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The answer depends on 5 factors many retirees overlook. We ran the numbers at 3 withdrawal rates — and the gap was 11 years. Richard and Diane* built a $3 million portfolio over 35 years. Smart saving. Disciplined investing. And on the day Richard retired at 65, they felt confident. Three million should be more than enough. Then their financial advisor ran the projections for a hypothetical portfolio earning a flat 5% average return . At $170,000 a year in withdrawals, their money runs out at age 88. At $130,000 a year, it lasts to 99. That's an 11-year difference — determined almost entirely by how much they pull out in the first few years. The question isn't really whether  $3 million is enough. It's whether you'll manage it in a way that makes it last. Key Takeaways $40,000/year in extra withdrawals costs 11 years  of portfolio life — the difference between money lasting to age 89 vs. age 100. The 4% rule ($120K) is a pre-tax number.   After federal taxes, state taxes, and Medicare surcharges, your real spending power drops significantly. Healthcare costs consume 14% of withdrawals at age 65 — and 46% by age 85,  crowding out lifestyle spending even as your withdrawal rises with inflation. Withdrawal sequencing alone can add 2.6–3.0 years  of portfolio life. State taxes can reduce portfolio values by $600,000 to $1 million when taking into account taxes and lost compounding. The Roth conversion window between retirement and age 73 can potentially be the most valuable tax-planning opportunity  most $3M retirees miss entirely. 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 the 4% Rule Actually Means at $3 Million (And Why It's Misleading) The 4% rule says you can withdraw 4% of your portfolio in year one, then adjust for inflation each year, and your money should last 30 years. At $3 million, that's $120,000 starting in year one. But that number is pre-tax. It tells you almost nothing about what you can actually spend. Let's trace what happens to that $120,000 in the real world. Say you're a married couple, both 65, pulling $120,000 from a traditional IRA. You also collect $40,000 in combined Social Security benefits. First, the IRS taxes up to 85% of your Social Security once your combined income crosses $44,000 for couples. At $120,000 in IRA withdrawals, you blow past that threshold — so roughly $34,000 of your Social Security becomes taxable income too. That gives you an Adjusted Gross Income (AGI) — basically, the income number the IRS uses to calculate your taxes — of about $154,000. After the standard deduction ($35,500 for a married couple both 65+, in 2026), your federal tax bill lands somewhere around $12,960. Now here's where it gets worse. Medicare uses a number called MAGI — Modified Adjusted Gross Income — to set your premiums. It's essentially your AGI plus tax-exempt interest. Cross $218,000 as a couple (2026), and you trigger IRMAA surcharges. IRMAA stands for Income-Related Monthly Adjustment Amount — it's a Medicare premium increase that kicks in at specific income levels. At $154,000 in MAGI, you're safely below that line. But add a pension, rental income, or a Roth conversion on top of that $120,000 withdrawal — and you're suddenly in the danger zone. Cross the $218,000 threshold by even $1, and you pay an additional surcharge: roughly $2,300 per year for a couple at the first tier. And here's the kicker: IRMAA uses cliff thresholds, not gradual increases. Go $1 over the line, and you pay the same penalty as someone who went $56,000 over. Meanwhile, Morningstar's latest research puts the safe starting withdrawal rate at 3.9% for a 30-year horizon — not 4% - but close. On $3 million, that's the difference between $120,000 and $117,000 before you even factor in taxes. The bottom line: Your real spending power from a $120,000 withdrawal is closer to $107,040 after federal taxes and $101,613 when you include a 5.75% state tax (assume Virginia). In high-tax states like California or New York, it drops further. The 4% rule gives you a napkin number. It's not a retirement plan. Learn more about   why the 4% rule falls short for retirees with complex tax situations  and what to use instead. Three Scenarios: How Withdrawal Rates Change Everything We ran three scenarios through our retirement projection calculator using identical assumptions except for the annual withdrawal amount. Here are the variables that remain the same across all three case studies. Starting portfolio:  $3,000,000 Retirement age:  65 (already retired, no additional contributions) Portfolio return in retirement :  5% annually (after fees) Inflation adjustment:  2.5% annually on withdrawals Effective tax rate on withdrawals:  25% Percent of portfolio withdrawal that is taxable:  100% The only variable we changed in each case study was the initial annual withdrawal: $130,000, $150,000, and $170,000. [Disclosure: The following projections are hypothetical illustrations based on the assumptions listed above. They do not represent the experience of actual clients. Hypothetical results have inherent limitations, including that they are prepared with the benefit of hindsight, assume a constant rate of return (which does not occur in real markets), and do not reflect actual trading or the performance of any specific client portfolio. Actual results will vary based on market performance, tax situation, fees, and individual circumstances.] Scenario 1: $130,000/Year — The Conservative Path Milestone Age Portfolio Value Annual Withdrawal After-Tax Income Year 1 65 $3,000,000 $130,000 $97,500 Year 10 74 $3,041,844.89 $162,352.19 $121,764.14 Year 20 84 $2,633,011.53 $207,824.52 $155,868.39 Year 30 94 $1,316,755.47 $266,032.96 $199,524.72 Year 34 98 $382,245.79 $293,650.61 $220,237.96 Result: Portfolio lasts to age 99 — a full 35 years of retirement. At a 4.3% initial withdrawal rate, the portfolio actually grows slightly in the first decade. That's because the 5% return outpaces the inflation-adjusted withdrawals early on. But, after age 77 — the portfolio begins declining faster as inflation-adjusted withdrawals cross the $174,000 mark while the shrinking portfolio's return isn't enough to sustain the withdrawals. The trade-off? Your after-tax income starts at $97,500. For a couple accustomed to a higher lifestyle, that might feel tight — especially in the first decade when they're most active. Scenario 2: $150,000/Year — The Middle Ground Milestone Age Portfolio Value Annual Withdrawal After-Tax Income Year 1 65 $3,000,000 $150,000 $112,500 Year 10 74 $2,793,823.38 $187,329.45 $140,497.08 Year 20 84 $1,871,805.53 $239,797.53 $179,848.15 Year 25 89 $964,599.77 $271,308.89 $203,481.67 Year 28 92 $218,582.70 $292,170.00 $219,127.50 Result: Portfolio lasts to age 92 — 28 years of retirement. This is the scenario many retirees may gravitate toward depending upon their lifestyle. A 5.0% initial withdrawal rate gives you $112,500 in after-tax income — roughly $15,000 more per year than the conservative path. But that extra spending costs you 7 years of portfolio life. The critical inflection point comes around age 84. That's when the portfolio drops below $2 million and the math starts working against you. Inflation-adjusted withdrawals nearly reach $240,000, but the portfolio is generating only about $93,600 in returns. From there, depletion accelerates. Scenario 3: $170,000/Year — The Aggressive Path Milestone Age Portfolio Value Annual Withdrawal After-Tax Income Year 1 65 $3,000,000 $170,000 $127,500 Year 10 74 $2,545,801.88 $212,306.70 $159,230.03 Year 20 84 $1,110,599.52 $271,770.53 $203,827.90 Year 24 88 $105,387.15 $299,983.82 $224,987.86 Result: Portfolio lasts to age 88 — just 24 years of retirement. At a 5.67% initial withdrawal rate, you get the highest starting income: $127,500 after taxes. But the portfolio never grows. It begins shrinking immediately and loses nearly half its value by age 82. By age 84, you have just $1.11 million left — and your inflation-adjusted withdrawals are demanding over $270,000 per year. If you retire at 65, this scenario means your money runs out before your 90th birthday. Given that a 65-year-old couple today has roughly a 50% chance that one spouse will live past 90, this is a coin flip on running out of money. The Numbers That Matter Same $3 million. Three different outcomes. Scenario Initial Withdrawal Initial Withdrawal Rate Portfolio Lasts To Years of Retirement Conservative $130,000/yr 4.33% Age 98 35 years Moderate $150,000/yr 5.0% Age 92 28 years Aggressive $170,000/yr 5.67% Age 88 24 years The cost of that extra $40,000/year in withdrawals? Eleven fewer years of retirement income. These projections assume a steady 5% annual return. In reality, markets don't deliver steady returns  — a 20% market drop in your first year of retirement does far more damage than the same drop in year 15. That's sequence of returns risk — and it can shave years off even the conservative scenario. Why "Just Living Off Dividends" Doesn't Work at $3 Million You might be wondering: Can I just live off the dividends? This is one of the most popular strategies discussed on financial forums — and one of the most dangerous at the $3 million level. Unfortunately, the math doesn't add up. The S&P 500 Index dividend yield sits at roughly 1.15% as of February 13, 2026. The current yield to maturity on the S&P U.S. Aggregate Bond Index is 4.27% as of February 13, 2026. That means a standard 60/40 portfolio yields approximately 2.40%. On $3 million, that generates about $72,000 per year before taxes. To reach $130,000 or more in dividend income, you'd need to concentrate in high-yield investments — introducing sector risk and potential for dividend cuts. During the 2020 COVID crash, 306 U.S. companies cut or suspended dividends . And here's the tax problem: dividends are taxable whether you reinvest them or not. Qualified dividends at high income levels face 15% plus the 3.8% NIIT — an effective 18.8% rate. You lose the ability to choose when  to realize income, which is critical for managing IRMAA thresholds and tax brackets. A total-return approach — dividends plus systematic share sales — gives you better tax control, better diversification, and historically better outcomes. The flexibility to choose when and how much income to realize is one of the most valuable planning tools available to $3 million retirees. The Factor That Can Add Years to Your Portfolio: Withdrawal Sequencing The three scenarios above assume you're pulling from a single pool of money. In reality, most $3 million retirees have money spread across three types of accounts: taxable brokerage accounts, traditional IRAs or 401(k)s, and Roth IRAs. The order you draw from these accounts matters enormously. The conventional wisdom — draw from taxable accounts first, then traditional, then Roth last — sounds logical. Let tax-deferred accounts compound longer. Preserve the Roth for last. It's actually suboptimal for most $3 million portfolios. As financial planner Michael Kitces has shown , this approach can be too good at deferral. Your traditional IRA grows so large that Required Minimum Distributions (RMDs) — the annual withdrawals the IRS forces you to take starting at age 73 — push you into much higher tax brackets than necessary. Research from William Reichenstein at the TIAA Institute  found that optimized withdrawal sequencing added 2.6 years of portfolio life for a $2 million portfolio — and even more for larger ones. Separate research published in the Financial Analysts Journal  found that tax-efficient strategies could extend portfolio longevity by more than three years in many cases. That's meaningful extra runway — achieved through smarter tax planning, not higher-risk investments. The trade-off: it requires careful coordination across accounts and tax brackets each year, and getting the sequencing wrong can trigger unexpected tax bills. The strategies that outperform the conventional approach include Roth conversions during the low-income years between retirement and age 73, tax bracket filling across multiple account types, and capital gains harvesting at the 0% rate while taxable income remains below $98,900 for married couples filing jointly ( 2026, per IRS Revenue Procedure 2025-32 ). A January 2026 Journal of Accountancy  study  found that a laddered Roth conversion strategy produced $124,144 in lifetime tax savings and a $655,791 difference in portfolio value by age 100 — boosting portfolio returns by 0.6% over the life of the plan. The Myth: "I Should Go Ultra-Conservative to Protect What I've Built" Many $3 million retirees shift entirely into bonds, CDs, and money market funds the moment they retire. It feels safe. It's actually one of the most dangerous moves you can make. Here's why: the 4% rule itself was built on a portfolio with 50% stocks. An all-bond portfolio actually has lower  survival rates over 30 years than a balanced portfolio. At 3% inflation, a $3 million all-bond portfolio yielding 4–5% barely keeps pace in real terms. After taxes on bond interest — which is taxed at ordinary income rates up to 37% plus 3.8% NIIT, totaling 40.8% for high-income earners — real returns may be negative. The opportunity cost is massive. If a balanced allocation earns 7% versus 4% from bonds over 25 years, the compounding difference on $3 million reaches into the millions of dollars in foregone growth. And bond interest generates fully taxable income at the highest rates, while long-term capital gains on equities qualify for the lower 15–20% rate. Research shows that dynamic withdrawal strategies allow starting rates of 5.0% or higher with moderate flexibility — but these require equity allocation to function. The better approach could be to maintain 40–60% in equities even in retirement, with 3–5 years of spending in cash and bonds as a buffer. Think of it as a bucket strategy — roughly $240,000 in cash for near-term needs, $480,000 in bonds for medium-term stability, and $2.28 million in diversified equities as the growth engine. This lets you weather 5 or more years of market downturns without forced selling while keeping the growth you need to outpace inflation and healthcare costs. The trade-off is real: you'll see more portfolio volatility month-to-month. But the data consistently shows that accepting short-term fluctuation extends long-term portfolio life. How Healthcare Costs Silently Eat Your $3 Million Healthcare is the expense most retirement calculators underestimate — and the one that escalates fastest. Fidelity's 2025 Retiree Health Care Cost Estimate  projects that a 65-year-old couple needs $345,000 in after-tax savings for healthcare throughout retirement. That's 11.5% of a $3 million portfolio dedicated to a single expense category — and it excludes long-term care, dental, and vision. The picture gets worse with more comprehensive estimates. The HealthView Services 2026 Retirement Healthcare Costs Data Report  projects total lifetime healthcare costs for a healthy 65-year-old couple — including Parts B, D, Medigap Plan G, dental premiums, and all out-of-pocket expenses — at $661,812 in today's dollars, or $955,411 in future value. Here's what makes healthcare uniquely dangerous for portfolio longevity: it inflates far faster than everything else. HealthView Services projects long-term retirement healthcare inflation at 5.8% — more than double the projected 2.4% growth in Social Security cost-of-living adjustments. Medicare Part B premiums alone jumped 9.7% from 2025 to 2026  ($185 to $202.90 per month), according to CMS. What this means for your $3 million portfolio at a 4% withdrawal ($120,000/year), based on HealthView Services' projections for a couple with traditional Medicare, Medigap Plan G, and dental coverage: Your Age Annual Healthcare Cost (Couple) % of Your Withdrawal 65 (Year 1) ~$17,000 14.2% 75 ~$30,000 25.0% 85 ~$55,500 46.3% By age 85, healthcare consumes roughly half of a 4% withdrawal — crowding out lifestyle spending dramatically. Your "lifestyle withdrawal rate" — the money actually available for housing, travel, food, and enjoyment — drops from 4.0% to roughly 3.4% in the first year and declines further every year after. And then there's long-term care. Seven out of ten people reaching age 65 will need some form of long-term care , according to the U.S. Department of Health and Human Services. A private-room nursing home costs $127,750 per year ( Genworth/CareScout 2024 Cost of Care Survey ). A three-year stay costs approximately $383,250 — consuming 12.8% of the entire $3 million portfolio in a single event. Healthcare costs as a percentage of $120,000 portfolio withdraw by age. Read more about   planning for healthcare costs in retirement  and   why it requires a dedicated strategy . Where You Live Can Cost You $600K–$1 Million in Retirement State taxes are one of the most underestimated drags on portfolio longevity. Every dollar withdrawn for state taxes is a dollar that can't compound — and at a 6% return, $10,000 withdrawn today represents approximately $57,000 in lost value over 30 years. Here's what a single filer withdrawing $150,000 annually faces in different states (2025 tax year, with standard deductions applied): State Annual State Tax 30-Year Total Impact (Tax + Lost Compounding) FL, TX, NV, PA, IL $0 $0 Virginia ~$7,860 ~$620K California ~$9,960 ~$790K NY + NYC ~$13,330 ~$1.05M Virginia's tax is calculated using the state's four-bracket structure (2%–5.75%) with the 2025 standard deduction of $8,750. California's figure reflects the state's nine-bracket system (1%–12.3%)  with the 2025 standard deduction of $5,706. The New York figure combines state income tax (4%–6% at this income level)  plus New York City tax (3.078%–3.876%) , with the $8,000 standard deduction. Important note on New York:  Retirees age 59½ and older can exclude up to $20,000 of qualified retirement account income  (IRA, 401(k), private pension) from New York State and NYC taxable income. If your $150,000 comes entirely from retirement accounts, the NY + NYC tax drops to approximately $11,900 — and the 30-year impact falls to roughly $940K. The figures above assume a mix of income sources where the full $20,000 exclusion may not apply. Pennsylvania is the stealth winner for retirees. While it has a 3.07% flat income tax, PA fully exempts IRA distributions after age 59½, 401(k) distributions after retirement, pension income, and Social Security  — making it functionally equivalent to Florida or Texas for retirement income. Illinois offers similar full exemptions  on all retirement income, including Social Security, pensions, IRA distributions, and 401(k) withdrawals, despite its 4.95% flat income tax on other income. Mississippi also fully exempts all retirement income  from state taxation. Put it in monthly terms: a New York City retiree withdrawing $150,000 takes home roughly $136,700 after state and city taxes. A Florida retiree keeps the full $150,000 for federal taxes and spending. That's over $1,100 per month less for housing, healthcare, and life — every single year for 30 years. State taxes don't make or break a retirement on their own. But combined with federal taxes, healthcare inflation, and the compounding effect of every dollar withdrawn early, they're part of an erosion that turns a comfortable $3 million into a tight $3 million faster than most people expect. How Long Will $3 Million Last? Check These Numbers Before you talk to any advisor, check   these numbers  yourself. You can find most of them on your tax return and account statements. If you are a client, we do this for you. 1. Your actual withdrawal rate.  Take your total annual withdrawals from all retirement accounts and divide by your current portfolio value. If it's above 5%, you're on the aggressive path. Above 5.5%, and you're in the danger zone for a 30-year retirement. 2. Your Modified Adjusted Gross Income (MAGI).  Find this on line 11 of your most recent Form 1040. If you're a couple and this number is approaching $218,000, you're near the first IRMAA cliff. Every dollar over that threshold costs you $2,297 per year in Medicare surcharges. 3. Your account mix.  What percentage of your $3 million is in traditional (tax-deferred) accounts versus Roth (tax-free) versus taxable brokerage? If more than 70% sits in traditional IRAs or 401(k)s, you may be setting up a massive RMD problem at age 73. You could also have a massive RMD problem if your IRA balances are over $1 million. 4. Your state tax rate on retirement income.  Look up   whether your state exempts retirement income  (PA, IL, MS, IA do). If you're in a high-tax state, calculate what you're paying annually — and what that costs over 30 years of compounding. 5. Your healthcare cost assumption.  