, personally-owned policies often cost less than employer coverage, particularly as you age. Underwriting classifications can dramatically impact premiums, with preferred elite ratings offering rates 40-50% lower than standard classifications. Consider purchasing a personal policy if you: Have significant coverage needs exceeding employer limits Expect to change employers before retirement Have experienced recent health improvements (weight loss, smoking cessation, etc.) Want permanent coverage for estate planning purposes Disability Insurance Evaluation Disability insurance replaces a portion of your income if you become unable to work due to illness or injury. For high-income professionals, this coverage is often more critical than life insurance, as you're far more likely to experience a disabling condition than premature death during your working years. Key considerations for employer disability coverage: Definition of disability : Group policies typically define disability as inability to perform your "own occupation" for a limited period (often 24 months), then transition to "any occupation." True own-occupation coverage through personal policies provides stronger protection for specialists and high-income professionals. Benefit taxation : Disability benefits are taxable if your employer pays the premiums, potentially creating a significant gap between gross and net benefit. If you pay premiums with after-tax dollars, benefits are tax-free. Coverage limits : Group policies typically replace 60% of base salary but may cap benefits at $5,000-$10,000 monthly, creating substantial income gaps for high earners. Bonuses and equity compensation are generally excluded from benefit calculations. Portability : Like group life insurance, employer disability coverage typically terminates when you leave the company. Some policies offer conversion options, but rates are usually less favorable than obtaining coverage while healthy. For professionals with specialized skills or high incomes, supplementing employer coverage with a personal own-occupation policy often makes financial sense. The elimination period (waiting period before benefits begin) should coordinate with your emergency fund to avoid coverage gaps. Pro Tip : If you're considering supplemental disability insurance, apply while you're healthy and employed. Pre-existing conditions and unemployment can make obtaining coverage difficult or impossible, and discounts are often available for professionals in certain occupations. Maximizing Equity Compensation Benefits Stock options, restricted stock units (RSUs), and other equity compensation represent significant wealth-building opportunities for executives and key employees. However, the tax complexity and timing considerations require careful planning. Stock Option Types and Tax Treatment Incentive Stock Options (ISOs) : These options provide favorable tax treatment if holding period requirements are met. Exercise triggers no immediate regular tax, but creates alternative minimum tax (AMT) exposure. Qualifying dispositions (selling shares at least two years from grant and one year from exercise) allow the entire gain to be taxed at long-term capital gains rates. ISO planning considerations include: Timing exercises to manage AMT exposure Exercising early in the year to allow same-year sales if needed for AMT planning Coordinating with other income to stay below AMT thresholds Understanding disqualifying disposition consequences Non-Qualified Stock Options (NQSOs) : Exercise triggers ordinary income tax on the spread between exercise price and fair market value. Subsequent gains or losses are capital in nature. NQSO strategies include: Exercising in lower-income years when possible Considering cashless exercises if capital is limited Planning exercise timing relative to other income events Understanding that the company receives a tax deduction equal to your ordinary income Restricted Stock Units (RSUs) RSUs vest according to a predetermined schedule, with vesting events creating ordinary income equal to the fair market value on the vesting date. Many companies withhold shares to cover taxes, often at flat rates that may be insufficient for high earners. RSU management strategies include: Understanding your company's withholding methodology and supplementing if necessary Evaluating whether to hold or immediately sell vested shares based on diversification needs Planning for tax payments on large vesting events Considering charitable giving strategies for concentrated positions Concentrated positions in employer stock create substantial risk to your overall financial plan. A systematic approach to reducing concentration risk while managing tax efficiency is essential for RSU recipients. Consider working with a financial advisor to develop a disciplined diversification strategy that balances tax considerations with prudent risk management. Leveraging Additional Fringe Benefits Beyond traditional benefits, many employers now offer expanded fringe benefits that can deliver substantial value when utilized strategically. These often-overlooked benefits can save thousands annually. Student Loan Assistance : The SECURE 2.0 Act allows employers to make matching retirement contributions based on employee student loan payments. If your employer offers this benefit, ensure you're taking full advantage—it's essentially free retirement contributions while paying down debt. Mental Health and Counseling Services : Employer-sponsored employee assistance programs (EAPs) typically provide 3-8 free counseling sessions annually. Given that private therapy often costs $100-250 per session, this benefit can deliver $300-2,000 in value. Legal Services : Legal plan benefits often include will preparation, real estate transactions, and legal consultations. Estate planning documents alone can cost $2,500-5,000 when purchased privately. Fitness and Wellness Reimbursements : Many employers now reimburse gym memberships, fitness classes, or wellness apps. If offered, these benefits can save $500-1,500 annually. Fertility and Family Planning Benefits : Fertility treatments can cost $15,000-30,000 per cycle. If your employer offers fertility benefits and you're planning to expand your family, understanding coverage limits and coordination with medical insurance is essential. Professional Development and Education : Tuition reimbursement and professional development allowances can total $5,000-10,000 annually. These benefits often have specific requirements about job-related education and maintaining employment post-graduation. State-Specific Considerations : Some states have unique benefit requirements or tax treatment. For example, certain states mandate paid family leave, while others offer different tax treatment for specific benefits. Covenant Wealth Advisors works with clients across the United States to navigate these state-specific complexities. Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. Frequently Asked Questions Q: Should I always choose the high-deductible health plan to access an HSA? Not necessarily. While HSAs offer exceptional tax benefits, high-deductible plans aren't optimal for everyone. If you have chronic health conditions requiring frequent care or expensive medications, you might spend more out-of-pocket than you save through HSA tax benefits. Calculate your total cost (premiums plus expected out-of-pocket expenses) for each option. HDHPs work best for healthy individuals with adequate emergency funds who can afford to maximize HSA contributions and leave the money invested long-term. Q: How do I know if my employer's life insurance coverage is adequate? A common rule of thumb suggests coverage equal to 10-12 times your annual income, though this varies based on factors like outstanding debts, dependent needs, income replacement goals, and existing assets. Many employer policies offer only 1-3 times salary, creating substantial gaps. Consider your specific situation: mortgage balance, number of dependents, education funding goals, and how long income replacement is needed. If employer coverage falls short and you're in good health, obtain quotes for supplemental personal coverage while you're insurable. Q: What happens to my employer benefits when I retire? Most benefits terminate at retirement, though some employers offer retiree health insurance (increasingly rare) or allow you to continue life insurance at your own expense. Health coverage can continue through COBRA for 18 months post-employment, though premiums are typically expensive. You'll need to plan for Medicare enrollment at 65 (earlier if disabled), supplemental Medicare coverage, and replacing any desired life or disability insurance with personal policies. Start planning at least 2-3 years before retirement to understand gaps and costs. Q: Can I contribute to both a 401(k) and a 457(b) plan in the same year? Yes. Unlike 401(k) and 403(b) plans which share a combined contribution limit, 457(b) plans have separate limits. For 2025, you could potentially contribute $23,500 to a 401(k) and another $23,500 to a 457(b), plus catch-up contributions if eligible. This strategy is particularly valuable for high earners at organizations offering both plan types, such as government entities or certain non-profits. However, ensure you have adequate cash flow since you're potentially deferring $47,000 or more annually. Q: Should I roll my old 401(k) into my current employer's plan? It depends on several factors. Rolling old 401(k)s into your current plan can simplify management and potentially enable Backdoor Roth IRA strategies  by clearing out traditional IRA balances. However, compare investment options and fees between plans—some employers offer superior investment menus or lower costs than others. Also consider loan provisions if you might need to borrow from your retirement plan and whether your plan offers unique features like NUA treatment for company stock. Review your current plan's Summary Plan Description to verify it accepts rollovers. Q: How should I prioritize contributing to HSA, FSA, and 401(k)? Priority generally follows this order: First, contribute enough to your 401(k) to capture the full employer match (immediate 50-100% return). Second, maximize HSA contributions if you're in a qualifying HDHP, as HSAs offer superior tax benefits to almost any other savings vehicle. Third, return to 401(k) to maximize remaining contribution room. Fourth, fund FSAs carefully to cover predictable expenses without over-contributing due to use-it-or-lose-it rules. This hierarchy maximizes employer contributions and tax advantages while maintaining flexibility. Q: What's the difference between group and personal disability insurance, and do I need both? Group disability insurance through employers typically costs less but offers limited benefit amounts, restrictive definitions of disability (often "any occupation" after 24 months), and terminates when you leave. Personal policies cost more but provide own-occupation coverage, higher benefit limits, portability, and tax-free benefits if you pay premiums with after-tax dollars. For high-income professionals, supplemental personal coverage fills the gap between group policy limits and actual income replacement needs, protecting against the financial impact of career-ending disabilities in your specialty field. Conclusion Maximizing your employer-provided benefits requires a comprehensive, strategic approach that coordinates retirement savings, healthcare planning, insurance coverage, equity compensation, and often-overlooked fringe benefits. For affluent professionals approaching retirement, the decisions you make during your peak earning years can create or destroy hundreds of thousands of dollars in lifetime value. The complexity of coordinating multiple account types, understanding tax implications, evaluating portability issues, and optimizing timing decisions makes working with a financial professional increasingly valuable. At Covenant Wealth Advisors, we help clients across the United States navigate these decisions within the context of their complete financial picture—ensuring benefits elections align with retirement goals, tax strategies, estate plans, and overall wealth management objectives. As you approach your company's annual open enrollment period, take time to review each benefit category systematically. Your circumstances change—income fluctuates, family situations evolve, health needs shift, and retirement draws closer. Regular reassessment ensures your benefits package continues working as hard for you as you work for your employer. Would you like our team to just do your retirement planning for you? Contact us today for a free Strategy Session . About the author: Megan Waters, CFP® Financial Advisor Megan Waters is a CERTIFIED FINANCIAL PLANNER™ professional and Financial Advisor at Covenant Wealth Advisors . Megan has over 14 years of experience in the financial services industry. Raised in Williamsburg, VA, Megan graduated from the Honors College at the College of Charleston with a BS in Economics and a minor in Environmental Studies. Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

A client recently asked me an increasingly common question: Should I increase my stock market exposure while markets are up? It's a tempting thought. After all, why not invest more into stocks while the momentum is strong? Here's the reality: U.S. stock markets are trading at historically elevated valuations, and corrections occur with surprising regularity. I explored this in depth in our article Understanding Stock Market Corrections and Crashes . While no one can predict when the next downturn will strike, we do know this: expected returns decline when prices are high. Consider the Shiller P/E ratio, a widely respected valuation indicator that measures whether stocks are expensive or cheap relative to historical earnings. As of October 30, 2025, the Shiller P/E stands at 39.5—significantly above the 27.0 average we've seen since 1990. I won't be the first or the last to tell you that nobody can consistently predict (based on skill) the future near term direction of stock markets. The good news, is that you don't need a crystal ball to be successful. You just need discipline and to prioritize risk management especially as you near retirement. That's why you should be asking yourself the question: How can I reduce risk in my investment portfolio? Now is the time to answer this questions. Not after a stock market crash. One of the most important aspects of retirement planning is ensuring that your nest egg is protected from market downturns. I often see investors lose sight of the importance of risk management when stock markets are surging - only focusing on returns. This can be a mistake. As you approach and enter retirement, the stakes get even higher, and the margin for error diminishes. The pursuit of financial security demands a plan with risk management. As disciplined savers, your well-earned nest egg – having surpassed the million-dollar mark – is both a testament to your financial acumen and a call to safeguard the fruits of your labor. This article discusses how to reduce risk in a portfolio and includes insights on diversifying your portfolio, correctly allocating assets, and improving your decision-making. While proper diversification doesn’t guarantee against loss, our hope is that these tips can help steer you toward a prosperous retirement. Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. So, how can you reduce risk in your investment portfolio? Here's what you need to know. Avoid Timing the Market There’s an old investment adage that says, “Time in the market is more important than timing the market.” Like most cliches, this one rings true. Trying to time the market is akin to trying to guess the physical factors of the roulette ball so that you can accurately predict its landing point on the table. In a perfect world, you’d be able to accomplish this. But, in reality, there are just too many factors at play and the margin for error is too small to be continuously successful. Some investors are tempted to try to time the market in response to price swings. This chart illustrates what happens to a $1,000 investment in the S&P 500 (before transaction costs) under different timing scenarios—all starting in 2009. Staying Invested: Timing the Market The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged and do not reflect management or trading fees, and one cannot invest directly in an index. The baseline shows staying fully invested throughout the entire period. The alternative scenarios show what would have happened if you moved to cash and missed various numbers of the market's worst days since 2009—specifically the 1, 5, 10, 15, or 20 worst single-day declines. When the "worst days" would overlap in timing, the days out of the market are extended consecutively to reflect the full period you would have been sitting on the sidelines. Let’s meet two hypothetical investors, Lisa and John. Lisa invested $1,000 into the S&P 500 index (Excludes fees and taxes. Not available for investment.) on January 1st, 2009 after experiencing a tumultuous market crash. Nearly every headline she reads is negative and there appears to be no end in sight. However, she realizes that trying to time the stock market is a fool’s errand. Instead, she trusts in markets long-term and prefers to avoid timing the market. John, on the other hand, takes a different approach. He believes that it’s possible to get in and out of the stock market at the right time over the long-term. John invests $1,000 on January 1st of 2009, but decides to move his money to cash for three months after each of the 20 worst days since 2009. After the three month period, John reinvests into the S&P 500 index. How did both investors turn out? Just take a look at the chart above. Lisa’s $1,000 grew to $10,185 and John’s $1,000 grew to only $5,770 due to his market timing strategy. Download FREE: Get the Same Checklists We Use to Help Our Clients Retire Why? Market timing hinges on accurately predicting market moves based on macroeconomic issues, a feat that eludes even the most seasoned experts. Even worse – just like the roulette table – the allure of predicting the perfect time to buy or sell assets is a siren song that has lured many astray. In the pursuit of long-term financial well-being, we believe a better approach involves staying the course with a well-crafted investment strategy. In the short term, it’s impossible to predict what the market will do. But, over the long run, the market has always trended up and to the right. While not guaranteed, if you keep your money invested long enough, your nest egg has a better chance to accomplish the same goal. Diversify Across Stocks and Bonds I've been hearing a troubling refrain from prospective clients lately: their current advisors are telling them to avoid bonds entirely. The rationale? They point to the historically low interest rates of the 2010s... and the brutal 2022 bond market decline when the Bloomberg U.S. Aggregate Bond Index fell 13%—its worst performance in modern history. "Why hold bonds when they don't pay anything and can lose money just like stocks?" It's a seductive argument, especially when markets are surging. But it's dangerously wrong. This thinking confuses recent experience with permanent conditions and overlooks bonds' fundamental role in retirement portfolios. Yes, the 2010s were an anomaly of near-zero rates. And yes, 2022 was painful—but the fastest rate hiking cycle in decades actually improved future bond returns for patient investors. Here's what the "skip the bonds" advice ignores: bonds provide portfolio ballast during equity crashes, reduce volatility, generate predictable income, and offer rebalancing opportunities. This chart shows annual returns for the S&P 500 and Bloomberg U.S. Aggregate total returns. The blue bars are S&P 500 returns while the gold are Bloomberg U.S. Aggregate returns. The blue and gold dotted lines denote their respective averages. Date Range: January 2, 1990 to present. Source: Clearnomics, Standard & Poor's, Bloomberg. The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged and do not reflect management or trading fees, and one cannot invest directly in an index. Most critically for retirees, they protect against sequence-of-returns risk —the danger that early market declines permanently derail your retirement plan. Balancing stocks and fixed-income assets goes hand in hand with diversification. Here are some guidelines to help you strike the right balance: Risk Tolerance: Assess your comfort level with market fluctuations. If you're averse to big ups and downs, a higher allocation to fixed income may be suitable. Taking a proper risk tolerance test can help. Fixed Income Variety: Diversify your bond holdings by including government, corporate, and possibly municipal bonds. Varying maturities can provide a balance between income and interest rate risk. This chart shows sector total returns sorted from best to worst each year. Fixed income sectors included are Bloomberg U.S. Aggregate Bond Index, Bloomberg EM USD Aggregate Index, Bloomberg U.S. Corporate High Yield Index, Bloomberg Municipal Bond Index, Bloomberg U.S. Treasury Inflation Notes Index, Bloomberg U.S. Corporate Index, Bloomberg U.S. Treasury Index, Bloomberg U.S. Treasury, Bloomberg U.S. Mortgage Backed Securities Index, and Bloomberg EM Local Currency Government Index. Source: Clearnomics, Bloomberg. The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged and do not reflect management or trading fees, and one cannot invest directly in an index. How much portfolio decline can you tolerate during the worst of times? Here's one of the most practical allocation guidelines we share with clients: the "sleep-at-night test." Ask yourself this question: How much could my portfolio decline before I'd be tempted to sell in a panic? Whatever that number is, double it—that's roughly the maximum stock allocation you should hold. Here's how it works in practice: Tom and Mary have a $2 million portfolio. They're long-term investors, but they know themselves well enough to recognize they'd become extremely uncomfortable watching their portfolio drop $600,000—a 30% decline. Once they hit that threshold, the urge to "do something" would become overwhelming. So Tom takes that 30% pain threshold and doubles it to arrive at 60% stocks. The remaining 40% goes to bonds. This gives them a 60/40 portfolio. Why double the number? Because historically, a 60% stock allocation has experienced maximum drawdowns around 30% during severe bear markets. By calibrating their allocation to their actual risk tolerance rather than what they think they should tolerate, Tom and Mary build a portfolio they can stick with when markets inevitably decline. The best investment strategy is the one you won't abandon during a crisis. This simple test helps ensure your allocation matches your emotional reality, not just your financial goals. Diversify Across Asset Classes Before we even consider working together, every prospective client goes through the same three-step free retirement assessment process . First, we build a personalized retirement plan to determine whether their assets will sustain them throughout retirement. Second, we analyze their tax return to identify potential tax savings strategies. Lastly, we analyze their current portfolio to identify any gaps or vulnerabilities. Here's what we