Are you budgeting $345,000 or more for a couple's lifetime healthcare costs? If your retirement plan doesn't explicitly model healthcare inflation at 5%+ annually, it's underestimating one of your largest expenses. If even two of these numbers surprise you, it's worth a deeper conversation about your withdrawal strategy. The Covenant Wealth Advisors Approach The three scenarios above assume a steady 5% return and a fixed tax rate. Real life is messier — and that's where integrated planning creates the most value. At Covenant Wealth Advisors, we don't just pick a withdrawal rate and hope. We model the interactions between withdrawal sequencing, tax bracket management, IRMAA threshold planning, Roth conversion timing, healthcare cost projections, and state tax implications — because these factors compound against each other in ways that simple calculators can't capture. If you are interested in working with us, you may request a free strategy session here. Academic research suggests that this kind of integrated, tax-aware approach can extend portfolio life by 2.6–3.0 years. On a $3 million portfolio over 30 years, that compounding advantage can translate into hundreds of thousands of dollars in preserved wealth. Results vary significantly based on individual tax situations, account types, market conditions, and other factors — not every retiree will see the same benefit. That's the difference between running out of money in your 80s and having a portfolio that supports you — and potentially your heirs — well into your 90s. The catch: this level of planning requires ongoing monitoring and adjustment. Tax laws change. Markets fluctuate. Healthcare costs rise. A plan built once and left alone will underperform a plan that adapts. That's the trade-off — and it's one that's worth making. 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 Long Will $3 Million Last in Retirement at a 4% Withdrawal Rate? At a 4% withdrawal rate ($120,000/year), $3 million lasts approximately 30 years before taxes and inflation adjustments — the original timeframe the 4% rule  was designed for. However, after accounting for federal taxes (roughly $18,000–$22,000 depending on filing status and Social Security income), potential IRMAA Medicare surcharges  ($2,300+/year for couples above $218,000 MAGI in 2026), and inflation-adjusted withdrawals that grow each year, the effective portfolio life may be shorter. Our projections using a 5% return and 2.5% inflation show a $130,000 initial withdrawal (4.3% rate) lasting to approximately age 99. But, that's a simple straight line method and we also reccommend more rigourous testing via Monte-Carlo stress testing. Is $3 Million Enough to Retire at 65? For many retirees, yes — but it requires active management, not a set-it-and-forget-it approach. At $3 million, your withdrawal rate, tax strategy, account mix, state of residence, and healthcare planning all significantly impact how long the money lasts. A 65-year-old couple today has roughly a 50% chance that one spouse will live past 90 , meaning you may need 25–35 years of retirement income. The difference between an unmanaged and an optimized $3 million portfolio can be measured in years of additional retirement security and hundreds of thousands in preserved wealth. What is a Safe Withdrawal Rate for a $3 Million Portfolio? Morningstar's December 2025 research  puts the safe starting withdrawal rate at 3.9% for a 30-year retirement with 90% confidence. On $3 million, that's $117,000/year before taxes. However, "safe" depends heavily on your specific situation. Dynamic withdrawal strategies that adjust spending based on portfolio performance — like the "guardrails" approach Morningstar tested  — allow starting rates of 5.2% or higher with moderate flexibility. But they require maintaining equity allocation and accepting some variability in annual income. Learn more about safe withdrawal rates in retirement. How Does Sequence of Returns Risk Affect a $3 Million Portfolio? Sequence of returns risk means the order your investment returns come in matters more than the long-term average. A 20% market drop in Year 1 of retirement does far more damage than the same drop in Year 15 — because you're selling shares at depressed prices to fund withdrawals, permanently reducing the portfolio's recovery potential. WealthTrace modeling shows that a retirement portfolio with a base-case 85% success probability can drop to just 36% success when a 2001-style bear market hits within the first two years. The good news? Diversifying across multiple asset classes — growth stocks, value stocks, international developed, emerging markets, and bonds — brought the bear market scenario back up to 77% success. This is why building resilience against sequence of returns risk is critical — whether through diversification, maintaining a cash buffer covering several years of spending, or both. Should I Do Roth Conversions with a $3 Million Portfolio? For most $3 million retirees with the majority of assets in traditional IRAs, Roth conversions during the years between retirement and age 73 (when RMDs begin under SECURE 2.0 ) represent one of the most valuable tax-planning opportunities available. You're converting at potentially lower tax rates — filling the 10%, 12%, and 22% brackets ( now permanent under OBBBA ) — to avoid future RMDs that could push you into the 24–32% brackets and trigger IRMAA surcharges. A January 2026 Journal of Accountancy  study  found that laddered Roth conversions produced $124,144 in lifetime tax savings and a $655,791 difference in portfolio value by age 100. The trade-off: you pay the tax bill now, and if you need that cash within five years, it can reduce your financial flexibility. Learn more about how Roth conversions work. How Do State Taxes Affect How Long $3 Million Lasts? Significantly. A single filer withdrawing $150,000/year in New York City pays approximately $13,300 in state and city taxes annually — totaling roughly $1.05 million in cumulative portfolio impact over 30 years when you factor in lost compounding at a 6% return. (Note: New York retirees age 59½+ can exclude up to $20,000  of qualified retirement income, which could reduce this figure further.) That's the equivalent of $600,000–$1 million in lost wealth compared to a retiree in a zero-income-tax state like Florida, Texas, or Nevada. Pennsylvania  and Illinois  are hidden gems — both fully exempt retirement income from state taxation, making them functionally equivalent to no-income-tax states for retirees. Ready to get your retirement portfolio on track? 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:  * The scenario regarding "Richard and Diane" is a hypothetical illustration used to demonstrate planning concepts. It does not represent the experience of actual clients. Hypothetical results have inherent limitations, including that they are prepared with the benefit of hindsight and do not reflect actual trading or the performance of any specific client portfolio. 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 the S&P 500 dropped 20% tomorrow morning, exactly how many months could you pay your mortgage without selling a single share of stock? Most retirement advice assumes you have time to wait for the market to recover. But if you are retired or within five years of retiring, you don’t have the luxury of time—you have bills to pay today. The standard advice to “buy and hold” works perfectly for a 40-year-old executive accumulating wealth. It can be mathematically challenging for a 62-year-old tapping that wealth for income. This is the difference between an asset problem and a cash flow problem. Key Takeaways The “Fragile Decade” is critical: A market crash occurring 5 years before or after retirement is not a loss of value—it is a loss of time that can permanently reduce your sustainable income. Stop “Reverse Dollar Cost Averaging”: Selling stocks during a downturn to pay bills cannibalizes your portfolio. You need a “Cash Bridge” of 18–24 months of living expenses to [help] ride out volatility without selling shares. Rebalance into the drop: A crash may shift your allocation away from target. Selling bonds to buy discounted equities restores your plan—this is discipline, not market timing. Diversify while the tax cost is low: A downturn compresses embedded capital gains on concentrated positions, potentially reducing the tax hit of diversifying. Harvest losses strategically: Tax-loss harvesting during a crash can generate capital losses that offset future gains, but be aware of wash sale rules and cost basis implications. State taxes punish panic: Some states tax capital gains as ordinary income (up to 5.75% in Virginia and 13.3% in California) and cap loss deductions at $3,000. Bonds targeting the “Agg” are not a perfect shield: As 2022 proved, bonds can fall alongside stocks. Your safety net should be built on true liquidity (cash, money markets, short-term and high-quality bonds), not just total bond market funds. 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. Introduction When the market crashes, the question isn’t “how much did I lose?” The right question is: “Do I have to sell anything to live?” If the answer is no, the crash may be irrelevant to your standard of living. If the answer is yes, you are walking into a trap called Sequence of Returns Risk —the danger that early losses in retirement, combined with ongoing withdrawals, permanently impair a portfolio’s ability to recover. (For a deeper look, see our guide on how sequence of return risk impacts your retirement .) At Covenant Wealth Advisors, we believe that managing a crashing market requires more than generic platitudes about patience. It requires cash flow planning. Why Is a Stock Market Crash Different for Retirees? For retirees, a market crash is generally not a loss of paper value—it is a permanent destruction of future income potential. Selling assets in a down market to fund living expenses is “Reverse Dollar Cost Averaging,” forcing you to sell more shares to generate the same cash, depleting your portfolio faster than it can recover. In your working years, a market crash is essentially a sale. You are buying shares cheap with your 401(k) contributions. This is Dollar Cost Averaging working in your favor. In retirement, the math flips. In a hypothetical scenario where your portfolio drops 20% and you need $10,000 a month to live, you are forced to sell more shares at a lower price to get that cash. You are cannibalizing the very engine that produces your future income. We call the period five years before and after retirement the “Fragile Decade.” A crash during this window is uniquely dangerous because the portfolio has no time to recover before you start withdrawing from it. The Math of Recovery Consider the math of loss. It is asymmetrical. If you lose 50% of your money, you don’t need a 50% gain to get back even—you need a 100% gain. Lose 10% → Need 11% gain to recover. Lose 20% → Need 25% gain to recover. Lose 50% → Need 100% gain to recover. If you are taking withdrawals during that drop, the hole gets deeper. You might need a 150% or 200% market rally just to get back to where you started. History shows us that “average” returns matter less; the sequence of those returns determines whether you run out of money at age 75 or age 95. Hypothetical examples are for illustrative purposes only and do not represent actual client experiences. What Is the Best Thing to Do When the Stock Market Crashes? A critical first line of defense is a “Cash Bridge”: maintaining 18–24 months of living expenses in highly liquid, stable assets like money markets or short-term Treasuries. This creates a buffer that helps allow you to stop selling stocks completely during a crash and live off your reserves until the market recovers. However, it is important to note that maintaining large cash reserves may result in “cash drag,” potentially lowering overall portfolio returns during bull markets. At Covenant Wealth Advisors, we do not believe in “timing the market.” We believe in cash flow planning and focusing on what you can control. (For more on why, see our analysis of whether market timing works .)  We often use a metaphor with our clients: Selling stocks in a crash to pay your electric bill is like burning your antique furniture to heat your house. It solves the immediate problem (the cold), but you have permanently destroyed a valuable asset to satisfy a temporary need. The “Cash Bridge” (or War Chest) is the pile of firewood out back. You use that instead.  If you are wondering how much cash retirees should have on hand , we have written about that separately. How the Cash Bridge Works in Practice Let’s look at a hypothetical scenario for educational purposes for a couple in Reston VA, the Carters (age 64).  Portfolio: $3 Million Income Need: $10,000/month ($120k/year) from the portfolio. The Crash: The market drops 20%. The Panic Move: The Carters continue selling stocks to get their $10,000 monthly check. Because prices are down, they have to sell 25% more shares every month just to pay the bills. When the market eventually recovers two years later, their portfolio is permanently smaller because they own fewer shares. The Covenant Move: The Carters have a “War Chest” of $240,000 (2 years of expenses) in short-term, high-quality bonds or cash. When the market drops, we advise them to turn off the equity tap. They stop selling stocks entirely. For the next 18 months, they live solely out of the War Chest. They have a small likelihood of selling shares at a loss. They simply wait. Should the market recover, historically taking 2.5 years on average , their share count is intact, and they participate fully in the rebound. Once the recovery is confirmed, we refill the War Chest for the next cycle. “The goal isn’t to predict the crash. The goal is to make the crash irrelevant to your standard of living. If you have two years of cash, you can ignore the S&P 500 for two years. That is true financial freedom.” — Megan Waters, CFP® But the Cash Bridge is not the only tool available during a downturn. A crash also creates specific opportunities to strengthen your portfolio’s tax efficiency and long-term positioning—if you act with discipline rather than emotion. Rebalance Into the Drop Your Cash Bridge buys you time. But a crash also creates an opportunity to improve your portfolio’s long-term positioning through rebalancing —the disciplined process of selling what has held up (typically bonds or cash equivalents) to buy what has fallen (typically equities), restoring your portfolio to its target allocation. Here is why this matters mechanically. Suppose your target allocation is 60% stocks and 40% bonds. After a 25% equity decline, your portfolio might drift to roughly 50% stocks and 50% bonds. Without action, you are now more conservatively positioned than your plan calls for—right at the moment when equity prices are lowest and future expected returns are highest. Rebalancing is not market timing. It is the opposite. You are not making a prediction about what stocks will do next quarter. You are enforcing a rule you set in advance: maintain the allocation that matches your income plan and risk capacity. (For more on the mechanics, see our guide on how often you should rebalance your portfolio .) That said, rebalancing requires judgment, not just math. If your bonds are also down (as they were in 2022), selling them to buy stocks may not be appropriate. And rebalancing too aggressively—shifting well beyond your target into equities—crosses the line from discipline into speculation. The goal is restoration to plan, not a leveraged bet on recovery. [A financial advisor can help determine whether rebalancing is appropriate given your specific situation and risk tolerance.] Diversify While the Tax Cost Is Low A market decline can also be a strategic window to diversify concentrated positions  at a reduced tax cost. If you have been holding a large position in a single stock or sector—perhaps company stock from your career, or a legacy holding you have been reluctant to sell—a downturn compresses the embedded capital gain, which means less tax when you sell. Consider a hypothetical example. You hold $500,000 in a single stock with a $200,000 cost basis. In a normal market, selling triggers a $300,000 capital gain. But after a 30% decline, that same position is worth roughly $350,000—and selling now generates only a $150,000 gain. You have cut your taxable event in half while moving into a more diversified allocation that may better serve your long-term income needs. [This is a hypothetical example for educational purposes only. Actual tax consequences depend on individual circumstances, holding periods, and applicable tax rates.] The math works in reverse too: if the position has fallen below your cost basis, you can sell, harvest the loss (more on that below), and redeploy into a diversified portfolio —effectively getting paid by the tax code to reduce concentration risk. This strategy requires careful coordination between investment management and tax planning. Wash sale rules, state tax treatment, and the interaction with other income sources all matter. But for clients sitting on concentrated positions, a market drop can turn a tax problem into a tax opportunity. [Tax laws are subject to change, and individual circumstances vary. Consult a qualified tax professional before implementing any tax strategy.] Harvest Losses to Offset Future Gains Tax-loss harvesting  is the practice of selling investments that have declined below their purchase price to realize a capital loss, which can then be used to offset capital gains elsewhere in your portfolio—or up to $3,000 per year against ordinary income under IRC § 1211. (For a comprehensive overview, see our guide on how tax-loss harvesting works .) During a crash, the harvesting opportunities multiply. You might sell a broad market index fund at a loss, immediately purchase a similar (but not “substantially identical”) fund to maintain your market exposure, and bank that realized loss for future use. Your portfolio stays invested. Your allocation barely changes. But you now hold a tax asset that can offset gains for years—or decades—to come. The key constraint is the wash sale rule  (IRC § 1091), which disallows a loss deduction if you repurchase a “substantially identical” security within 30 days before or after the sale. This means you cannot sell the S&P 500 index fund at a loss and buy it right back. But you can sell one large-cap index fund and buy a different one that tracks a similar but distinct index—maintaining your equity exposure while staying on the right side of the rule. For retirees already drawing income, harvested losses are particularly valuable. They can offset the capital gains generated by portfolio withdrawals, rebalancing trades, or the sale of concentrated positions—reducing your tax bill in years when you are already managing income carefully. Harvested losses can also help manage adjusted gross income, which in turn affects Medicare IRMAA surcharges  and the taxation of Social Security benefits . One important caveat: tax-loss harvesting reduces your cost basis in the replacement investment, which means you are deferring the tax—not eliminating it. The strategy is most valuable when you expect to be in a lower tax bracket in future years, or when you can use losses to offset specific high-gain events. It is a planning tool, not a free lunch. [Tax-loss harvesting involves risks including the potential for increased tax liability in future years. Consult a qualified tax professional.] The “Recovery Gap”: Why The Total Bond Market Is No Longer the Perfect Shield For decades, the standard advice was to hold a portfolio that represented the U.S. Aggregate Bond Index to cushion the blow of stock market crashes. But the 2022 inflation shock proved that bonds don’t always work when you need them most. Historically, a “60/40 portfolio” (60% stocks, 40% bonds) recovered much faster than an all-stock portfolio. But 2022 changed the calculus. When inflation spiked and interest rates rose, both stocks and bonds fell together. The “safe” portion of many portfolios failed to provide the liquidity retirees needed. Table: The Shrinking Safety Net This table shows how long it took for portfolios to break even after major market crises. Note how the gap between risky and safe portfolios disappeared in 2022. Crisis S&P 500 Drawdown Breakeven (100% Equity) Breakeven (60/40) What Happened? Dot-Com (2000) -49% ~7.5 Years ~2.5 Years Bonds worked perfectly. The “safe” portfolio recovered 5 years faster. Great Recession (2008) -57% ~5.5 Years ~3.5 Years Bonds worked well. Diversification saved retirees 2 years of stress. Inflation Shock (2022) -25% ~24 Months ~21-24 Months Bonds FAILED. The “safe” portfolio took just as long to recover as stocks. Source: Morningstar Direct / Vanguard Historical Data / Wealth of Common Sense. Past performance is not indicative of future results. Indices are unmanaged and cannot be invested in directly. Note on Indices: For the purposes of this comparison, “100% Equity” is represented by the S&P 500 Index. The “60/40 Portfolio” is a hypothetical allocation consisting of 60% S&P 500 Index and 40% Bloomberg U.S. Aggregate Bond Index, rebalanced annually. See footer for full index definitions. Key Takeaway: In the recent 2022 crisis, bonds did not provide the quick recovery they offered in 2008. This reinforces the need for a dedicated Cash Bridge composed of instruments that are not correlated to interest rate spikes—like Short-Term T-Bills or Money Markets—rather than just intermediate bond funds. The “Triple Threat” to Your Retirement Portfolio Panic-selling during a crash isn’t just an investment mistake; for many residents, it is a tax disaster. Some state tax laws are particularly unforgiving when it comes to realized losses. If you get scared when the market drops and move to cash, you trigger three distinct financial penalties that can haunt you for decades. 1. The Income Tax Trap Several states, like Virginia, treat capital gains as ordinary income. Unlike the federal government, which offers favorable rates for long-term capital gains (0%, 15%, or 20%), Virginia taxes your gains at your marginal income tax rate, up to 5.75% There is no state-level reward for holding assets longer than a year. Panic selling appreciated assets to move to cash triggers a taxable event that the state treats the same as wage income. (For strategies specific to Virginia residents, see our guide on how to reduce Virginia income tax .) 2. The 34-Year Deduction Penalty This is the most painful trap for retirees. If you panic-sell a $3 million portfolio during a 10% correction and lock in a $100,000 loss, you might think, “At least I can write this off against my taxes.” Not really. Federal tax law (IRC § 1211) limits your net capital loss deduction to just $3,000 per year against ordinary income. The Math: To fully deduct a $100,000 loss at $3,000 per year, it would take you 34 years. The Reality: Most retirees do not have 34 years to wait for a tax benefit. You have permanently destroyed capital for a deduction you may never fully use. While you can use losses to offset future realized gains, you won’t receive an immediate deduction. 3. The Prudent Investor Risk If you are a trustee managing money for a spouse or family trust, panic selling can actually create legal liability. Under the Virginia Uniform Prudent Investor Act (§ 64.2-781), a trustee has a duty to manage risk and act prudently. Selling low and locking in losses out of fear could be considered a breach of that duty. A beneficiary could theoretically sue a trustee for failing to manage inflation risk by moving entirely to cash at the bottom of a cycle. A defined strategy like the War Chest helps demonstrate prudence. “A lot of clients come to us having done some version of planning on their own. The numbers look fine—until you factor in the tax torpedo that hits when you panic-sell, or the fact that Virginia only allows a $3,000 capital loss deduction. The details matter enormously at this level of wealth.” — Scott Hurt, CFP®, CPA What Not to Do During a Stock Market Crash? Do not stop contributions to retirement accounts, do not check your balances daily, and do not attempt to “time the bottom.” Missing the best 10 days of the market recovery can cut your long-term returns by nearly half.  1. Do Not Stop Investing (if you are still working) If you are in the “Fragile Decade” but still earning an income, a market crash can be an opportunity. It is a “fire sale” on the assets that will fund your future. Stopping 401(k) contributions during a downturn is one of the most costly mistakes a pre-retiree can make. You are walking away from cheaper shares that would lower your average cost basis. 2. Do Not Check Your Balance Daily This sounds like behavioral fluff, but it is a biological fact. Research suggests that the pain of financial loss is processed in the same part of the brain as physical pain. Checking your balance daily can trigger stress responses that impair decision-making and lead to impulsive actions—like selling at the bottom. 3. Do Not Try to “Time the Bottom” The stock market usually recovers before the economy does. By the time the news looks “good” again (unemployment down, GDP up), the market has usually already rallied. If you wait for the “all clear” signal, you have already missed the recovery. 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 Best Thing to Do When the Stock Market Crashes? The most effective immediate action is usually nothing regarding your core equity holdings, provided you have a liquidity plan. Do not sell. Do not check your balance daily. If you have a “War Chest” (cash reserve) in place, switch your spending to that cash source so you don’t have to sell equities at a loss. If you have extra cash on the sidelines, a crash may be a strategic opportunity to rebalance by buying depressed assets at a discount. Should I Rebalance My Portfolio During a Crash? Rebalancing during a downturn—selling bonds or cash to buy equities back to your target allocation—can be a disciplined move, not a speculative one. However, it depends on whether your fixed-income holdings have also declined, how close you are to needing withdrawals, and whether your overall financial plan supports the shift. Rebalancing works when it restores a predetermined allocation, not when it chases a bottom. What Is Tax-Loss Harvesting and Does It Help During a Downturn? Tax-loss harvesting involves selling investments at a loss to offset capital gains or up to $3,000 per year in ordinary income. During a crash, more positions are likely to be underwater, creating more harvesting opportunities. The key constraint is the wash sale rule, which prevents you from repurchasing a “substantially identical” security within 30 days. This is a tax deferral strategy, not tax elimination—your cost basis in the replacement investment will be lower. What Is the 3-5-7 Rule in Stocks? The “3-5-7 rule” is a risk management guideline used primarily by day traders, suggesting one should risk no more than 3% of capital on a single trade, 5% on open positions, and target a 7% cap on total portfolio risk. We strongly advise retirees to ignore this. Retirement planning is about long-term planning, not short-term trading rules. Trying to “trade” a $2 million retirement portfolio using day-trading rules is a recipe for disaster. Where Should I Put My Money if the Stock Market Crashes? If the crash has already started, it is generally too late to “put” your money elsewhere without locking in losses. However, your “safe” money (your War Chest) should already be in Short-Term U.S. Treasuries or Money Market Funds. These assets typically hold their value or even rise slightly during equity flight-to-safety, providing the liquidity you need to pay bills. How Long Do Stock Market Crashes Typically Last? The duration varies significantly. The 2020 COVID crash reached its trough in roughly 33 days but recovered to prior highs within about five months. The 2008 financial crisis took approximately 5.5 years to fully recover on a total-return basis. The dot-com bust took roughly 7 years. The unpredictability of recovery timelines is precisely why a Cash Bridge matters: it removes the pressure to guess when the bottom will arrive. Should I Diversify My Portfolio During a Market Downturn? If you hold a concentrated position—such as a large block of company stock—a downturn can reduce the embedded capital gain, making it less expensive from a tax standpoint to sell and diversify. This requires coordination between investment and tax planning, including attention to wash sale rules and state tax treatment. A downturn does not automatically make diversification the right move, but it can make a long-deferred move more financially efficient. Conclusion A stock market crash is an inevitability, not an anomaly. If your retirement plan relies on the market always going up, you don’t have a plan—you have a gamble. At Covenant Wealth Advisors, we help clients in Richmond, Williamsburg, Reston and virtually across the United States build portfolios designed to withstand the volatility of the Fragile Decade. We don’t do it by guessing what the market will do next. We do it by creating cash flow bridges that aim to keep income needs funded regardless of what the S&P 500 does on any given day—and by using downturns as opportunities to rebalance, diversify, and harvest losses with discipline. Ready to get your portfolio on track to help weather a stock market crash? Contact us today for a Free Strategy Session. 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, no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

Retirement tax planning is a forward-looking strategy that coordinates withdrawals, income sources, and account types to manage your total tax burden over your lifetime—not just this year's return. For affluent retirees with $1M or more in investable assets, effective tax planning can mean the difference between paying 12% and 32% on the same retirement income, depending on when you recognize it, what type of income it is, and which accounts you draw from. The difference between a "good" retirement and an "optimized" retirement often comes down to one thing: how intentionally you manage taxable income once paychecks stop. And yes—high-net-worth retirees usually have more levers, not fewer. This guide walks through the step-by-step framework we use at Covenant Wealth Advisors to help clients from California, to Texas, Florida, Virginia and nationwide to build multi-year tax plans that account for RMDs, Roth conversions, IRMAA thresholds, and the 3.8% Net Investment Income Tax. Key Takeaways Retirement taxes are driven by income timing (which year), income character (ordinary vs. capital gain), and income control (which account you tap). RMDs generally begin at age 73, and they can compress taxable income later if you ignore planning earlier. Medicare Part B premiums in 2026 are $202.90/month standard, but   IRMAA tiers  can raise that meaningfully for higher-income households. A Roth conversion can be useful—but it can also raise current taxes and potentially move you into higher premium tiers. NIIT (3.8%) can apply once MAGI crosses certain thresholds, especially for affluent retirees with portfolio income. Good plans are iterative: you revisit them as markets, laws, and life events change. 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 is Tax Planning for Retirement, and Why is it Different from “Tax Prep”? Retirement tax planning is a forward-looking process that coordinates   withdrawals, income sources, and account types to manage taxes  over your lifetime—not just this year’s return. It focuses on controlling when  income shows up, what type  of income it is, and how  it affects brackets, surtaxes, and Medicare premiums. Tax Prep Looks Backward. Tax Planning Looks Forward. Tax Prep : Reports what happened (W-2s, 1099-Rs, 1099-DIVs, K-1s, etc.). Tax Planning : Decides what should  happen—how much to take from each account, whether to convert to Roth, how to harvest gains/losses, and how to avoid avoidable thresholds. The Three Levers: Timing, Type, and “Where it Comes From” Timing : Real control often comes from which year  you realize income. Type (character) : Ordinary income vs. qualified dividends vs. long-term capital gains vs. tax-exempt interest. Source (account location) : Tax-Deferred (traditional IRA/401(k)): withdrawals generally taxed as ordinary income Tax-Free (Roth): qualified withdrawals may be tax-free (subject to rules) Taxable Brokerage: capital gains/dividends rules apply Why Affluent Retirees Need a Lifetime  View Once you retire, you typically shift from accumulation (contribute/save) to distribution (spend). That’s when you’re actively “building” your tax return via: Withdrawal decisions Realizing capital gains Roth conversions (Form 8606 / Form 1099-R) Charitable planning Managing MAGI for IRMAA and NIIT Brackets Still matter—Because You can Choose How Much Income to “Create” For tax year 2026, the IRS increased the standard deduction and published updated bracket thresholds. Those numbers are not “trivia”—they become planning rails for how much ordinary income you may choose to recognize in a given year. How Do You Build a Retirement Tax Plan Step-by-Step? A practical retirement tax plan starts by   mapping every income source and account type , then projecting your taxable income year-by-year. From there, you set bracket and Medicare-premium “guardrails,” choose a withdrawal order, and decide when Roth conversions or charitable strategies may fit. The goal is flexibility and control, not perfection. Below is the framework we use in fiduciary planning conversations. Step 1: Inventory Your Retirement “Income Engines” List every  source with estimated amounts and start dates: Social Security (Form SSA-1099) Pensions RMDs from traditional accounts Dividends/interest/capital gains in taxable accounts Part-time/consulting income Rental income / business income One-time items: property sale, large bonus, option exercise, inheritance, etc. Step 2: Categorize Every Account by Tax Treatment This is the foundation of withdrawal sequencing: Tax-deferred : traditional IRA, traditional 401(k), SEP/SIMPLE Tax-free : Roth IRA, Roth 401(k) Taxable : brokerage, trusts (important for NIIT and gain planning) Step 3: Build a “Pro Forma” Tax Return (Multi-Year) A real plan runs multiple years, not one. You’re trying to answer: What is our baseline taxable income if we “do nothing”? What years are naturally low-income (retirement gap years)? When do RMDs begin—and what do they do to the income stack? Step 4: Set Guardrails for Thresholds That Create Surprise Costs For affluent retirees, two categories matter most: Marginal bracket management (ordinary income)The IRS publishes bracket thresholds annually; you plan around those rails. MAGI-driven cliffs and surtaxes. NIIT (3.8%) can apply once MAGI exceeds thresholds (e.g., $250,000 MFJ / $200,000 single). Medicare Part B premiums and IRMAA tiers can move based on income. Step 5: Choose a Withdrawal Order (and Admit it’s Not One-Size-Fits-All) A common starting point many planners consider  (not a rule): Taxable brokerage (manage gains intentionally) Tax-deferred (fill brackets strategically) Roth last (protect tax-free growth + flexibility) But the “right” order depends on: RMD timing Social Security taxation IRMAA Cash flow needs Market environment Legacy goals And whether you’re doing Roth conversions. Step 6: Decide Whether Roth Conversions Belong in Your Plan A Roth conversion can be a purposeful way to: Diversify future tax exposure Reduce future RMD pressure Increase tax-free assets for heirs But it can also: Increase current-year taxes Raise MAGI (potentially influencing IRMAA tiers) Reduce flexibility if done too aggressively As   Scott Hurt, CFP®, CPA  puts it: “A Roth conversion isn’t ‘good’ or ‘bad’—it’s a trade. You’re choosing to recognize income today to potentially buy flexibility later. The math only works when you model it with your other income sources, not in isolation.” Step 7: Incorporate “Still-Working” Levers if You’re 55+ If you’re still earning, retirement plan contribution limits matter for bracket control and future RMD pressure. For 2026: 401(k) employee deferral limit: $24,500 Catch-up (50+): $8,000  (higher catch-up for ages 60–63: $11,250 ) IRA limit: $7,500  (plus IRA catch-up adjustments) Even affluent households sometimes overlook that these limits can support a “last-mile” tax strategy before retirement. Data Visualization: 2026 Medicare Part B IRMAA tiers (Full Part B Coverage) 2024 MAGI (Individual) 2024 MAGI (Married Filing Jointly) 2026 Part B IRMAA add-on 2026 Total Part B Monthly Premium ≤ $109,000 ≤ $218,000 $0.00 $202.90 $109,001–$137,000 $218,001–$274,000 $81.20 $284.10 $137,001–$171,000 $274,001–$342,000 $202.90 $405.80 $171,001–$205,000 $342,001–$410,000 $324.60 $527.50 $205,001–$499,999 $410,001–$749,999 $446.30 $649.20 ≥ $500,000 ≥ $750,000 $487.00 $689.90 CMS also confirms the standard 2026 Part B premium is $202.90/month and the annual Part B deductible is $283. Practical implication: if you’re doing a sizable Roth conversion or realizing capital gains, it’s not just “taxes”—it may also change what you pay for Medicare. How Do RMDs, Social Security, and Medicare Premiums Interact? These three systems often collide in your 70s: RMDs push ordinary income up, Social Security benefits can become partially taxable based on your income mix, and Medicare premiums can rise in higher-income tiers. A coordinated plan models them together so you’re not surprised by bracket compression, surtaxes, or premium increases. RMDs: The “Income You Didn’t Choose” (if You Didn’t Plan Earlier) The IRS is clear: You generally must start taking   distributions from most retirement accounts  at age 73. Key mechanics that matter for planning: RMDs are based on prior year-end balance ÷ life expectancy factor (Uniform Lifetime Table). Roth IRAs generally do not require RMDs during the owner’s lifetime (but beneficiaries still have distribution rules). First RMD deadline is often April 1 of the following year, which can create a “two distribution year” if not managed. Missing an RMD can trigger a 25% excise tax (reduced to 10% if corrected within 2 years) and may involve Form 5329. Social Security Taxation: “Taxable Benefits” Isn’t the Same as “Taxing Social Security Twice” Many affluent retirees are surprised that Social Security benefits can be taxable. IRS Publication 915 explains that up to 50%  of benefits are generally taxable in some cases, and up to 85%  can be taxable in higher-income situations. This is one reason why the “income stack” matters: adding RMDs and portfolio income can pull more benefits into the taxable column. Medicare: Premiums are Another Form of “Means Testing” CMS states the standard Part B premium is $202.90/month in 2026 , and it also outlines income-related premium adjustments (IRMAA) for higher-income beneficiaries. Even if you view the IRMAA surcharge as “not a tax,” it behaves like one in your household budget because it’s driven by income. A Realistic Interaction Example (Conceptual) In your early 70s: RMDs increase ordinary income Higher income can increase the taxable portion of Social Security benefits Higher income may also move you into higher Medicare premium tiers That’s why experienced retirement tax planning tends to focus on pre-RMD years as a planning window, when you can still choose how much ordinary income to recognize. What Strategies Do Affluent Retirees Commonly Consider to Manage Lifetime Taxes? Affluent retirees typically focus on four categories: (1) managing ordinary income in the bracket “sweet spot,” (2) reducing future RMD pressure, (3) controlling surtaxes like NIIT, and (4) coordinating charitable and legacy goals. The best approach depends on cash-flow needs, investment risk, time horizon, and the tradeoffs of recognizing income sooner versus later. Below are strategies many high-net-worth households discuss with advisors and CPAs—along with the risks and caveats that keep this compliant and realistic. 1) Bracket “Fill” Planning (Intentional Ordinary Income) Rather than letting income happen to you, you set a target bracket and: Fill the bracket with planned withdrawals or conversions Avoid accidental spikes from one-time events The IRS publishes bracket thresholds and standard deduction changes that become the “guardrails” for this approach. 2) Roth Conversion Planning (with Medicare and NIIT Awareness) Roth conversions  are commonly discussed because: Roth assets can add flexibility later (especially if RMDs are a concern) Roth IRAs generally don’t require distributions while you’re alive But you have to model second-order effects: Does the conversion push you into a higher bracket? Does it raise MAGI above NIIT thresholds? Does it move you into higher Medicare premium tiers? As Megan Waters, CFP®  frames it: “The goal isn’t to pay the least tax this year. It’s to avoid getting cornered later—when RMDs, Social Security taxation, and premium tiers can stack on top of each other.” 3) RMD Risk Management RMD rules are mechanical—and they can create “tax bracket compression” if large balances build up. Planning options can include: Earlier distributions (before 73) to reduce later forced income Partial Roth conversions in selected years Coordinating retirement plan contributions while still working (limits updated for 2026) 4) NIIT Management for Households with Significant Portfolio Income NIIT is a 3.8% tax  that can apply when MAGI exceeds thresholds (e.g., $250,000 MFJ / $200,000 single) and you have net investment income. Common planning conversations include: Asset location (what you hold in taxable vs IRA vs Roth). Managing capital gains realization. Municipal bond interest considerations (note: municipal interest may be treated differently in certain calculations; coordinate with your tax professional). Reducing passive income exposure where applicable. 5) Charitable Planning That also Improves Tax Efficiency High-net-worth retirees often have charitable intent. The planning question becomes: Do we give in a way that aligns with our tax profile and income stack? Strategies frequently discussed: Bunching charitable deductions into high-income years Donor-advised funds (DAFs) Qualified Charitable Distributions (QCDs)  when eligible (coordinate with custodian/CPA for rules and reporting) 6) Risk Disclosure: These Strategies Have Real Tradeoffs A compliant article can’t pretend this is “free money.” Real risks include: Market risk : Selling assets to fund taxes/withdrawals can lock in losses during down markets. Legislative risk : Tax rules can change; planning assumptions should be revisited. Liquidity/timing risk : Large conversions or withdrawals may create cash needs for withholding/estimated taxes. Threshold risk : Higher income can influence Medicare premiums and surtaxes. At Covenant Wealth Advisors, we typically coordinate these decisions across your investment strategy, cash-flow plan, and tax projections—because treating them separately is where expensive surprises happen. 