consistently discover: many investors believe they're well diversified. In reality, they're not—and they're exposed to catastrophic risks that simply haven't materialized yet. Diversification is the cornerstone of a robust retirement portfolio. If your goal is to learn how to reduce risk in a portfolio, this is a key topic. This periodic table shows annual performance rankings across asset classes from 2010-2025, highlighting two important historical patterns: the difficulty of predicting year-to-year winners, and the tendency of diversified portfolios to produce steadier results. The Balanced Hypothetical Portfolio (60/40 stock/bond allocation) rarely tops the rankings but also avoids the worst downturns—historically delivering more predictable outcomes than concentrated positions in any single asset class. This chart shows the annual total returns for varying asset classes. Asset classes included are MSCI Emerging Markets Index (EM), MSCI Developed Markets Index (EAFE), MSCI World Small Cap Index (Small Cap), S&P 500, balanced portfolio, fixed income, and MSCI World Commodity Producers Index (comm.). The balanced portfolio is a historical 60/40 portfolio consisting of 40% U.S. large cap, 5% small cap, 10% international developed equities, 5% emerging market equities, 35% U.S. bonds, and 5% commodities. You cannot invest in an index. Diversification does not guarantee protection against loss. Past performance is not indicative of future returns. Date Range: January 3, 2006 to present Source: Clearnomics, LSEG. Indices do not include fees or expenses. The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged and do not reflect management or trading fees, and one cannot invest directly in an index. Here are some tips to help you navigate diversification in your portfolio: Asset Class Variety : Spread your investments across different asset classes such as stocks, bonds, and real estate. And yes, we believe that bonds remain a powerful component of a diversified portfolio . Each asset class responds differently to economic conditions, providing a potential buffer against market volatility. For example, when your stocks are down, bonds might be up. Global Allocation: Consider international diversification to reduce risk with any single country's economic performance. Global exposure can add a layer of resilience to your portfolio. You can gain some exposure through large U.S. companies, but there are also many funds that focus on different markets. Size and Style Diversification: Include a mix of large-cap, mid-cap, and small-cap stocks to balance growth potential and risk. Diversify between growth and value stocks to capture different market trends. For example, value stocks often provide income by paying dividends. Real Assets and Real Estate: Consider investing in real assets like commodities to hedge against inflation. You can also buy and manage different properties. And for a more hands-off approach, real estate investment trusts (REITs) can offer exposure to the real estate market. Professional Guidance: Consider consulting with a financial advisor to tailor your portfolio to your financial situation and goals. As illustrated in the chart above, improved risk management through broader diversification may narrow the returns at the extremes. While diversification cannot guarantee against a loss, diversification takes advantage of these trends. With cheaper valuations and global growth, it may be best to not overlook other regions for investment. Remember, the key is not just to diversify for the sake of it but to create a well-balanced mix of assets. Your portfolio should align with your long-term goals and risk tolerance. Focus on Long-Term Wealth Building This chart shows the growth of $1 since 1926 in the Standard and Poor's Composite and 10-year U.S. Treasury bonds. Stock returns include dividend reinvestment. The inflation line shows the number of dollars over time to equal $1 in spending in 1926, according to the Bureau of Labor Statistics Consumer Price Index. This chart uses a logarithmic scale. Date Range: January 1926 to present. Source: Clearnomics, Robert Shiller, Standard & Poor's, BLS. The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged and do not reflect management or trading fees, and one cannot invest directly in an index. Similar to staying physically healthy, building wealth is all about letting small decisions play out over the long run. For example, eating just one salad won’t be enough to make you healthy. But, if you eat a salad every day for decades (paired with ample exercise) then you’ll undoubtedly be in great shape. We believe that the same rings true for your retirement portfolio. Try to avoid constantly buying/selling different stocks or assets in hopes of chasing a slightly higher return. Instead, commit to your investment strategy and embrace a patient mindset. In doing so, you’ll enjoy the magic of compound interest as you can see in the chart above. Couple this with reinvested dividends and consistent contributions and you’re well on your way to building a golden nest egg to fund your retirement. Eliminate or Reduce Concentrated Stock Positions Hold a concentrated stock position long enough, and eventually one of two things happens: it either becomes your retirement home run, or it slowly rots into a cautionary tale. The odds? Not in your favor. Here's the reality: most individual stocks underperform their benchmark over time. Research shows just 4% of stocks have accounted for all of the market's net gains since 1926. That means 96% either matched Treasury bills or did worse. When you concentrate in a single stock, you're betting you've picked one of the rare winners. The math works against you. Over time, the median stock's performance deteriorates as companies stumble, fade, or fail. Diversification solves this elegantly. By holding the entire market, you automatically capture those exceptional companies that drive returns—the next Apple or Amazon—without needing to predict which one it'll be. You're not settling for average. You're ensuring you don't miss the winner If you’re interested in developing a strategy to reduce your concentrated stock exposure, be sure to schedule a free Strategy Session with one of our wealth advisors. We'll be sure to cover that concern and more. Consider Short-Term, High-Quality Bonds Short-term, high-quality bonds offer advantages that align with the needs of many retirees. First and foremost, these bonds generally have lower risk compared to longer-term bonds. With shorter maturities, they are less sensitive to fluctuations in interest rates, providing more stability in the face of market volatility. For example, in the chart below, we illustrate the returns for a popular short term index vs. the returns of a a long-term bond index. Notice the large variability in returns based on the calendar year. Short Term Gov't Bonds represented by the ICE BofA 1-3Y US Trsy&Agcy TR USD Index. Long Term Gov't Bonds represented by the BBgBarc US Government Long TR USD Index. No fees or expenses included. You cannot invest directly in an index. The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged and do not reflect management or trading fees, and one cannot invest directly in an index. Moreover, high-quality bonds, often issued by stable entities such as governments, present a lower risk of default. This increased level of safety aligns with the conservative goals of many retirees. It can offer a more stable foundation for a portion of your portfolio. Download FREE: Get the Same Checklists We Use to Help Our Clients Retire Short-term, high-quality bonds in your retirement portfolio can serve as a stabilizing force. While not guaranteed, this approach may offer lower interest rate risk, increased safety, liquidity, and a reliable income stream. Implement Systematic Rebalancing Market movements naturally push your portfolio away from your target allocation. When stocks surge, your equity exposure creeps higher, increasing your risk beyond intended levels. When bonds outperform, you may hold more fixed income than optimal for your goals. Rebalancing is the disciplined process of restoring your portfolio to its target allocation. More importantly, it's a mechanical system that forces you to sell high and buy low—the opposite of what most investors do emotionally. How rebalancing works : Assume your starting portfolio allocation in 2009 is 60% stocks and 40% bonds. After a strong bull market in stocks, the portfolio drifts to 91% stocks and 9% bonds as outlined in the chart below. This chart shows the current composition of a stock and bond portfolio that was created in 2009, but never rebalanced. Stocks and bonds are represented by the S&P 500 and Bloomberg Aggregate Bond Index, respectively. The white dotted lines show the starting allocation. Ending date is October 2025. Source: Clearnomics, LSEG. The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged and do not reflect management or trading fees, and one cannot invest directly in an index. As a result of the increase in stocks over time, the portfolio becomes more risky. Rebalancing involves selling enough stocks and purchasing enough bonds to return to your 60/40 target. Rebalancing approaches: Calendar-based rebalancing: Review and rebalance on a fixed schedule—annually, semi-annually, or quarterly. This approach is simple and removes emotion from the decision. Annual rebalancing typically provides an effective balance between maintaining your risk profile and minimizing transaction costs and taxes. Threshold-based rebalancing: Rebalance only when an asset class drifts a certain percentage from its target—typically 5% or more. For example, if your stock target is 60%, you'd rebalance when stocks reach 65% or drop to 55%. This approach can be more tax-efficient since you're only trading when drift becomes meaningful. Tax-aware rebalancing: Use contributions, withdrawals, and tax-loss harvesting opportunities to rebalance without triggering unnecessary capital gains. Direct new contributions to underweighted asset classes, or make withdrawals from overweighted positions. In taxable accounts, harvest losses in positions that have declined to offset gains from rebalancing trades. The research on rebalancing frequency shows diminishing returns beyond annual rebalancing, and more frequent rebalancing can increase costs and taxes without meaningfully improving risk-adjusted returns. At Covenant Wealth Advisors our preferred method for rebalancing combines threshold-based rebalancing and tax-aware rebalancing. Read this article for a deeper dive into how often you should consider rebalancing. Pro Tip: Rebalancing in tax-deferred accounts (IRAs, 401(k)s) avoids immediate tax consequences, making these accounts ideal for rebalancing trades. In taxable accounts, consider the tax implications of each trade and coordinate rebalancing with your broader tax strategy. Increase Your Liquidity Market downturns call for financial resilience. In times of market turbulence, liquidity acts as a financial buffer, allowing you to cover expenses without being forced to sell investments at depressed values. Consider having three to twelve months worth of living expenses in easily accessible, low-risk assets, and avoid tying up all your funds in long-term, illiquid investments. For many of our clients, we may recommend maintaining up to two years of expenses in the form of cash on hand depending upon their financial situation. Liquidity not only provides peace of mind during a market downturn but also positions you to seize investment opportunities that arise when asset prices are low. Here’s more on where to invest emergency funds in retirement. Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. Conclusion With the insight above, you’ve learned how to reduce risk in a portfolio. A commitment to your long-term goals and resilience against the fluctuations of the market can help you stay on track with your retirement goals . Begin by building a clear and realistic investment strategy that aligns with your risk tolerance, financial goals, and retirement timeline. Once set, resist the allure of short-term market noise and remain unwavering in the face of volatility. Regularly review your portfolio's performance, but let your main goals guide decisions rather than fleeting market trends. Diversification, rebalancing, and a focus on quality investments are pillars of a sound retirement—stay true to them. If you’re interested in learning more about how to build wealth to and through retirement, contact us today for a free Strategy Session . We hope that you’ve found this article valuable in learning how to reduce risk in a portfolio. Mark Fonville, CFP Author: Mark Fonville, CFP® Mark is a fiduciary, fee-only financial advisor at Covenant Wealth Advisors specializing in helping individuals aged 50 plus plan, invest, and enjoy retirement without the stress of money. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule your free Strategy Session today. Disclosure: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

We are proud to announce that today, Friday, November 14th, Covenant Wealth Advisors is recognized as one of America’s Top Financial Advisory Firms 2026 by Newsweek and Plant-A Insights Group* for the second year in a row. Newsweek and Plant-A Insights Group recognized companies pulled from a shortlist of financial planning firms, evaluating them on asset performance, client performance, adviser expertise and client ratio, breadth of service offerings and conflicts of interest. Covenant Wealth Advisors was one of only two firms in the state of Virginia given a five star rating by Newswee k. For a full list of the top financial advisory firms, click here. A big thank you to our team and all of our clients for giving us the opportunity to serve you every day. If you are not already a client and would like to explore a relationship with our firm, click here to request a free strategy session. Disclosure: Covenant Wealth Advisors was nominated by Newsweek/Plant-A-Insights Group in November of 2025 and as one of America's Top Financial Advisory Firms for 2026. You may access the 2026 nomination methodology disclosure here and a list of financial advisory firms selected. CWA did not compensate Newsweek/Plan-A Insights Group for the awards or nominations. This award was granted by organizations that are not CWA clients. However, CWA has compensated Newsweek/Plant-A Insights Group for licensing and advertising of the nomination. While we seek to minimize conflicts of interest, no registered investment adviser is conflict free and we advise all interested parties to request a list of potential conflicts of interest prior to engaging in a relationship. About the Newsweek Recognition:  Covenant Wealth Advisors has been named to Newsweek's America's Top Financial Advisory Firms 2026 list. This recognition is based on third-party research conducted by Plant-A Insights Group, which evaluated firms using the following criteria: asset performance, client performance, adviser expertise and client ratio, breadth of service offerings, and conflicts of interest. Covenant Wealth Advisors did not pay a fee to be considered or to participate in the survey or ranking. The recognition is based on specific criteria and methodologies determined by Newsweek and Plant-A Insights Group. Different ranking organizations may use different criteria and methodologies, which may result in different outcomes. This ranking is not indicative of the firm's future performance, and there is no guarantee that clients will experience the same level of performance or satisfaction. Past performance is not indicative of future results. The award should not be construed as an endorsement of the advisor by any client, nor are they representative of any one client's evaluation. The criteria used for this ranking may not reflect the specific needs or objectives of any particular investor. Prospective clients should carefully review the firm's Form ADV Part 2A brochure and consider their own investment objectives, risk tolerance, and financial situation before engaging our services. General Disclaimer:  This post contains information about our advisory services. No content should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security. Advisory services are offered through Covenant Wealth Advisors, a Registered Investment Adviser. For more information about our services and fees, please review our Form ADV Part 2A, which is available upon request or at www.adviserinfo.sec.gov .