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 I determine how much to convert to a Roth IRA each year without triggering higher Medicare premiums? The key is understanding that Medicare premiums are based on your MAGI from two years prior—so a 2024 conversion affects your 2026 premiums. Start by identifying where you currently fall relative to IRMAA thresholds ($218,000 for married filing jointly at the first tier in 2026). Then work backward: calculate your baseline income (Social Security, pensions, dividends, RMDs if applicable), subtract that from the threshold, and that's your conversion "room" before triggering the next tier. But here's what most people miss: IRMAA brackets aren't marginal like tax brackets. Crossing a threshold by even $1 means paying the higher premium for the entire year—for both spouses. A $100,000 Roth conversion that pushes you from Tier 1 to Tier 3 could add nearly $5,000 in annual Medicare premiums. The math only works when you model the conversion against your full income picture, including capital gains, dividends, and any one-time events. As Scott Hurt, CFP®, CPA puts it: "A Roth conversion isn't 'good' or 'bad'—it's a trade. You're choosing to recognize income today to potentially buy flexibility later." Should I do Roth conversions before or after I start taking Social Security and RMDs? For most affluent retirees, the years before Social Security and RMDs represent your best conversion opportunity—and it's a window that closes permanently. Here's why: once RMDs begin at 73, you're required to take distributions that count as ordinary income before you can convert anything else. Add Social Security (up to 85% of which can be taxable), and you may find yourself in the 24% or 32% bracket with no room to convert at favorable rates. The sweet spot is typically ages 60–70 for married couples, or 60–72 for single filers who delay Social Security to 70. During these years, you can often fill the 12%, 22%, or even 24% brackets with conversions while your other income is minimal. As Megan Waters, CFP® frames it: "The goal isn't to pay the least tax this year. It's to avoid getting cornered later—when RMDs, Social Security taxation, and premium tiers can stack on top of each other." One nuance worth noting: if you're 63 or older, conversions done that year will affect your Medicare premiums when you enroll at 65. Converting before 63 avoids this entirely. In what order should I withdraw from my retirement accounts—taxable, IRA, or Roth? The conventional starting point—taxable accounts first, then tax-deferred (traditional IRA/401k), then Roth last—makes sense as a baseline because it lets your tax-advantaged accounts compound longer. But for affluent retirees, blindly following this order often leaves money on the table. The better framework is to think in terms of bracket management, not account order. In years when your income is naturally low (early retirement, before Social Security), you may want to pull from tax-deferred accounts strategically—even if you still have taxable assets—to fill lower brackets and reduce future RMD pressure. This is the logic behind partial Roth conversions during "gap years." Your withdrawal sequence should also account for: RMD timing: If you have large tax-deferred balances, taking distributions before 73 can prevent bracket compression later Social Security taxation: Additional income can push more of your benefits into the taxable column IRMAA thresholds: A spike in one year can raise Medicare premiums for two years Legacy goals: Roth assets pass to heirs tax-free and stretch over 10 years The right order depends on running a multi-year projection—not just looking at this year's tax return. Conclusion If you have $1M+ in investable assets, the highest-value move is usually building a multi-year plan that integrates taxes, Medicare premiums, and your withdrawal strategy—then updating it annually. You’re not trying to predict the future perfectly; you’re designing flexibility so one market year or one tax year doesn’t force bad decisions. If you’d like a professional second set of eyes, contact us today for a complimentary Strategy Session. 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’re weighing an annual vs monthly retirement withdrawal, you’re asking the right question. The schedule you choose can quietly influence taxes, Medicare premiums, and compliance with RMD rules—even if the “math” looks similar on paper. At Covenant Wealth Advisors, we see this decision come up most often for sophisticated retirees who want the same thing you want: a system that supports your lifestyle, keeps taxes and administrative surprises to a minimum, and doesn’t require constant attention. Key Takeaways Taxes are annual. Execution is periodic. The tax bill is generally based on total annual income, but withholding rules and underpayment penalties depend on how you pay throughout the year. RMDs create real deadline risk. The first-year RMD timing rule is where many retirees get tripped up. One big withdrawal can be clean—or chaotic. Annual withdrawals may simplify cash management, but they require a withholding plan and a checklist. For comprehensive   IRA withdrawal strategies , consider approaches that maximize savings and minimize taxes. IRMAA is a high-income “gotcha.” Medicare Part B premiums step up by income tier, and Social Security uses a tax-return lookback. Centers for Medicare & Medicaid Services. For those interested in how these factors can affect your retirement plan , professional guidance is available. There isn’t one “best” cadence. The right schedule depends on cash flow needs, tax-payment strategy, market behavior risk tolerance, and whether you’re in   RMD years . 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. Does Withdrawing Monthly vs. Annually From an IRA Change Your Taxes? Usually, no—if the annual withdrawal amount is the same, your federal income tax outcome is primarily driven by your total annual taxable income, not whether you take IRA distributions monthly or once per year. The schedule matters most for cash flow, tax withholding, and avoiding underpayment or deadline mistakes. 1) Income Tax is Annual, but Tax Payments Happen During the Year Your IRA withdrawals add to taxable income (for traditional IRAs). The IRS doesn’t care whether you took $120,000 in January or $10,000 per month—the annual total feeds your tax return. But the IRS does care about whether you paid enough tax during the year through withholding and/or estimated tax payments. That’s where withdrawal timing becomes practical. 2) The Withholding “Default” is Different for One-Time vs. Ongoing Payments If you take a nonperiodic payment (think: “one-off” IRA distribution), IRS Publication 505 explains that withholding is generally a flat 10% unless you elect a different rate. For affluent households, 10% withholding can be too low, depending on the rest of your income picture. That doesn’t mean “annual is bad”—it means annual withdrawals should usually be paired with an intentional withholding decision. “The biggest mistakes we see aren’t about whether clients withdraw monthly or annually—it’s that withholding is treated as an afterthought. Your distribution schedule should drive a tax-payment plan, not the other way around.” — Adam Smith, CFP® 3) Safe-Harbor Rules can Make Annual Withdrawals Easier (if You Use Them Correctly) IRS Publication 505 lays out the core safe-harbor concept for avoiding underpayment penalties. In general terms, one approach is paying enough through withholding/estimated payments to cover 90% of current-year tax, or 100% of prior-year tax—and 110% if your prior-year AGI was more than $150,000 (with a separate threshold for married filing separately). For those approaching retirement, it may be helpful to review   the best questions to ask a financial advisor about retirement  to ensure your tax and withdrawal strategies are aligned. Why it matters: affluent retirees often have uneven income (capital gains, business income, large IRA distributions, Roth conversions). A well-structured withholding plan can reduce the need to perfectly time quarterly estimates. 4) Withholding Timing Can be Surprisingly Favorable for Planning Publication 505 also explains that, for estimated-tax calculations, one-fourth of your estimated withholding is treated as withheld on each quarterly due date, unless you choose to track it differently. This is one reason some retirees intentionally revisit withholding late in the year. The goal isn’t to “game the system.” It’s to avoid an accidental underpayment penalty when your income ends up higher than expected. Bottom line: monthly vs. annual doesn’t usually change your tax bracket by itself, but it can absolutely change whether taxes feel smooth or stressful. How Do RMD Rules Influence Whether You Withdraw Monthly or Annually From an IRA? RMD rules don’t require a monthly or annual schedule—you can take RMDs in any pattern as long as the full amount is withdrawn by the deadline. However, deadlines are strict: your first RMD is generally due by April 1 of the year following the year you reach age 73 (or age 75 if you were born in 1960 or later), and later RMDs are due by December 31. For many affluent retirees, RMDs are the reason this question matters at all. 1) Know Your Two Critical Dates: April 1 (First Year) and December 31 (Ongoing Years) The IRS explains that the required beginning date (RBD) for your first IRA RMD is April 1 of the year following the year you reach age 73 (or age 75 if you were born in 1960 or later). After that, the rule is simpler: each year after your required beginning date, you must withdraw your RMD by December 31. 2) The “Two RMDs in One Year” Trap If you delay your first RMD until the April 1 deadline, you may end up taking: The prior-year RMD (by April 1), and The   current-year RMD  (by December 31) …in the same calendar year. The IRS explicitly notes this possibility and that taking the first RMD earlier (by December 31 of the year you reach your RMD age of 73 or 75) can spread taxable income into separate tax years. This is where affluent planning gets real: two distributions in one year may increase taxable income and can increase the odds of crossing an IRMAA tier. 3) Missing an RMD is Expensive—and Avoidable The IRS warns that if you don’t take enough RMD, you may owe an excise tax of 25% of the amount not distributed as required (potentially 10% if withdrawn within 2 years) and you may need to file IRS Form 5329. This is why “annual withdrawal” should never mean “I’ll remember in December.” It should mean “I have a system.” 4) How RMD Calculation Touches Your Schedule Decision RMDs are calculated using IRS life expectancy tables (commonly the Uniform Lifetime Table) referenced in IRS guidance and Publications such as 590‑B. You don’t need to memorize tables, but you do want a process: calculate, set the distribution cadence, confirm completion, and document. Monthly withdrawals can reduce “oops, I forgot” risk. Annual withdrawals can work well if you use a checklist and calendar controls. Can IRA Withdrawals Affect Medicare Premiums (IRMAA)? Yes—IRA withdrawals can raise your MAGI, and higher MAGI can trigger Medicare IRMAA surcharges for Part B (and Part D). The key is that IRMAA is based on annual income levels and uses a two-year lookback. Monthly vs. annual withdrawals typically won’t change IRMAA if the yearly total is the same, but income spikes can. For affluent retirees, this is often the most overlooked part of the “monthly vs annual” question. Why IRMAA Shows up in IRA Withdrawal Planning Social Security explains that to determine your 2026 IRMAA, it generally uses the “most recent federal tax return” information provided by the IRS—typically a tax return filed in 2025 for tax year 2024. CMS publishes the official Medicare Part B premium and IRMAA amounts. In 2026, the standard Part B premium is $202.90/month, and it increases by tier. Data Visualization: 2026 Medicare Part B IRMAA Tiers (Full Part B Coverage) 2026 MAGI (Individual)  – see effective   strategies to lower your taxable income once you start taking required minimum distributions (RMDs) . 2026 MAGI (Married Filing Jointly) Part B IRMAA (monthly) Total Part B premium (monthly) ≤ $109,000 ≤ $218,000 $0.00 $202.90 > $109,000 to ≤ $137,000 > $218,000 to ≤ $274,000 $81.20 $284.10 > $137,000 to ≤ $171,000 > $274,000 to ≤ $342,000 $202.90 $405.80 > $171,000 to ≤ $205,000 > $342,000 to ≤ $410,000 $324.60 $527.50 > $205,000 to < $500,000 > $410,000 to < $750,000 $446.30 $649.20 ≥ $500,000 ≥ $750,000 $487.00 $689.90 Source: CMS 2026 premiums/IRMAA fact sheet. Centers for Medicare & Medicaid Services How to Use this Table in a “Monthly vs Annual” Decision If you plan to withdraw $120,000 from your IRA this year, the schedule (monthly vs annual) won’t change your MAGI if the total is the same. But the schedule can change behavior: Annual withdrawals can accidentally stack with other events (large capital gains, Roth conversions, business income), creating a “spike year.” Monthly withdrawals can feel smoother and may reduce the urge to “catch up” with a large late-year distribution. “For high-net-worth retirees, IRMAA is often the surprise line item. The schedule doesn’t change your annual income by itself—but your system can either prevent or create income spikes that push you across a tier.” — Matt Brennan, CFP® Important nuance: If your income goes down, you may have options. The Social Security Administration also notes that if your income has gone down, you can contact Social Security and they may make a new decision about your IRMAA for specific life events (for example: stopping work, loss of income-producing property, pension plan changes, etc.). That’s not a “strategy” to rely on. It’s a reminder that Medicare premiums are part of the broader retirement income plan. When Does Monthly Make More Sense, and When Does Annual Make More Sense? Monthly withdrawals often fit retirees who want a consistent “paycheck,” tighter budgeting, and lower operational risk of missing an RMD deadline. Annual withdrawals can work well for retirees with larger cash reserves who prefer fewer transactions and want flexibility to adjust withholding or distribution amounts later in the year—provided they follow a clear process. Monthly Withdrawals Tend to Fit Well When… You want predictable cash flow.  If your lifestyle spending is steady, monthly distributions create a clean retirement paycheck. You want guardrails for RMD completion.  A monthly RMD cadence (or monthly withdrawals that at least exceed the RMD pace) can reduce the likelihood of missing the year-end deadline. You prefer “less cash sitting idle.”  With annual withdrawals, many people pull a full year’s spending needs and hold it in cash or a short-term bucket. That can reduce market exposure—but it can also create cash drag if markets rise. Markets can move up or down, so this is a risk tradeoff, not a promise. Risks to Acknowledge (Monthly): More moving parts: more distributions, more line items, more opportunities for administrative error. If you’re drawing from a volatile portfolio, frequent withdrawals can still be impacted by market declines (sequence-of-returns risk is real). Annual Withdrawals Tend to Fit Well When… You have significant liquidity already.  If you keep a sizable cash or short-term reserve, you may only need one IRA distribution for taxes or rebalancing, not for spending. You want flexibility for tax planning.  Some retirees prefer to wait until later in the year after they see realized gains/losses, business income, or other variable items—then set a distribution amount and withhold intentionally. Publication 505’s withholding rules matter here. Affluent retirees frequently coordinate multiple income streams  (portfolio income, deferred comp, business proceeds, real estate). One annual IRA withdrawal can be a clean lever—again, with a process. Risks to Acknowledge (Annual): Deadline risk (especially for RMDs): a single missed calendar item can become expensive. Withholding mismatch: a default 10% on a large one-time distribution may be inadequate depending on your bracket and other income. Market timing behavior risk: taking one large withdrawal can feel emotionally tied to market headlines. That can lead to reactive decisions. What’s a Practical Decision Framework for Affluent Retirees Choosing Annual vs. Monthly Retirement Withdrawal? Start by separating “spending withdrawals” from “tax/RMD withdrawals.” Then pick a cadence that matches your cash-flow needs, build a withholding plan (especially if AGI exceeds $150,000), and stress-test the annual total against Medicare IRMAA tiers. Finally, automate what you can and schedule mid-year and year-end reviews to confirm you’re on track. Here’s the framework we use in real planning conversations: Step 1: Define the Purpose of the IRA Withdrawal Most withdrawals fall into one of these buckets: Lifestyle spending (your “retirement paycheck”) RMD compliance (forced distribution after RBD) Tax management (withholding, safe-harbor coverage) Portfolio management (rebalancing, liquidity, opportunistic moves) You can use different cadences for different purposes. Example: monthly for spending + one strategic year-end distribution for taxes. Step 2: Decide the Annual Total First—then Choose the Schedule Affluent planning is usually about the annual total. Once you decide that number, monthly vs annual becomes implementation: Monthly cadence: annual total ÷ 12 Quarterly cadence: often aligns with estimated tax due dates Annual cadence: typically paired with specific withholding elections Step 3: Build a Withholding Plan that Matches Your Reality This is where IRS Publication 505 is essential: Nonperiodic retirement payments generally default to 10% withholding, unless you elect a different rate. Higher-income safe-harbor: 110% of prior-year tax if prior-year AGI > $150,000 (general rule described in Pub 505). Withholding timing conventions can reduce the need for perfectly timed quarterly estimates, depending on your situation. This is not about “minimizing taxes at all costs.” It’s about reducing avoidable penalties and surprises. Step 4: Check IRMAA Tier Exposure Before Locking the Plan Use the IRMAA table above as a planning lens. CMS publishes the official tiers and premiums. If your projected MAGI is near a tier line, a planner may evaluate options like smoothing income across years or rethinking the timing of large income events. (This is where personalized advice matters.) Step 5: Automate and Audit Whether you choose monthly or annual, put these two “audits” on your calendar: Mid-year check (June/July): verify distributions, withholding, and projected taxable income Year-end check (October/November): confirm RMD completion plan and tax-payment sufficiency At Covenant Wealth Advisors, we build these checkpoints into clients’ retirement income systems so the plan doesn’t depend on memory. What Other Retirement Withdrawal Questions Do Clients Ask? Most follow-up questions are really about coordination: how withdrawal cadence interacts with 401(k) rules, RMD deadlines, “best” retirement withdrawal strategies, and rules-of-thumb like the $1,000/month idea. The right answers usually require aligning cash flow with tax rules, Medicare thresholds, and portfolio risk—not picking one universal schedule. 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 Is it Better to  Withdraw From a 401(k)  Monthly or Annually? 401(k) withdrawals can work monthly or annually, but employer plans sometimes have different distribution mechanics than IRAs, and some plans limit how frequently you can take partial withdrawals. The “best” cadence depends on your spending needs and tax-payment plan. If you’re in RMD years, your distribution schedule must still satisfy the deadline rules (the calendar matters). Is it Better to Take RMDs Monthly or Yearly? You can take RMDs monthly, quarterly, or yearly. The IRS focus is on whether the full RMD amount is withdrawn by the deadline. Many retirees choose monthly to reduce the operational risk of missing the year-end requirement. Yearly can be fine if you have strong controls—especially because the IRS notes the first-year RMD timing nuance (April 1 vs December 31). What is the Best Withdrawal Strategy for Retirement? There isn’t one “best” strategy for every retiree. A strong approach usually coordinates (1) a reliable cash-flow plan, (2) tax withholding and safe-harbor rules, (3) RMD compliance, and (4) Medicare IRMAA awareness for higher-income households. The right mix depends on your assets, income sources, risk tolerance, and goals. What is the $1,000 a Month Rule for Retirement? The “$1,000 a month rule” is a simplified rule-of-thumb some people use to translate a lump sum into monthly income expectations (for example, “how much do I need invested to generate $1,000/month?”). It can be a starting point for conversation, but it ignores taxes, inflation, market volatility, and longevity risk. High-net-worth  retirement planning  should be built from your actual spending goals and your tax/Medicare picture, not a single rule. Conclusion If your annual withdrawal amount is the same, the monthly vs annual debate is rarely about “lower taxes.” It’s about control: cash flow reliability, tax-payment execution, RMD compliance, and avoiding income spikes that can raise Medicare premiums. Would you like our team to just do your retirement planning for you? Contact us today for a complimentary strategy session. 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.

When it comes to managing your nest egg, IRA withdrawal strategies  can play a critical role in maximizing the effectiveness of your retirement plan. Implementing smart withdrawal strategies can help you boost your retirement income, minimize taxes, and make your savings last longer. Download Now: 15 Free Retirement Planning Checklists [FREE DOWNLOAD] Here’s a quick look at some of these strategies: Follow the 4% Rule:  Withdraw 4% of your savings initially, then adjust for inflation yearly. Opt for Tax-Conscious Withdrawals:  Withdraw funds in an order that minimizes your tax liability. Consider Fixed-Amount Withdrawals:  Regular withdrawals that provide steady cash flow. Think of this as your retirement "paycheck". Withdraw Earnings, Not Principal:  Use investment earnings and preserve your principal. Adopt a Total Return Strategy:  Focus on total returns from interest, dividends, and capital gains. By taking the time to understand these strategies, you can make the most of your individual retirement accounts and work toward a secure financial future. Scott Hurt, a Certified Financial Planner™ and CPA with significant experience in ira withdrawal strategies , says "I have guided countless retirees in Richmond, Williamsburg, and across the United States to make tax-efficient withdrawals. Leaning on a partner with expertise in this area helps ensure your plans are custom to provide a comfortable and secure 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. Understanding IRA Withdrawal Strategies When you retire, your income sources change. Instead of a paycheck, you rely on Social Security, pension (if available), and withdrawals from retirement or brokerage accounts. Understanding IRA withdrawal strategies  can make a big difference in how long your savings last and how much you pay in taxes. Withdrawal Strategies 1. Tax-Conscious Withdrawals: The order you withdraw from different accounts can impact your taxes. A common approach is to start with taxable accounts, move to tax-deferred accounts, and finally, tax-free accounts like Roth IRAs. This method allows your tax-deferred assets to grow longer. While this is a common method pitched online, we often find it's not the best strategy. Matt Brennan, a Certified Financial Planner™ professional at Covenant Wealth Advisors says: "A lot of couples we talk to incorrectly think that withdrawing from taxable accounts first in retirement is the best strategy. Many are surprised to learn that the answer is far more nuanced and requires deep tax planning to determine which accounts to withdrawal from first and when. Everyone is different." 2. The 4% Rule: This rule suggests withdrawing 4% of your total retirement savings in the first year, then adjusting for inflation . However, it's more of a guideline than a hard rule and may need adjustments based on market conditions. 3. Dynamic Withdrawal Strategies: These strategies adjust your withdrawals based on market performance. If the market goes up, you might withdraw more. If it goes down, you withdraw less. This helps protect your savings during downturns. However, it can have a drastic impact on maintaining a consistent lifestyle in retirement. Retirement Income Your goal is to create a stable income stream in retirement. By using a mix of withdrawal strategies, you can achieve a balance between enjoying your retirement and ensuring your savings last. For example, using a total return strategy  allows you to draw from interest, dividends, and capital gains, providing multiple income sources. Tax Implications Taxes can significantly affect your retirement income. Withdrawals from traditional IRAs are taxed as ordinary income, which can push you into a higher tax bracket. On the other hand, Roth IRA withdrawals are tax-free if you meet certain conditions. Required Minimum Distributions (RMDs)  start at age 73 or 75 depending upon your date of birth and can impact your tax situation. It's essential to plan for these to avoid penalties and manage your tax liability effectively. By understanding these IRA withdrawal strategies , you can make informed decisions about your retirement income and tax planning. This knowledge, combined with personalized advice from Covenant Wealth Advisors, can help you steer your retirement journey with confidence. The 4% Rule and Its Application The 4% rule  is a popular guideline for retirees to help manage their savings. It suggests withdrawing 4% of your retirement savings in the first year of retirement. In the following years, adjust this amount for inflation. This approach aims to provide a steady income stream over a typical 30-year retirement window. How the 4% Rule Works Imagine you have $1 million saved. In your first year of retirement, you would withdraw $40,000. The next year, if inflation is 2%, you would withdraw $40,800. This method offers a simple way to ensure your savings last, but it’s not without its challenges. Inflation Adjustment Inflation is like a sneaky thief that slowly eats away at your purchasing power. To keep up, the 4% rule includes an inflation adjustment . This means your withdrawals increase slightly each year to maintain your standard of living. However, if inflation spikes, like it did in 2021 with a 7% increase, you might need to rethink your strategy. Retirement Window The retirement window  is the period your savings need to last. The 4% rule is based on a 30-year window, which is typical for someone retiring at 65 and living to 95. If you retire earlier or expect to live longer, you might need to withdraw less than 4% to stretch your savings further. Flexibility and Limitations The 4% rule provides a straightforward approach, but it's not one-size-fits-all. Market conditions, life expectancy, and unexpected expenses can all impact its effectiveness. Some experts suggest a 3% withdrawal rate might be safer in today’s low-interest environment, while others argue for 5% in robust markets. By understanding and applying the 4% rule  thoughtfully, you can create a reliable income stream for your retirement while adjusting for inflation and market changes. But remember, it's just one of many IRA withdrawal strategies  that can be custom to fit your personal situation. Proportional Withdrawal Strategy The proportional withdrawal strategy  is a method of withdrawing funds from your retirement accounts that can help manage taxes and extend the life of your savings. Instead of withdrawing from one account at a time, you take money proportionally from each type of account: taxable, tax-deferred, and Roth accounts. How It Works Let's say you have $500,000 in a taxable account, $1,000,000 in a tax-deferred account (like a traditional IRA), and $500,000 in a Roth IRA. If you need to withdraw $80,000 in a year, you would take: $20,000 from the taxable account  (25% of the total) $40,000 from the tax-deferred account  (50% of the total) $20,000 from the Roth account  (25% of the total) This approach spreads out your withdrawals and tax liabilities, potentially reducing your overall tax burden. Benefits of Proportional Withdrawals Tax Efficiency : By withdrawing proportionally, you may keep your taxable income more stable and avoid jumping into a higher tax bracket. This can also help manage the taxes on Social Security benefits and Medicare premiums. Extended Portfolio Life : Spreading withdrawals across different accounts can help your savings last longer. By not depleting one account too quickly, you give it more time to grow. Flexibility : This strategy allows for adjustments based on market conditions and personal needs. If your taxable account is performing well, you might choose to withdraw a bit more from it. Considerations Taxable Accounts : Withdrawals from these accounts might incur capital gains taxes, which are generally lower than income taxes. Prioritize using these funds if you are in a lower capital gains tax bracket. Tax-Deferred Accounts : Withdrawals are taxed as ordinary income. Be mindful of Required Minimum Distributions (RMDs) starting at age 73 or 75, as failing to take them can lead to hefty penalties. Roth Accounts : Withdrawals from Roth IRAs are tax-free if certain conditions are met. These accounts can be a valuable resource later in retirement when tax rates might be higher. The proportional withdrawal strategy offers a balanced approach to managing your retirement funds, aiming to minimize taxes and maximize the longevity of your savings. It’s a flexible strategy that can adapt to changes in tax laws and market conditions, making it a valuable option to consider among other IRA withdrawal strategies . Let's now explore how dynamic withdrawal strategies  can further improve your retirement planning. Download Now: 15 Free Retirement Planning Checklists [FREE DOWNLOAD] Dynamic Withdrawal Strategies Dynamic withdrawal strategies  are designed to adapt to changing market conditions and personal circumstances, helping you manage your retirement savings with flexibility and precision. Dynamic Spending Dynamic spending is like having a financial thermostat for your retirement. It allows you to adjust your spending based on how well your investments are performing. If markets are doing well, you can afford to spend a little more. If they're down, you tighten the belt a bit. This way, you keep your savings from running dry too soon. How It Works Imagine you start with a $50,000 annual withdrawal. If your investments grow by 10% in a year, you might increase your spending to $55,000. But if they shrink by 5%, you might cut back to $47,500. This approach helps balance your spending with your portfolio's performance. Market Conditions Market conditions play a big role in how much you can safely withdraw. During a bull market, you might feel more comfortable taking out more money. In a bear market, you might need to be more cautious. Dynamic strategies help you make these adjustments without a lot of stress. Example Suppose the stock market experiences a downturn. With a dynamic strategy, you might decide to withdraw 3% instead of 4% for that year, preserving more of your capital until the market recovers. Guardrails Strategy The guardrails strategy  is like setting boundaries for your spending. You establish a "ceiling" and a "floor" for your withdrawals. If your portfolio grows and you hit the ceiling, you can increase your spending. If it shrinks and you hit the floor, you reduce your spending to protect your savings. Benefits Protection : This strategy helps prevent overspending during market highs and protects your savings during market lows. Consistency : By following set guidelines, you maintain a stable spending pattern, which can be reassuring in volatile markets. Example Let's say your ceiling is set at $60,000 and your floor at $40,000. If your portfolio allows for a $65,000 withdrawal, you stick to $60,000. If it drops to $35,000, you cut back to $40,000 to avoid depleting your funds. Dynamic withdrawal strategies offer a responsive approach to managing your retirement savings, adjusting to both market fluctuations and personal needs. They provide a balance between enjoying your retirement and ensuring your money lasts. As you consider different IRA withdrawal strategies , think about how dynamic methods can add flexibility and security to your financial plan. Next, we'll dive into tax-efficient withdrawal techniques  to help you keep more of your hard-earned money.= 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. Tax-Efficient Withdrawal Techniques When it comes to IRA withdrawal strategies , being tax-efficient is key to maximizing your savings. Let's break down how tax brackets, RMDs, and tax-free withdrawals can help you keep more of your money. Understanding Tax Brackets Tax brackets determine how much tax you'll pay on your withdrawals. The more you withdraw, the higher your taxable income, which could push you into a higher tax bracket. To manage this, consider withdrawing just enough to stay within a lower bracket . This way, you minimize the taxes you owe. Example Suppose you're close to the top of the 12% tax bracket. Withdrawing more could bump you into the 22% bracket, increasing your tax bill significantly. By planning your withdrawals carefully, you can avoid this jump. Required Minimum Distributions (RMDs) Once you hit age 73 or 75, the IRS requires you to take RMDs from your tax-deferred accounts. Missing an RMD can lead to hefty penalties, so it's crucial to plan these withdrawals. How RMDs Work Each year, you calculate your RMD by dividing your account balance at the end of the previous year by a "life expectancy factor" provided by the IRS. This ensures you withdraw a portion of your savings annually. Tip To avoid a spike in taxable income due to RMDs, consider a blended approach. This means withdrawing from both your tax-deferred and Roth or taxable accounts strategically, so you maintain a lower overall tax rate. Tax-Free Withdrawals Roth IRAs offer a fantastic benefit: tax-free withdrawals. Since you've already paid taxes on your contributions, you won't owe taxes on the money you take out, including any earnings, provided you're over 59½ and have held the account for at least five years. Strategic Use By saving your Roth IRA withdrawals for last, you can use them to supplement income without increasing your taxable income. This is especially helpful if you're close to moving into a higher tax bracket or if you encounter unexpected expenses. In summary, tax-efficient withdrawal techniques can significantly impact your retirement savings. By understanding how tax brackets, RMDs, and tax-free withdrawals work, you can develop a strategy that minimizes taxes and maximizes your income. Next, let's tackle some frequently asked questions about IRA withdrawal strategies  to clear up any lingering uncertainties. Frequently Asked Questions about IRA Withdrawal Strategies What is the best order to withdraw from retirement accounts? Choosing the right order to withdraw from your retirement accounts can make a big difference in your overall savings. Here's a simple guide: Start with a Combination of Taxable Accounts and Tax-Deferred Accounts : Withdraw from these first. This allows you to better manage the optimal tax bracket for your situation. Save Roth Accounts for Last : Roth IRAs are your ace in the hole. Withdraw from these accounts last because they offer tax-free withdrawals, which can be a huge advantage later in retirement. How do RMDs affect my withdrawal strategy? Required Minimum Distributions (RMDs)  are a key part of your withdrawal strategy once you reach age 73 or 75. Here's what you need to know: Mandatory Withdrawals : The IRS requires you to take RMDs from your tax-deferred accounts each year. Failing to do so can result in a steep penalty of up to 25% of the required amount not withdrawn. Tax Implications : RMDs are taxed as ordinary income, which could push you into a higher tax bracket if not managed properly. Strategic Planning : To minimize the tax impact, consider withdrawing from your Roth accounts to balance the taxable income from RMDs. This can help you maintain a more favorable tax situation. Can I avoid penalties on early withdrawals? Yes, you can avoid penalties on early withdrawals if you meet certain exceptions. Here's how: Age Requirement : Generally, withdrawing from your IRA before age 59½ results in a 10% early withdrawal penalty. However, there are exceptions. Exceptions to the Rule : You can avoid this penalty if you're using the funds for specific purposes like a first-time home purchase, higher education expenses, or certain medical expenses. You can also implement a little know strategy called substantially equal periodic payments. Tax Planning : Work with a financial advisor to explore these exceptions and incorporate them into your retirement plan, ensuring you make the most of your savings without unexpected penalties. Understanding these aspects of IRA withdrawal strategies  can help you make informed decisions, maximize your savings, and enjoy a financially secure retirement. Next, we'll wrap up with some thoughts on how Covenant Wealth Advisors can help you create a personalized strategy. Conclusion At Covenant Wealth Advisors, we understand that navigating IRA withdrawal strategies  can be a daunting task. That's why we're here to help you every step of the way. Our team of expert advisors specializes in creating personalized strategies custom to your unique financial situation. As a fiduciary firm, we are committed to acting in your best interest. We offer fee-only services  with no commissions, ensuring that our advice is always unbiased and focused on helping you achieve your retirement goals. Our personalized approach means that we take the time to understand your specific needs and objectives. Whether you're concerned about tax implications, RMDs, or maximizing your savings, we have the knowledge and experience to guide you through it all. We believe that a well-thought-out withdrawal strategy is crucial for a successful retirement. With our expertise in retirement planning, investment management, and tax planning , we can help you make informed decisions that align with your long-term goals. Ready to take control of your retirement future? Learn about our free retirement roadmap service  and see how we can help you create a strategy that works for you. At Covenant Wealth Advisors, your financial peace of mind is our priority. Let us help you build a secure and fulfilling retirement. 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 but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