If you’re asking “should I use a financial advisor or do it myself”, you’re already doing something most investors skip: you’re questioning whether your current approach is actually built for retirement.  The right answer depends less on your intelligence and more on your complexity, time, discipline, and the cost of one wrong move. I’ve spent nearly two decades working with high-net-worth families through retirement transitions, market cycles, and “it looked fine on paper” plans.  Here’s the reality: many affluent investors are perfectly capable of managing investments. What’s harder—and often more expensive—is managing the system around the investments . Key Takeaways A clear 3-path decision: DIY, Hybrid (second opinion/project), or Ongoing Advisor A practical definition of what an advisor should do for a $1.5M+ retiree beyond portfolio management The most common (and expensive) DIY mistakes after 55—especially around taxes and Medicare A step-by-step checklist to vet an advisor using Form CRS, Form ADV Part 2A, and IAPD Guardrails you can implement if you choose to DIY (without “winging it”) Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. Should you use a financial advisor or do it yourself in retirement? If your retirement finances are straightforward and you’re willing to manage investing, creating income through withdrawals, taxes, and insurance decisions with consistent discipline, DIY can work. If you have multiple accounts, complex tax planning needs, Medicare premium exposure, or you want ongoing accountability and less stress, hiring an advisor—or using a periodic second opinion—may be worth considering. Start with the real decision (it’s not binary) Most people frame this as a simple fork in the road: DIY: I manage everything. Advisor: Someone else manages everything for me. But, affluent retirement planning usually works better as a three-lane highway. Here are three common   high net worth retirement planning approaches : DIY (with a documented process) Hybrid (DIY investing + professional planning/second opinions) Ongoing advisor relationship (implementation + monitoring + planning) The question isn’t “Am I smart enough?” The question is: Can I run this system every year ? Do I want to? What happens if I can’t (health, travel, cognitive load, life events)? A quick self-screen DIY becomes riskier when you answer “no” to multiple questions below: Do you have a written withdrawal strategy (not just a “4% rule” headline)? Can you estimate next year’s taxable income before taking withdrawals? Do you understand how capital gains, dividends, and IRA withdrawals stack into your marginal tax rate? Can you coordinate withdrawals with Medicare premium thresholds (IRMAA) and tax planning? Do you rebalance systematically—even when markets are ugly? Can your spouse/partner execute the plan if you’re not available? If you’re thinking, “I can do some of that,” you’re describing the hybrid lane. What does a financial advisor actually do for a $1M+ retiree? A retirement-focused advisor’s value is typically less about picking investments and more about coordinating taxes, withdrawal sequencing, Medicare decisions, Social Security timing, risk management, and estate planning implementation.  You can DIY many pieces, but the advisor’s role is to design a repeatable process, reduce unforced errors, and help you stick to the plan across changing markets and rules. The job isn’t “beat the market”, it’s “run the operating system” For an affluent retiree, your portfolio is not just an investment account. It’s the fuel source for: spending and lifestyle healthcare and insurance decisions taxes philanthropy legacy planning and often, family support A strong advisor should be able to answer a very specific question: “What decisions do we need to make this year, and in what order, so we don’t accidentally create higher taxes or higher Medicare premiums?” What “good” looks like (services you should expect) Here’s what a comprehensive advisor engagement often includes for retirees: 1) Retirement income design Cash flow planning (baseline + discretionary) Withdrawal sequencing (taxable vs IRA vs Roth) Coordination with RMDs (when they apply) 2) Tax-aware investing Asset location (what goes where) Capital gains management Year-end tax planning coordination Potential  Roth conversion analysis (not one-size-fits-all) 3) Medicare and Social Security coordination Managing the “two-year lookback” risk for Medicare premium surcharges (IRMAA) Timing decisions that affect taxable income and benefit taxation 4) Risk management Concentration risk (company stock, a single ETF, real estate) Liquidity planning (cash reserves, near-term spending) Scenario stress testing (market decline + inflation + longevity) 5) Estate planning implementation support Beneficiary reviews Trust coordination (with your attorney) Titling and transfer coordination 6) Behavioral coaching A plan is only useful if you follow it. Many investors don’t need “more information.” They need   a process that prevents panic decisions . “In retirement, the biggest risk isn’t usually a bad fund choice, it’s a small number of big decisions made at the wrong time. Good advice creates a repeatable playbook so you’re not reinventing the wheel every year.” — Matt Brennan, CFP® A note on disclosure (what you should read before you trust anyone) Advisors should provide clear disclosures about services, fees, conflicts, and disciplinary history. Two key documents: Form CRS (relationship summary for retail investors) Form ADV Part 2A (a detailed narrative brochure about the firm) If an advisor can’t explain these documents in plain English, that’s not “complexity.” That’s a red flag. What are the biggest DIY risks for affluent retirees after age 55? DIY risks aren’t about whether you can open a brokerage account—they’re about missing deadlines, mismanaging taxes, and making emotionally driven decisions when the stakes are highest.  The most expensive mistakes often involve retirement account withdrawals (including RMD rules), Medicare enrollment and premium surcharges, concentrated positions, and poorly coordinated tax decisions that create avoidable long-term costs. The “unforced errors” that show up most often Here are the patterns we see when capable investors run into trouble: 1) Tax-blind withdrawals Example: pulling too much from traditional IRAs in a single year, unintentionally pushing yourself into a higher bracket or increasing Medicare premiums. DIY investors often focus on “how much can I spend?” instead of “what’s the cleanest way to create that spending amount after tax?” 2) Medicare enrollment penalties (deadline-driven) Medicare has strict enrollment windows, and penalties can apply if you miss them without qualifying exceptions. Medicare.gov  explains that Part B penalties can be an extra 10% for each year you could have enrolled but didn’t. If you’re retiring around 65, this becomes a planning item, not a “later” item. 3) IRMAA (Medicare premium surcharges) surprises Affluent retirees often learn about IRMAA after the fact: “Why did my Part B premium jump?” CMS shows that 2026 Part B premiums can range up to $689.90/month at higher income tiers. That doesn’t mean “avoid income.” It means: manage the timing of income when you have flexibility. 