RMD tax strategies  are crucial for retirees navigating tax-deferred retirement accounts. If you're approaching age 73 and hold accounts like a traditional IRA or 401(k), you're required by the IRS to begin taking required minimum distributions (RMDs). Here's a quick overview of what you need to know: RMD Definition : Mandatory withdrawals from tax-deferred accounts. Tax-Deferred Accounts : Accounts like IRAs and 401(k)s, 403 (b), or TSP where taxes are paid upon withdrawal. Age Requirements : RMDs start at age 73 (or 75 for those born in or after 1960). These RMDs affect your taxable income and can have significant tax implications. Understanding these strategies enables you to make informed decisions that maximize your retirement savings and minimize tax burdens. I'm Scott Hurt, CFP®, CPA with expertise in guiding retirees through the complexities of retirement planning. My experience includes in-depth knowledge of RMD tax strategies and investment management to help you achieve your financial goals efficiently. Here's what you need to know. Understanding RMDs When it comes to required minimum distributions (RMDs), the IRS has specific rules that you need to follow. These rules are designed to ensure that taxes are eventually paid on tax-deferred retirement accounts like traditional IRAs and 401(k)s. Let's break down the essentials. IRS Rules and Age 73 The IRS mandates that you start taking RMDs from your retirement accounts once you reach age 73. This requirement ensures that the government begins collecting taxes on these accounts, as they were funded with pre-tax dollars. If you were born in or after 1960, the starting age for RMDs is slightly different, set at 75. Missing an RMD can lead to hefty penalties. As of recent updates, failing to take the full amount of your RMD results in a 25% penalty on the shortfall. Pro Tip: The penalty can be reduced to 10% if corrected within two years. 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. Tax Implications RMDs are treated as ordinary income, which means they can significantly impact your tax bracket. For instance, if your RMD pushes your income into a higher tax bracket, you could end up paying more in taxes. This is why strategic planning around RMDs is crucial. To illustrate, let's consider a retiree with a traditional IRA. If all contributions were tax-deductible, the entire RMD amount will be taxed as income. This could mean a substantial tax bill depending on the size of the distribution and your other income sources. Managing RMDs Effectively Understanding the rules around RMDs and their tax implications is the first step in managing your retirement funds effectively. By planning ahead, you can optimize your withdrawals and minimize the impact on your taxable income. This might involve strategies like Roth IRA conversions  or qualified charitable distributions (QCDs) , which we'll explore further in the next sections. Navigating RMDs doesn't have to be daunting. With the right approach, you can ensure that your retirement savings work for you, not against you. Let's explore strategic ways to handle RMDs and make the most of your hard-earned savings. Strategic RMD Tax Strategies When it comes to RMD tax strategies , optimizing your withdrawals can make a big difference in your financial future. Let's explore three key strategies: Roth IRA conversions, the Qualified Charitable Distribution (QCD)  rule, and overall tax efficiency. Roth IRA Conversion A Roth IRA conversion is a powerful strategy to consider. This involves transferring funds from a traditional IRA to a Roth IRA. The main advantage? Roth IRAs offer tax-free growth and are not subject to RMDs. This gives you more control over your retirement funds. How does it work? When you convert, you pay taxes on the amount transferred. But, if you do this during a low-income year, you could minimize the tax hit. Over time, you could save significantly on taxes, as Roth IRA withdrawals are tax-free in retirement. Example:  Suppose you have a traditional IRA with $100,000 and you convert $20,000 to a Roth IRA during a year when your income is lower. You pay taxes on the $20,000 now, but enjoy tax-free withdrawals in the future. Qualified Charitable Distribution (QCD) Rule If you're charitably inclined and have reached age 70½, the QCD rule is a fantastic way to manage your RMDs while supporting a cause you care about. With a QCD, you can transfer funds directly from your IRA to a qualified charity. The big benefit? These distributions are not taxable. Key Points: You can donate up to $108,000 in 2025. The funds must go directly from your IRA to a 501(c)(3) organization. You can't claim a charitable deduction, but the distribution doesn't count as taxable income. Illustration:  Imagine you need to take a $30,000 RMD. By directing $20,000 of it to a charity using a QCD, you reduce your taxable income by that amount, potentially keeping you in a lower tax bracket or avoiding the Medicare IRMAA surcharge , or both! Tax Efficiency Ensuring tax efficiency is about making smart choices with your withdrawals. Here are some tips: Plan Withdrawals Carefully:  Consider your tax bracket and try to avoid pushing yourself into a higher one. Use a Blended Approach:  Combine strategies like Roth conversions and QCDs to spread out tax liabilities over several years. By integrating these strategies, you can potentially reduce your tax burden and make your retirement savings last longer. The goal is to optimize your withdrawals and keep more of your hard-earned money. Let's now explore specific actions you can take to implement these strategies effectively. Top 5 RMD Tax Strategies When it comes to RMD tax strategies , there are several smart ways to make the most of your required minimum distributions. Let's explore five effective strategies to help you optimize your withdrawals. Keep Putting the Money to Work If you don't need your RMD for daily expenses, consider reinvesting it. Placing these funds in a non-qualified brokerage account allows you to keep your money working for you. By reinvesting, you can potentially grow your wealth over time. This approach keeps your funds liquid and available if needed, while also offering the opportunity for continued growth. Move to a Roth IRA A Roth IRA conversion is a powerful strategy for those looking to minimize future tax burdens. By converting funds from a traditional IRA to a Roth IRA, you pay taxes now but enjoy tax-free growth and withdrawals later. This strategy can be especially beneficial if you anticipate being in a higher tax bracket in the future. Roth IRAs are not subject to RMDs, giving you more control over your retirement funds. Purchase a Life Insurance Policy or Variable Annuity Using your RMD to purchase life insurance or a variable annuity can be an effective estate planning strategy. Life insurance proceeds are generally tax-free for beneficiaries, which can help maximize the legacy you leave behind. A variable annuity with a death benefit rider ensures that your beneficiaries receive at least the amount you invested, offering peace of mind and financial security. While I'm not a fan of most annuities in general, for the right situation, they can make a lot of sense. Fund a 529 Plan Consider using your RMD to fund a 529 education savings plan for a loved one's education. Contributions to 529 plans grow tax-deferred, and withdrawals are tax-free if used for qualified education expenses like tuition. This strategy not only supports your grandchild's education but also helps ease the financial burden on your adult children. 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. Donate to Charity A Qualified Charitable Distribution  (QCD) is a great way to support a cause while managing your RMDs. If you're age 70½ or older, you can transfer up to $108,000 from your IRA directly to a qualified charity. This distribution is tax-exempt, meaning it doesn't count as taxable income. By donating, you can satisfy your RMD requirements while supporting a charity you care about. By implementing these strategies, you can effectively manage your RMDs and minimize your tax liability. Each option offers unique benefits, so consider which strategies align best with your financial goals and consult with a financial advisor to tailor a plan to your needs. Frequently Asked Questions about RMD Tax Strategies How to Avoid Taxes on RMD? While completely avoiding taxes on RMDs is not possible, there are strategies to minimize the tax impact. One effective method is Qualified Charitable Distributions (QCDs) . If you're 70½ or older, you can transfer up to $108,000 directly from your IRA to a qualified charity. This amount counts toward your RMD but is not included in your taxable income. Another strategy is converting a portion of your traditional IRA to a Roth IRA . Although you will pay taxes on the conversion, future withdrawals from the Roth IRA can be tax-free. When Should I Pay the Taxes on an RMD? It's essential to plan when to pay taxes on your RMD to avoid any penalties. Typically, taxes on RMDs are due in the year you take the distribution. You can choose to have taxes withheld from the distribution or pay estimated taxes quarterly. Many find it convenient to have taxes withheld directly, as it simplifies the process and avoids underpayment penalties. Should I Have Taxes Withheld from My RMD? Withholding taxes from your RMD  can be a wise decision. It ensures that you are meeting your tax obligations and prevents any surprises at tax time. The IRS allows you to choose the withholding percentage, making it a flexible option. If you prefer not to withhold, ensure you have a solid plan to pay any taxes due, either through quarterly estimated tax payments or from other sources. Conclusion At Covenant Wealth Advisors, we understand that navigating the complexities of RMD tax strategies  can be daunting. Our commitment as a fiduciary firm ensures that your interests are always our top priority. We specialize in offering personalized, fee-only services that focus on optimizing your retirement planning, investment management, and tax strategies. Our fiduciary duty means we have a legal obligation to act in your best interest. This commitment is at the heart of everything we do, ensuring that our advice is custom to your unique financial situation and goals. We believe that by eliminating commissions, we can provide unbiased guidance that truly aligns with your needs. Whether you are looking to minimize taxes on your RMDs, explore Roth IRA conversions, or understand the benefits of Qualified Charitable Distributions, our team of experienced advisors is here to help. We work closely with you to develop a comprehensive plan that takes into account all aspects of your financial life. For those seeking expert guidance on RMD tax strategies and other retirement planning needs, we invite you to learn more about our tax planning services . Let us help you optimize your withdrawals and secure a financially sound retirement. In conclusion, Covenant Wealth Advisors is dedicated to providing you with the tools and insights needed to make informed decisions about your financial future. Trust us to guide you through the complexities of retirement planning, ensuring that your wealth is preserved and grows in alignment with your aspirations. 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 but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

Concerns that a trade war will lead to a recession have spread around the globe. The possibility of retaliatory tariffs is on investors’ minds, with China responding with counter-tariffs, increasing the odds of a worst-case trade war scenario. Markets in Asia and Europe have declined alongside U.S. stocks, and there has been a “flight to safety” as bond prices rise and interest rates fall. In sports as well as investing, a winning strategy requires a combination of both offense and defense. Download Free: What Issues Should I Consider During a Recession or Market Downturn? Defense involves maintaining a portfolio that can withstand different phases of the market cycle. Stock market uncertainty and unexpected life events are inevitable, so always being ready to play defense is important. Offense, on the other hand, involves taking advantage of market opportunities that emerge from changing conditions. The irony is that while periods of market uncertainty may be unpleasant, they also represent times when asset prices and valuations are the most attractive. Ultimately, portfolios that are tailored toward financial goals need both offense and defense. How can investors position in today’s market environment to both protect from risk and take advantage of opportunities? 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. Portfolio balance and financial planning are even more important today This chart shows the historical annual return ranges of the S&P Composite index, bonds, and asset allocations of these assets. The bond index is represented by 10-year U.S. Treasury bonds prior to 1976 and the Bloomberg U.S. Aggregate Bond Index from 1976 to the present. Each bar shows the min, max, and average annual returns over each stated time period, for each asset or portfolio. These are calculated using underlying monthly total returns. Periods longer than a year show annual returns based on their geometric means. *Note that this chart's methodology changed on April 8, 2025 - previously, the bond calculations showed the historical return ranges of a buy-and-hold approach for 10-year U.S. Treasury bonds. Date Range: 1945 to present Source: Clearnomics, Standard & Poor's, Bloomberg, Federal Reserve Two of the key principles of long-term investing are diversification and maintaining a long time horizon. This is showcased in the accompanying chart which depicts the range of historical outcomes across stocks, bonds, and diversified portfolios. It also shows how these ranges change when time horizons are increased. For instance, it’s easy to see that over just one-year periods, the stock market can vary significantly, from gaining 60% in 1983 when the market recovered from stagflation fears, to -41% during the global financial crisis. Moving beyond just one-year periods and a stock-only portfolio underscores why these are powerful ways to think about investing and financial planning. Diversifying might reduce the maximum returns an investor can experience, but it can also reduce risk. This is evident in the balanced portfolio consisting of 60% stocks and 40% bonds. So far this year, the S&P 500 is 13.6% lower, but a 60/40 mix of these indices has declined only 6.2%. 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% Bloomberg U.S. Aggregate Bond Index,, and 5% Bloomberg Commodity Index. After all, the goal is not simply to grow a portfolio at the fastest but most volatile rate, but to have the highest possible probability of achieving your financial goals. A diversified portfolio historically has a much narrower range of outcomes, allowing investors to better plan toward their goals. Download Free: What Issues Should I Consider During a Recession or Market Downturn? Similarly, extending your time horizon by even a few years can have a significant impact on the range of outcomes. History shows that, since World War II, there has not been a 20-year period in which any of these assets and portfolios have experienced annual declines, on average. The same is true over 10-year periods for many diversified asset allocations. While this is only illustrative and is no guarantee of future performance, it clearly shows the importance of thinking long-term. Volatility can create opportunities This chart shows the CBOE VIX index, a measure of 30-day expected volatility of the U.S. stock market derived from S&P 500 call and put options. The chart also shows the one-year forward price return of the S&P 500 beginning on each date of the VIX index. Significant VIX levels and their forward returns are annotated. Date Range: January 4, 2010 to present Source: Clearnomics, Chicago Board Options Exchange (CBOE) What about market opportunities? The accompanying chart shows that the VIX index, often known as the stock market’s “fear gauge,” can spike on a periodic basis. These peaks correspond to sharp drops in the market, such as in 2008 or 2020. These are times when markets are the most nervous and, in many cases, investors feel as if the situation will never stabilize. The chart above also shows the returns of the S&P 500 over the next year. As we discussed above, there is never any certainty about returns over any single year for the stock market. However, it’s clear that the greatest market opportunities often emerge when investors are the most worried. This is the heart of the famous Warren Buffett quote to “be fearful when others are greedy, and greedy when others are fearful.” This is especially true if markets face liquidity rather than solvency concerns. Liquidity problems emerge when market declines force some investors - specifically those who use leverage, or borrowed funds - to sell other assets. In these situations, prices may decline even when the underlying fundamentals of an asset remain unchanged. These are classic cases where short-term market moves become disconnected from long-term outlooks, creating opportunities for patient investors. It's important to note that this is not an argument for market timing . Even when the VIX is high, there is no guarantee that markets will rebound quickly. Instead, investors should view this as additional support for taking a portfolio perspective. Market downturns often occur when valuations are the most attractive, and thus it can make sense to shift toward – not away – from these assets. Of course, what makes sense for a given portfolio depends on the specific circumstances. Valuations are more attractive today This chart tracks the S&P 500 price to earnings ratio. Earnings estimates are forward estimates over the next twelve months. The dotted line denotes the average over the full period. This data is calculated weekly. Date Range: January 22, 1985 to present Source: Clearnomics, LSEG So, which assets have helped this year, and which are more attractive today? Bonds have played an important role this year as interest rates have fallen, helping to balance portfolios and partially offset declines in other asset classes. Bonds are able to do this because they typically exhibit lower volatility than stocks and often move in the opposite direction. For this reason, investors often say that “bonds zig when stocks zag.” Holding the right balance of “uncorrelated” assets helps investors prepare for challenging times. Valuations are more attractive today after multiple years of strong stock market returns. While it is still unclear where earnings will settle after accounting for tariffs, the price-to-earnings ratio of the overall S&P 500 has declined to 20.7x. Some sectors such as Information Technology, Communication Services, and Consumer Discretionary, have seen multiples decline more amid the broader pullback. 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. Recent Declines Don't Guarantee More Declines Ahead A critical point to remember is that when we experience market declines, we don’t know when the bottom will occur. If we could avoid being invested when the market is going down and then get back in when the market starts to go back up, that would be fantastic. But without a crystal ball, that isn’t easy to pull off. The major risk we face attempting to time the market around drawdowns is that we may miss out on benefiting from the recovery. This risk shouldn’t be underestimated. Figure 2 provides useful context. In Panel A, we take the same data from Figure 1 to show how U.S. stocks have performed on average in the 100 days following a market bottom at varying levels of decline (2.5%, 5%, 10%, and 20%). Source: Avantis Investors. Data from 7/1/1926 – 2/28/2025. U.S. stocks sourced from the Center for Research in Security Prices (CRSP) include all firms incorporated in the US and listed on the NYSE, AMEX, or NASDAQ. Comparing the results versus the average over all the 100-day periods since 1926 (4.46%) highlights how the market tends to rebound quickly once it begins. For example, when the market has bottomed at a decline of 10% or more, the average return over the next 100 days has been 8.54% — nearly double the average over all 100-day periods! In Panel B, we show the results of the same analysis applied to U.S. small-value stocks. We see the same patterns but with even larger magnitudes. Source: Avantis Investors. Data from 7/1/1926 – 2/28/2025. U.S. stocks sourced from the Center for Research in Security Prices (CRSP) include all firms incorporated in the US and listed on the NYSE, AMEX, or NASDAQ. This is what tends to happen after market anxiety and uncertainty subsides. Discount rates (the return investors demand to hold stocks) can go down fast, sending prices up in a hurry. Missing out on those times can have a big impact on investor results. The bottom line? Offense and defense are both important in times of market uncertainty. They help investors manage risk and take advantage of attractive opportunities that may emerge from short-term periods of market fear. In the long run, we believe holding an appropriate portfolio and working closely with your financial advisor to ensure that your financial plan is aligned with your goals is still the best way to achieve financial goals. 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. The source of this article is from Clearnomics and and Avantis Investors and edited by Covenant Wealth Advisors.  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. You can not invest directly in an index and illustrations in this article do not reflect fees or expenses.

Does market timing work? This question has intrigued investors for decades as they seek ways to maximize returns and minimize losses. Market timing—the strategy of moving in and out of the market based on predicted future market movements—promises the allure of buying low and selling high. Picture this: It's March 2020, and the stock market has just plummeted over 30% due to COVID-19 concerns. Your retirement account has taken a significant hit. Your neighbor confidently tells you they sold everything in February, avoiding the crash entirely. They're waiting for the "perfect moment" to get back in. Before you keep reading, be sure to download our free retirement cheat sheets  to potentially help you save money, reduce taxes, and optimize your portfolio for retirement. Meanwhile, you're wondering if you should follow suit or stay invested. This scenario plays out repeatedly during market volatility, tempting even disciplined investors to try their hand at market timing. This scenario plays out repeatedly during market volatility, tempting even disciplined investors to try their hand at market timing. According to Dalbar's Quantitative Analysis of Investor Behavior (QAIB) research , which has studied investor behavior since 1994, the average equity fund investor consistently underperforms the S&P 500 index by a significant margin over long periods, with this performance gap largely attributed to poor market timing decisions and emotional investing behavior. At Covenant Wealth Advisors, we frequently counsel clients who are contemplating market timing strategies. The question remains: Does market timing actually work, or does it create more harm than good for long-term investors? Key Takeaways Market timing attempts to predict future market movements but faces significant challenges due to market efficiency and unpredictability. Historical evidence shows that most professional market timers consistently underperform passive investment strategies over long periods. Missing just a few of the market's best days can dramatically reduce long-term returns. Emotional biases like fear and greed often lead to poor timing decisions. Tax implications and transaction costs further reduce the potential benefits of market timing. Successful market timing requires being right twice—when to exit and when to re-enter the market. Alternative strategies like strategic asset allocation and dollar-cost averaging may yield better results for most investors. Table of Contents What Is Market Timing? The Historical Track Record of Market Timing The Cost of Missing the Market's Best Days Psychological Barriers to Successful Market Timing The Tax and Transaction Cost Problem Alternatives to Market Timing FAQ About Market Timing Conclusion 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 Is Market Timing? Market timing is the strategy of making investment decisions—buying or selling securities—based on predictions about future market price movements. The goal is simple: be in the market during uptrends and out during downtrends. Proponents of market timing use various tools to guide their decisions, including technical analysis (studying price charts and patterns), fundamental analysis (evaluating economic indicators and company financials), and sentiment indicators (gauging investor psychology). "The appeal of market timing is understandable," says Scott Hurt, CPA, CFP® at Covenant Wealth Advisors in Richmond, VA. "Who wouldn't want to avoid a major market collapse while only capturing the upside? Unfortunately, the evidence suggests this approach is more likely to harm rather than help most investors' long-term returns." Market timers typically rely on one of three methods: Tactical asset allocation (making shorter-term adjustments based on market outlook) Technical timing (using chart patterns and technical indicators) Fundamental timing (basing decisions on economic data and valuations). The Historical Track Record of Market Timing The historical performance of market timing strategies tells a compelling story. According to research from S&P Dow Jones Indices through their SPIVA (S&P Indices Versus Active) Scorecards , the majority of active fund managers consistently fail to beat their benchmarks over longer time periods. Their data shows that as time horizons lengthen, the percentage of underperforming active funds typically increases, suggesting that even professional managers with vast resources struggle to time the market successfully. A landmark study by professors Brad Barber and Terrance Odean titled "Trading Is Hazardous to Your Wealth"  examined the trading records of over 66,000 households and found that the most active traders significantly underperformed the market. Their research documented that individual investors who trade frequently tend to earn lower returns than the overall market, with this performance gap often widening during volatile market periods. Additionally, analyses of market timing newsletters and services typically show poor long-term results compared to simple buy-and-hold strategies, further suggesting that systematic market timing is extremely difficult to execute successfully over extended periods, as documented by Index Fund Advisors research . Pro Tip:   Instead of trying to time the market, consider working with a financial advisor to develop a personalized investment plan based on your time horizon, risk tolerance, and financial goals. This approach removes the guesswork and emotional decision-making that often plague market timers. The Cost of Missing the Market's Best Days One of the most significant risks of market timing is missing the market's best days, which often occur during periods of high volatility—sometimes even during bear markets. 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. Research from Clearnomics has analyzed S&P 500 returns and found that missing just a few of the market's best days can dramatically reduce long-term returns. Their analysis shows that over a 25-year period, missing just the 10 best market days reduced annualized returns significantly compared to staying fully invested. What makes market timing particularly challenging is that many of the market's best days occur shortly after its worst days, often within a two-week period, as reported by The Motley Fool . Consider an investor who put $1,000 in the S&P 500 index and remained invested over a 25-year period, according to Clearnomics research, A fully invested strategy would have grown to approximately $4,477 Missing just the 10 best days would have yielded only $1,993 Missing the 20 best days would have yielded about $1,159 This dramatic difference illustrates the high cost of being out of the market during critical periods. Psychological Barriers to Successful Market Timing Human psychology presents perhaps the greatest obstacle to successful market timing. Our brains are wired with biases that work against us in investing. Fear and greed drive many timing decisions. When markets decline sharply, fear often leads investors to sell after much of the damage is already done. Conversely, greed or FOMO (fear of missing out) can drive investors back into markets after significant rallies have already occurred—buying high and selling low, the opposite of successful investing. Confirmation bias leads us to seek information that confirms our existing beliefs while ignoring contradictory evidence. An investor convinced a market crash is imminent will focus on negative news while dismissing positive economic indicators. Recency bias causes us to overweight recent events in our decision-making. After a prolonged bull market, investors may become complacent about risk; after a crash, they often become excessively cautious. "If you are looking for someone to blame due to your investment strategy not working, try looking in the mirror. It's probably you." notes Matt Brennan, CFP® at Covenant Wealth Advisors in Reston, VA. "It's nearly impossible to remove emotion from making prudent investment decisions. Our emotional reactions to market movements often lead to poor timing decisions that can significantly impact long-term performance." The Tax and Transaction Cost Problem Even if investors could perfectly predict market movements (which evidence suggests they cannot), tax implications and transaction costs would still erode returns from market timing strategies. Frequent trading generates short-term capital gains, which are typically taxed at higher rates than long-term gains. For high-income investors, the difference can be substantial—potentially 20% or more when accounting for federal and state taxes. Transaction costs, while lower than in previous decades, still impact returns—especially for frequent traders. These costs include bid-ask spreads, brokerage commissions (where applicable), and market impact costs when trading larger positions. For a high-net-worth investor in a high tax bracket, these combined costs can easily reduce returns by 1-2% annually—a significant drag that compounds over time. Pro Tip:  If you're concerned about market volatility, consider implementing a tax-efficient defensive strategy rather than moving to cash. Options include increasing allocations to lower-volatility assets, using tax-loss harvesting opportunities, or implementing options strategies that provide downside protection while maintaining market exposure. Alternatives to Market Timing Rather than attempting to time the market, investors can employ several proven strategies that offer better odds of long-term success: Strategic Asset Allocation:  Developing a diversified portfolio based on your risk tolerance, time horizon, and financial goals provides a framework that doesn't rely on market predictions. Research shows that asset allocation explains over 90% of portfolio return variability over time. Dollar-Cost Averaging:  Investing fixed amounts at regular intervals automatically buys more shares when prices are low and fewer when prices are high. This disciplined approach removes the guesswork of market timing. Systematic Rebalancing:  Periodically adjusting your portfolio back to target allocations helps maintain your desired risk level while potentially enhancing returns through a disciplined buy-low, sell-high approach. Core and Satellite Approach:  Maintaining a core portfolio of passive investments while using a smaller portion for tactical opportunities can satisfy the desire for active management without risking your entire portfolio. These alternatives provide the structure and discipline that market timing lacks, typically leading to better long-term outcomes for most investors. 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. FAQ About Market Timing Has anyone consistently succeeded at market timing? While some investors and fund managers have had periods of successful market timing, virtually none have demonstrated consistent success through skill over decades. Even renowned investors like Warren Buffett advocate against market timing for most investors. What are the warning signs of a market timing strategy that's likely to fail? Be wary of strategies that claim to predict exact market tops and bottoms, rely heavily on past patterns repeating exactly, or promise returns significantly above market averages with lower risk. These claims typically don't withstand scrutiny. Is there ever a good time to adjust market exposure? If stock have gone up and your portfolio stock exposure is overweight to your target allocation, then you may consider rebalancing your portfolio back to your intended target. Conversely, if stock markets drop, your stock exposure may be lower than intended which could be a time to sell less risky assets and by more stocks. How does market timing affect retirement planning? For retirees, failed market timing can be particularly damaging due to sequence-of-returns risk . Selling during market downturns can permanently impair a retirement portfolio, especially when withdrawals are being taken simultaneously. What's the difference between tactical asset allocation and market timing? Tactical asset allocation involves making modest, disciplined adjustments to portfolio weightings based on relative valuations and economic conditions. Unlike pure market timing, it typically maintains market exposure while tilting toward areas with better risk/reward profiles. Conclusion Does market timing work? The evidence overwhelmingly suggests that for most investors, the answer is no. The combination of efficient markets, the difficulty of predicting short-term movements, psychological biases, tax implications, and transaction costs creates nearly insurmountable barriers to successful market timing. The most reliable path to long-term investment success remains a disciplined approach focused on proper asset allocation, diversification, regular investing, and periodic rebalancing. These strategies may not offer the excitement or theoretical upside of perfectly timing market moves, but they provide something far more valuable: realistic odds of achieving your financial goals. Financial markets will always experience periods of volatility and uncertainty. Rather than trying to predict these movements, focus on building a portfolio that can weather various market conditions while keeping you on track toward your long-term objectives. Could you use help positioning your investment portfolio to better navigate to and through retirement? Schedule a call today for a free Strategy Session that includes a comprehensive evaluation of your portfolio. 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.

We are thrilled to announce that Mark Fonville, CFP®, CEO and Financial Advisor at Covenant Wealth Advisors, has been recognized by Forbes as one of the 2025 Best-In-State Wealth Advisors for Virginia .  Mark secured a spot on the list for the state of Virginia – South region, underscoring his commitment to delivering exceptional financial guidance and personalized service to his clients. This is the second time that Mark has been recognized by Forbes.​ This prestigious accolade, developed by Forbes in partnership with SHOOK Research, evaluates advisors based on a rigorous methodology that includes qualitative and quantitative factors such as industry experience, assets under management, client retention, and compliance records. Importantly, investment performance is not a criterion, ensuring that the focus remains on advisors who prioritize client interests and uphold the highest standards of integrity and professionalism.​ Mark's dedication to his clients and his unwavering commitment to fiduciary principles have been the cornerstone of his success. As a CERTIFIED FINANCIAL PLANNER™ professional, he has consistently demonstrated a deep understanding of the complexities of financial planning, helping individuals navigate their financial journeys with confidence and clarity.​ At Covenant Wealth Advisors, we are proud to have Mark leading our team. His recognition by Forbes is not only a testament to his individual excellence but also reflects our collective mission to provide comprehensive, client-focused wealth management services.​ For more information about Mark Fonville and Covenant Wealth Advisors, please visit our website. About the author: Matt Brennan, CFP® Senior Financial Advisor and Vice President 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 but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice. CWA was nominated for the Forbes Best-In-State Wealth Advisor 2025 ranking for Virginia in April of 2025. Forbes Best-In-State Wealth Advisor full ranking disclosure. Read more about Forbes ranking and methodology here.