4) RMD mistakes (and penalties) The IRS explains that if your distributions are not large enough, you may owe a 25% excise tax on the amount not distributed as required (potentially 10% if corrected within the allowed window). It’s not hard to take an RMD. It is  easy to miss one when you have multiple accounts, custodian transitions, inherited accounts, or health issues. 5) Concentration and liquidity issues This is the   quiet risk in affluent portfolios . And, we see these mistakes frequently. too much in one stock too much in one sector too much illiquid real estate relative to spending needs It can feel “conservative” until you actually need liquidity. 6) Sequence-of-returns risk (the retirement-specific market risk) Two retirees can earn the same average return but end up with very different outcomes based on when  the bad years happen —especially early in retirement. DIY investors often underestimate how much withdrawal strategy and cash reserves matter when markets fall. 7) The “capacity” risk (the plan works…until you can’t run it) Even financially sophisticated households rarely plan for: who executes trades if you can’t who manages bills and distributions how passwords and documents are stored and shared A strong plan is operational, not theoretical. How can Medicare IRMAA change your retirement costs—and why does it matter for DIY vs advisor decisions? IRMAA ties Medicare premiums to income, which means retirement tax decisions can affect healthcare costs.  In 2026, CMS shows total Part B premiums range from $202.90/month up to $689.90/month depending on modified adjusted gross income (MAGI) and filing status.  For affluent retirees, this makes tax-aware withdrawal planning a core part of the advisor-vs-DIY decision. 2026 Medicare Part B IRMAA premiums (official tiers) Below is the CMS table data reformatted for readability. 2024 MAGI (Single) 2024 MAGI (Married Filing Jointly) 2026 Part B Monthly Premium (Total) ≤ $109,000 ≤ $218,000 $202.90 $109,001 – $137,000 $218,001 – $274,000 $284.10 $137,001 – $171,000 $274,001 – $342,000 $405.80 $171,001 – $205,000 $342,001 – $410,000 $527.50 $205,001 – $499,999 $410,001 – $749,999 $649.20 ≥ $500,000 ≥ $750,000 $689.90 Source: CMS 2026 Medicare Parts A & B premiums/deductibles fact sheet (IRMAA table). Why this matters for affluent retirees If you’re 55+ with $1.5M+ and you’re actively managing taxes, you may have years with: capital gains from rebalancing or selling a business/property large IRA withdrawals Roth conversion income one-time income events Those aren’t “bad.” But they can interact with Medicare premium tiers. Planning levers (not magic tricks) A good advisor doesn’t “eliminate IRMAA.” That’s not realistic for many high-income households. Instead, the goal is to choose when income happens (when you have flexibility) and reduce surprises. Levers commonly evaluated include: Withdrawal sequencing across taxable, traditional IRA/401(k), and Roth accounts Charitable strategies (especially for those already giving) Managing realized gains (where feasible) Coordinating Roth conversion timing with bracket targets Avoiding accidental income stacking (e.g., RMD + conversion + large realized gains in the same year) The point: Once you’re near IRMAA thresholds, DIY requires a tax-first mindset—not just an investment mindset. How much does a financial advisor cost, and when do fees make sense? Advisor costs vary widely, but the right way to evaluate fees is to compare them to the specific services you’ll use and the risks you’re trying to reduce.  For affluent retirees, fees may be more defensible when the advisor provides ongoing tax-aware withdrawal planning, Medicare/IRMAA coordination, and accountability—not just portfolio selection. Fees reduce net returns, so clarity on scope matters. Start with the math (because feelings are expensive) Let’s keep this simple and transparent. If an advisor charges an annual percentage of assets (an AUM fee), the cost in dollars is: Annual fee ≈ portfolio value × advisory fee rate Example (illustrative only): $1,500,000 × 1.00% = $15,000/year $1,500,000 × 0.60% = $9,000/year Those are meaningful numbers. They should buy   meaningful retirement work . The 4 main fee models (and what to watch for) 1) AUM (assets under management) Pros: aligned with portfolio size; can include ongoing planning and the advisor has incentive to grow your portfolio because the better you do, the better they do. Cons: fee rises as portfolio rises; may be expensive if advisor services  are investments only. 2) Flat annual fee Pros: predictable; can be tied to complexity Cons: some firms under-serve; scope must be clear. Advisors have less incentive to work as hard as possible to grow your portfolio or wealth. 3) Hourly / project-based planning Pros: great for “second opinions,” retirement readiness, or one-time plans Cons: may not include ongoing monitoring/implementation 4) Subscription/retainer Pros: flexibility; planning-first Cons: quality varies; define deliverables “Worth it” depends on the value you actually use A helpful way to evaluate the decision: If you primarily want investment selection and rebalancing, DIY or low-cost implementation may cover most of your needs. If you want retirement income planning, tax coordination, Medicare premium awareness, estate coordination, and someone to quarterback the plan, an advisor may provide more value. “High-net-worth retirement planning is less about chasing returns and more about controlling taxes,   managing thresholds , and avoiding preventable mistakes. The value is often in coordination—especially when you have multiple account types and complex income sources.” — Scott Hurt, CFP®, CPA The “advisor risk” you should name explicitly Hiring an advisor has downsides too: Fees reduce net performance over time. Some advisors have conflicts of interest (especially if product compensation is involved). You might get generic portfolios or cookie-cutter planning. A poor fit can lead to worse behavior (overtrading, style drift, abandoning a plan). This is why vetting matters as much as the initial decision. How do you vet a financial advisor (and confirm they’re a fiduciary)? The safest way to vet a financial advisor is to verify registration and disclosures, then test for clarity and alignment. Start with Form CRS and Form ADV Part 2A, review services/fees/conflicts, and use the SEC’s resources to find an advisor’s filings via IAPD.  Then interview for the process: retirement income planning, tax coordination, and how decisions are documented—not just “performance talk.” Step-by-step due diligence (a practical checklist) Step 1: Ask for Form CRS (Relationship Summary) Form CRS is designed to help retail investors compare professionals—services, fees, conflicts, standard of conduct, and disciplinary history. Ask: “Can you walk me through your Form CRS and explain your conflicts in plain English?” “What exactly is included in your ongoing relationship, and what isn’t?” Step 2: Read Form ADV Part 2A (the firm brochure) The SEC explains that Form ADV contains information about an adviser’s business operations and disciplinary disclosures, and that investors can view the most recent Form ADV through IAPD. What to look for: Fee schedule and billing practices Types of clients and services Conflicts (e.g., related parties, revenue sharing, affiliated services) Disciplinary disclosures Custody and how assets are held (you generally want a reputable third-party custodian) Step 3: Verify through IAPD Use the Investment Adviser Public Disclosure (IAPD) database to review filings and background. The SEC notes you can view an adviser’s most recent Form ADV via IAPD. Step 4: If there’s a brokerage component, check FINRA BrokerCheck Some professionals are dually registered; you want to know which “hat” they’re wearing when they advise you. Review BrokerCheck here. Step 5: Interview for process (not promises) We believe the best advisor interviews sound like this: “Here’s how we make decisions.” “Here’s how we document and review.” “Here’s how we coordinate tax planning with your CPA.” “Here’s how we handle withdrawals, RMDs, and Medicare premium thresholds.” Be cautious if the interview sounds like: “We have a proprietary strategy.” “We can’t explain it—it’s too complex.” “We’ve never had a bad year.” Anything that feels like a performance pitch without risk context. 12 questions affluent retirees should ask Use these verbatim: Are you a fiduciary at all times when advising me? In what capacity? What services are included—retirement income planning, tax planning coordination, Medicare/IRMAA planning, estate coordination? What are the all-in fees (advisory, fund expenses, trading, custody, planning fees)? How do you decide which account  to draw from first in retirement? How do you handle Required Minimum Distributions (RMDs)? How do you evaluate Roth conversions (and their impact on taxes and Medicare)? How often do you rebalance, and what triggers changes? How do you measure success if it’s not “beating the market”? How do you coordinate with my CPA and estate attorney? Who is my day-to-day contact, and who backs them up? What happens if I become incapacitated—how is the plan executed? Where can I review your disclosures (Form CRS, Form ADV) and disciplinary history? When is DIY a reasonable choice—and what guardrails should you put in place? DIY can be reasonable if you have the time, interest, and discipline to run a documented process—and your situation isn’t overly complex.  The key is to replace “gut feel” with guardrails: a written investment policy, a withdrawal plan, an annual tax calendar, Medicare enrollment awareness, and contingency planning.  Many affluent investors choose DIY investing but still use professional reviews at key life events. DIY is often a good fit if you… enjoy financial management and stay engaged year-round have a relatively simple income picture can follow rules in down markets have a partner or backup who can execute the plan are willing to learn (and keep learning) DIY becomes riskier when… you’re dealing with multiple retirement accounts and withdrawal sequencing you are near (or frequently above) Medicare IRMAA thresholds you have large one-time income years (asset sales, big Roth conversions, etc.) you’re managing concentrated stock risk or illiquid assets your planning depends on “we’ll figure it out later” A retiree’s DIY guardrail checklist (use this annually) 1) Write an Investment Policy Statement (IPS) target allocation ranges rebalancing rules (time-based or threshold-based) what would cause a strategy change what would not  cause a change (headlines, fear, “hot tips”) 2) Create a withdrawal sequencing plan taxable vs IRA vs Roth withdrawal order how you refill cash reserves how you handle big purchases or gifting years 3) Put RMDs and deadlines on a calendar   RMD rules and penalties are not the place to “remember later.” The IRS outlines RMD timing and excise tax consequences for shortfalls. 4) Run a “tax preview” every fall  Before year-end, estimate: taxable income range realized gains whether any Roth conversions are being considered whether charitable giving is planned 5) Create a Medicare decision checklist at 64–66 Medicare enrollment windows and penalties can materially change costs. In addition, consider reviewing   RMD tax strategies  as part of your retirement planning.   Medicare.gov  explains the Part B late enrollment penalty framework. 6) Build a contingency plan who can call the custodian where documents live beneficiary review schedule emergency contacts and professional network (CPA, attorney) typical fees for financial advisors Where a “hybrid” approach shines Many affluent investors don’t need—or want—full-service, ongoing management. They want: a professional to stress-test the plan a tax-aware review of withdrawal strategy confirmation they aren’t missing a threshold, deadline, or disclosure issue a second set of eyes in years with big decisions At Covenant Wealth Advisors, we often see this work well for clients who like managing their portfolios but want a fiduciary planning process around taxes, retirement income, and key decision points. Not Sure If You're Making the Right  Retirement Decisions? Schedule a free Strategy Session  to discuss your situation and get honest answers. What's keeping you up at night  about retirement How we approach tax planning, income, and investments  differently Whether we're the right fit —or if you're better off on your own No pressure. No obligation. Just an honest conversation. Frequently Asked Questions What is a red flag for a financial advisor? A red flag is any advisor who won’t clearly explain fees, conflicts, and services—or who avoids providing key disclosures like Form CRS and Form ADV Part 2A. You should also be cautious of performance promises, pressure to act quickly, or unclear custody arrangements. Use official disclosures and verification tools when available. At what income level do you need a financial advisor? It’s less about a single income number and more about complexity. Many retirees consider professional advice when they have multiple account types, significant taxable income, sizable IRA balances (RMD planning), Medicare premium exposure (IRMAA), estate complexity, or large one-time events like business sales. What is the 80/20 rule for financial advisors? The “80/20 rule” is an informal idea that a large portion of the value may come from a smaller set of activities—often planning, behavior, and coordination—rather than constant trading or “hot picks.”  Use it as a reminder to judge an advisor by process and decision support, not just portfolio performance. What are some disadvantages of using a financial advisor? Common disadvantages include ongoing fees (which reduce net returns), potential conflicts of interest, loss of control, and the risk of hiring someone whose approach doesn’t match your goals.  An advisor relationship can also create “false comfort” if you outsource thinking instead of understanding the plan. Conclusion If your retirement plan is simple and you enjoy managing it, DIY can absolutely be a rational choice—as long as you’re running a real process, not reacting to headlines. If your situation includes multiple accounts, tax-sensitive decisions, Medicare premium thresholds, or you want accountability and coordination, the smarter move is often hybrid or planning-first advice. That gives you control without leaving you exposed to avoidable mistakes. At Covenant Wealth Advisors, our focus is helping affluent retirees make these decisions with clarity—what you can do yourself, what you may want help with, and what should be documented so your plan works even when life gets messy. Would you like our team to just do your retirement planning for you? Contact us today for a complimentary retirement roadmap experience. About the author: Megan Waters, CFP® Financial Advisor Megan Waters is a CERTIFIED FINANCIAL PLANNER™ professional and Financial Advisor at Covenant Wealth Advisors . Megan has over 14 years of experience in the financial services industry. Raised in Williamsburg, VA, Megan graduated from the Honors College at the College of Charleston with a BS in Economics and a minor in Environmental Studies. Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible, no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.