Meet John, a successful 58-year-old executive with a seven-figure investment portfolio who kept telling himself, "I'll get serious about retirement planning next year." For a decade, "next year" never arrived. When he finally calculated his retirement readiness, he discovered that his procrastination had cost him over $400,000 in potential wealth. The statistics paint a sobering picture: 64% of Americans worry more about running out of money than death. This data comes from a 2025 Allianz Life study. Procrastination in retirement planning is the silent wealth destroyer that affects even the most financially successful individuals. Unlike market volatility or inflation, this threat operates invisibly, stealing your most valuable resource—time—without triggering any immediate pain or warning signals. Each month of delay represents compounding opportunities permanently lost and tax advantages that may never return. For successful professionals and business owners, retirement procrastination rarely stems from laziness. Instead, it's often the paradoxical result of the very traits that built your success: analytical thinking that seeks perfect information, busy schedules filled with higher-priority demands, and confidence in your ability to catch up later. The good news? Unlike market performance or tax policy changes, procrastination is entirely within your control. With the right approach, you can reclaim hundreds of thousands in potential retirement wealth—starting today. Key Takeaways Delaying retirement planning by just 10 years can reduce your potential savings by more than 60%. Procrastination affects even financially successful people due to cognitive biases and emotional barriers. Missed employer matches, delayed debt reduction, and postponed tax planning create significant financial losses. Time-sensitive decisions like Social Security claiming and Roth conversions cannot be reversed if delayed too long. Creating even a simple one-page retirement plan today can break the procrastination cycle and set you on a better path. Working with a financial advisor creates accountability that helps overcome planning delays. Procrastination increases financial anxiety rather than relieving it. Table of Contents The Psychology of Procrastination The Stealthy Financial Impact Decisions You Can't Afford to Delay The Emotional Cost How to Catch the Thief FAQ Conclusion 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 Psychology of Procrastination Why Smart People Procrastinate Procrastination in retirement planning affects even the most financially successful people. You might excel at building your career and managing your business, yet still delay critical retirement decisions. This paradox exists because our brains are wired with cognitive biases that make future planning difficult. Present bias —our tendency to value immediate rewards over future benefits—makes saving for a distant retirement feel less satisfying than current spending. Studies show we literally view our future selves as strangers, making it easy to leave problems for "future you" to handle. Emotional barriers play an equally powerful role. Fear of making the wrong decision can lead to analysis paralysis, where you gather endless information without taking action. Perfectionism traps many successful professionals, who delay planning until they can "do it right" with complete information. The Comfort of "Later" Retirement always feels distant until suddenly it's not. This false sense of abundant time creates a dangerous comfort zone where small delays compound into major planning gaps. The reality? A 55-year-old today has approximately 120 monthly contributions remaining before typical retirement age. That finite number shrinks with each passing month of procrastination. The Stealthy Financial Impact Missed Compounding Opportunities The most devastating impact of procrastination is the silent theft of compound growth. When you delay retirement contributions, you don't just lose the initial investment—you lose all future growth it would have generated. For example, investing $2,500 per month from age 45 to 65 at a 7% annual return would grow to approximately $1,057,000. If you wait and invest the same amount from age 55 to 65, you’d accumulate only about $412,000. That’s a difference of over $645,000, or nearly 61% less, due to starting 10 years later. Employer Matches Left on the Table Procrastinating on retirement contributions often means missing employer matching funds—literally declining free money. A person earning $150,000 annually who fails to contribute enough to secure a 5% employer match leaves $7,500 on the table each year. "I see clients who've missed tens of thousands in matching contributions simply because they never got around to increasing their contribution percentage," says Mark Fonville, CFP® at Covenant Wealth Advisors in Richmond, VA. "That's money they earned but never received." Delayed Debt Reduction Carrying debt into retirement significantly increases your required withdrawals from retirement accounts. Every dollar of monthly debt payment requires approximately $250-$300 in retirement savings (assuming a 4% withdrawal rate). Procrastinating on debt reduction means you'll need a substantially larger nest egg to maintain your lifestyle, or you'll need to make difficult spending cuts at a time when you have fewer options to increase income. No Written Retirement Plan According to a Schwab study , only 36% of Americans have a written financial plan. Without this roadmap, it's remarkably easy to drift through your highest earning years without maximizing your opportunities. Pro Tip:  Create a simple one-page retirement plan today with just four elements: your target retirement age, estimated expenses, income sources, and required savings. Even an imperfect plan provides direction that can be refined over time. Decisions You Can't Afford to Delay When to Claim Social Security Social Security claiming is one of the most consequential and irreversible financial decisions most Americans make. Delaying benefits from age 62 to 70 can increase your monthly payment by approximately 76%. For a couple with typical life expectancies, optimizing Social Security claiming strategies can generate over $100,000 in additional lifetime benefits . Yet many people claim early without analysis simply because they procrastinated on creating a thoughtful claiming strategy. Tax Planning and Roth Conversions Strategic tax planning, particularly Roth conversion opportunities, operates within specific calendar and age-based windows. Procrastinators often miss years of tax arbitrage opportunities that cannot be recovered. "The clients who benefit most from tax planning are those who start 5-10 years before retirement," explains Megan Waters, CFP® at Covenant Wealth Advisors in Richmond, VA. "Those who wait until retirement often discover that their optimal conversion window has narrowed significantly." Long-Term Care Planning Long-term care insurance and alternative funding strategies become more expensive—or even unavailable—with each year of delay. Waiting until health issues emerge often means paying substantially higher premiums or facing outright rejection. The average cost of a private room in a nursing home now exceeds $100,000 annually , with costs continuing to rise faster than general inflation. Procrastinating on this planning element can devastate even substantial retirement savings. The Emotional Cost Anxiety and Regret Contrary to what many believe, procrastination doesn't relieve financial anxiety—it intensifies it. Research published by Soomin Ryu and Lu Fan shows that financial avoidance behaviors correlate strongly with increased stress levels and decreased well-being over time . When retirement approaches, procrastinators often experience pronounced regret upon realizing the opportunities they've permanently lost. This regret can cast a shadow over what should be an empowering life transition. Relationship Strain Financial procrastination frequently leads to relationship conflicts, particularly among couples with differing planning tendencies. One partner's postponement of important financial decisions can create resentment and undermine trust in the relationship. Children of procrastinating parents may also face difficult caregiving decisions without clear guidance, creating family tension during already challenging times. How to Catch the Thief Identify Your Procrastination Triggers Understanding why you delay retirement planning is the first step toward creating change. Do you avoid planning conversations because of uncertainty about the future? Does perfectionism prevent you from making decisions until you have "all the information"? Self-awareness creates the opportunity to develop targeted strategies rather than general motivation. Different procrastination triggers require different solutions. Simple Actions to Take Now Break the procrastination cycle with small, manageable actions. Use a Free Retirement Income Calculator: Download our free retirement calculator that outlines your basic income goals and current resources. Even an imperfect plan provides direction that can be refined over time. Schedule a recurring 30-minute quarterly check-in with you and your spouse on your retirement goals. Get a tailored retirement plan (for free) that covers many of your most important retirement questions. You can schedule your plan here. Brief, regular attention prevents major planning gaps from developing and makes larger decisions less overwhelming. Pro Tip:  Use the "two-minute rule"—if a retirement planning task takes less than two minutes (like increasing your 401(k) contribution percentage online), do it immediately rather than postponing it. Consider working with a financial advisor who provides both expertise and accountability around retirement . External accountability significantly increases follow-through on financial intentions and provides objective guidance when emotions threaten to derail your planning. 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. FAQs Q: I'm already 55—is it too late to recover from retirement procrastination? A: It's never too late to improve your retirement outlook. At 55, you still have 10+ years of saving potential, catch-up contribution opportunities, and time to optimize tax strategies. Focus on maximizing your highest-impact opportunities, like increasing savings rate, optimizing asset location for tax efficiency, and creating a Social Security claiming strategy. Q: How do I know if I'm procrastinating or just being thorough in my research? A: Research becomes procrastination when it prevents action over extended periods. If you've been researching the same retirement questions for months without implementing decisions, you're likely caught in analysis paralysis. Break the cycle by setting decision deadlines and starting with small, reversible actions that create momentum. The most successful people take action. Q: What's the single most impactful action I can take today to combat retirement procrastination? A: Schedule a Strategy Session with a qualified financial advisor who specializes in retirement transitions. This creates immediate accountability, provides expert guidance tailored to your situation, and ensures you address the highest-impact opportunities first. Even one structured planning session can significantly alter your retirement trajectory. Q: How can I help my spouse who procrastinates on retirement planning? A: Rather than focusing on the procrastination itself, identify and address the underlying emotions—often fear, uncertainty, or feeling overwhelmed. Start with bite-sized planning conversations focused on goals and values rather than numbers. For example, ask: "What if we could increase the amount of travel in retirement. Would that be exciting for you?" Consider working with a financial advisor who can serve as a neutral third party to facilitate productive discussions. Conclusion Procrastination silently robs thousands of dollars from retirement accounts every day through missed growth opportunities, overlooked tax strategies, and suboptimal financial decisions. Unlike market volatility or inflation, procrastination is entirely within your control to address. The good news? Even small actions taken today can dramatically alter your retirement trajectory. Creating a simple one-page plan, scheduling a financial review, or increasing your savings rate by just 1% breaks the inertia that feeds procrastination. Your future self—who is more real than you might realize—will thank you for catching this retirement thief before it takes any more of what you've worked so hard to build. Would you like our team to just do your retirement planning for you? Contact us today for a free Strategy Session 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 but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

We're humbled to announce that Covenant Wealth Advisors has been recognized by USA Today and Statista as one of the Best Financial Advisory Firms for 2025 . As one of only five firms selected from Virginia, this recognition reflects our unwavering commitment to putting our clients first in everything we do. What This Recognition Means to Us This acknowledgment isn't about accolades or achievements—it's about the trust our clients place in us every day. In a financial landscape marked by volatility, uncertainty, and rapid change, we understand that who you choose as your financial partner matters more than ever. The USA Today/Statista rankings evaluate firms based on assets under management growth and—most meaningfully to us—recommendations from clients and peers. While we're proud of our growth, it's the relationships we've built and the financial peace of mind we've helped create that truly define our success. Our Commitment as a Fiduciary As a Registered Investment Adviser (RIA), we take our fiduciary responsibility seriously. This isn't just a legal obligation—it's the foundation of our practice. We are committed to: Always acting in our clients' best interests Providing fee-based services that align our success with yours Taking a holistic approach to your financial wellbeing Offering transparent, objective advice Looking Forward In times of economic uncertainty, having a trusted partner to navigate the complexities of the financial markets becomes even more crucial. Whether it's responding to market shifts, planning for retirement, or building generational wealth, our team remains dedicated to providing steady guidance through all of life's financial seasons. This recognition reinforces our mission, but our focus remains unchanged: to serve our clients with integrity, expertise, and personalized attention. We extend our deepest gratitude to our clients for their trust and to our team for their dedication to excellence. Thank you for allowing us to be part of your financial journey. If you're considering working with a financial adviser, we invite you to learn more about our approach and how we might serve you. Every financial journey is unique, and we're here to help navigate yours. 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.

High-net-worth investors face complex decisions as they approach retirement, and the evidence shows that working with a financial advisor can yield significant benefits.   Below we summarize key advantages – both quantitative and qualitative – of hiring a financial advisor versus a DIY approach, with data from recent reputable studies. Key Takeaways: The Value of a Financial Advisor Financial advisors may boost annual portfolio returns by 3%–5%  through smart planning, tax strategy, rebalancing, and behavioral coaching—using both offensive strategy (optimizing investments) and defensive strategy (minimizing tax liabilities and managing risk) to significantly outpace DIY investors over time. A financial advisor supports clients throughout their financial journey , helping them adapt to changing goals and circumstances while providing ongoing guidance and expertise. Behavioral mistakes may reduce wealth by nearly 30% , but a financial advisor helps clients avoid emotional decisions like panic selling and chasing performance. Advised investors build 3× more net worth and 4× more investable assets  than non-advised investors, according to research—highlighting the long-term financial value of professional advice. Tax-efficient investing and withdrawal strategies may preserve 1%–2% more annually , which compounds to hundreds of thousands in additional wealth for high-net-worth investors. Estate and legacy planning guidance helps preserve wealth , minimize taxes, and avoid family conflict—yet nearly 30% of investors still lack a formal plan. Retirement income planning with an advisor may increase income by 20% or more , helping clients retire earlier, claim Social Security optimally, and avoid outliving their money. Financial advisors act as a personal CFO , coordinating investments, taxes, estate plans, and business interests to reduce complexity and give clients greater peace of mind. ROI, Asset Allocation, and Net Worth Outcomes with an Advisor vs. DIY High-net-worth individuals who get professional advice often see measurably better financial outcomes over time. Advisors typically add significant value by focusing on the main value drivers of optimizing investments and minimizing tax liabilities. Source: More on the Value of Financial Advisors For example, one extensive study found that investors who work with a financial advisor accumulate nearly 3× the net worth and 4× the investable assets  of otherwise similar non advised individuals. This highlights how financial advisors add value compared to those without professional guidance. In the same research paper, 61% of advised investors “strongly agreed”  that their advisor had a positive impact on their investment performance. Vanguard’s research likewise estimates that following wealth management “best practices”  with an advisor can add about 3% in net annual returns  to a client’s portfolio (after the advisor’s fees). The two primary categories of value are optimizing investments (offensive strategy) and minimizing tax liabilities (defensive strategy). Similarly, Russell Investments’ 2022 analysis quantified a holistic advisor’s benefit at roughly 4.9% per year  of added investment returns through a combination of better planning, coaching, rebalancing, and tax strategy. These studies and analyses rely on gathering comprehensive data to assess advisor impact, but often the model employs proxies and reasonable projections to forecast financial scenarios and estimate lifetime value and final net worth. Technical finance limitations impact the accuracy of these projections, and past performance is not a guarantee of future results. 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. Over the long run, even a 2–4% annual improvement can compound to dramatically higher ending wealth – a key reason many wealthy investors attribute superior ROI and net-worth growth to professional advice. Behavioral Coaching and Fewer Investment Mistakes One of the most critical (and often underappreciated) values of an advisor is as a behavioral coach  who helps investors avoid destructive mistakes. Behavioral finance research shows how internal factors and emotional biases can derail financial success if not properly managed. Consistent data shows that the average DIY investor significantly underperforms their own investments due to timing errors – buying high, selling low, and chasing trends. Morningstar’s Mind the Gap study (2014–2023)  revealed that the average fund investor underperformed the very funds they invested in by 1.1% annually , primarily due to poor market timing—buying high and selling low. While that might not sound like much, the long-term impact is significant. Over time, this “behavior gap”  can erode over 29% of an investor’s potential wealth . Consider John and Betty, who start with a $1.5 million portfolio. If they earn a 6.3% average annual return over 25 years with no withdrawals, their portfolio would grow to $6.9 million . But if they had avoided common behavioral mistakes and earned just 1.1% more annually—achieving a 7.4% return instead—their ending balance would have reached nearly $8.94 million . That’s a difference of $2 million , or a 29.35% increase in wealth from this hypothetical scenario , simply from making better investment decisions—and that’s exactly where a financial advisor adds value. Both behavioral finance and technical factors influence financial decisions, leading to varied financial choices that can significantly impact long-term outcomes. Advisors add value by preventing panic selling and keeping clients disciplined; Vanguard notes that during periods of market euphoria or panic, good advisors can save clients “tens of percentage points” of performance  that would have been lost to emotional reactions. Understanding a client's risk tolerance is key to developing a plan that avoids such obstacles and supports long-term financial success. Research confirms the impact : Households that kept working with a financial advisor during a volatile period (2010–2014) saw their assets grow +16.4%, while those who dropped their advisor saw only a +1.7% increase. Similarly, advised individuals in the 2007–2009 downturn experienced about 20% less wealth volatility and a 6% higher risk-adjusted return  than those without advice. In short, an advisor’s guidance helps investors stick to a sound plan and avoid costly missteps – arguably contributing the single largest increment (often 1–2% or more per year) of an advisor’s total value. Time Savings and Peace of Mind In our experience at Covenant Wealth Advisors, we find that many affluent investors simply don’t have the time or desire  to manage complex financial matters day-to-day, and hiring an advisor provides peace of mind that an expert is watching over their wealth. Moreover, freeing up an individuals time may allow them to focus on getting more enjoyment out of life or being more successful in their career. A Vanguard survey of 1,500 investors found that clients with a traditional advisor are 20% less likely to feel they have the time, willingness, and ability to manage their own portfolios , which directly correlates with a “high peace of mind”  when working with a professional. In practice, outsourcing investment and financial planning frees up substantial personal time – no more hours spent poring over markets or tax law – allowing clients to focus on family, career, or enjoying retirement. Working with a financial advisor is an ongoing process that adapts to clients' evolving needs and circumstances. Notably, most DIY investors lack confidence  in their financial handling: in one survey, of the one-third of Americans who handle all their own investments, only 33% said they feel confident doing  so. By contrast, advised individuals report greater confidence and security. In a global investor study , people ultimately ranked “sense of security/peace of mind”  and personal financial understanding as the top benefits they receive from their advisor relationship – even above investment performance. Knowing a trusted expert is coordinating one’s financial life can reduce money-related stress (which 52% of Americans admit struggling to control and bring immense peace of mind alongside the hard numbers.) Tax Planning Advantages: Minimizing Tax Liabilities (Keeping More of What You Earn) For high-net-worth investors, tax planning can make a huge difference  in net returns – and advisors excel at optimizing taxes across investments. It’s often said that “it’s not what you make, it’s what you keep.”  Professional financial advice and accounting advice are essential for navigating complex tax laws and optimizing tax liabilities. Without careful tax management, investors can lose a substantial chunk of returns to Uncle Sam. For instance, the average investor in a typical (non-tax-managed) U.S. equity fund gave up 2.14% per year of their returns to taxes, whereas investors using tax-managed funds lost only 0.92%  – meaning roughly 1.2% in annual return was preserved  through tax-efficient strategies. Minimizing tax liabilities is a key way advisors deliver significant value to both new and seasoned investors. Over time, that difference is enormous, especially on a large taxable portfolio. Advisors add value by locating assets in the most tax-advantaged accounts, harvesting tax losses, and timing withdrawals to minimize tax drag. Vanguard’s analysis suggests that savvy asset location and withdrawal planning can add on the order of 0.5%–1%  in yearly net return for many clients. And beyond portfolio tactics, advisors guide strategies like charitable giving, Roth conversions, or business-ownership tax breaks that DIY investors may overlook. (Notably, Vanguard points out that their 3% advisor alpha estimate excluded  advanced services like detailed tax-loss harvesting and charitable or estate planning, which can add significant additional value  on top.) Surveys also show clients truly value this help – behavioral research found that while investors often underestimate the need for behavioral coaching, advisors themselves underestimated how important tax-efficient strategies are to clients’ satisfaction . In summary, effective tax planning under an advisor  can boost after-tax returns and ensure wealth is managed with “what you get to keep”  as a priority. Clients should seek personalized tax advice from qualified professionals to complement the strategies discussed. Estate Planning and Legacy Optimization High-net-worth families tend to have significant legacy and estate considerations , and advisors play a key role in optimizing wealth transfer to the next generation. We are entering an era of an unprecedented “great wealth transfer” : roughly $84 trillion is expected to be passed down  through estates in the coming decades. Yet many are unprepared – According to JustVanilla,   28% of investors have no wealth transfer plan in place , and 83% worry this massive transfer won’t go smoothly. Poor or absent estate planning can be very costly: more than a third of Americans (35%) say they’ve witnessed family conflict due to lack of a clear estate plan and settling an estate in probate can eat up 5–10%  of the estate’s value in legal costs and fees. A good financial advisor will work with estate attorneys to establish wills, trusts, and gifting strategies to minimize taxes (like estate or inheritance taxes)  and ensure your assets pass to heirs as you intend . Advisors also help optimize beneficiary designations, life insurance, and charitable bequests as part of a holistic legacy plan. A well-crafted estate plan should reflect your personal values and long-term wishes for your family and community. Notably, while the very wealthy are more likely to have an estate plan than the general public, even among those with over $25 million, 16% have no will or estate plan  – a risky omission that professionals can help close. By coordinating estate attorneys and using vehicles like trusts, advisors help high-net-worth clients preserve family wealth, avoid unnecessary tax erosion , and set up a legacy that reflects their wishes. The value of this guidance is not only measured in dollars saved, but also in preventing family disputes and providing peace of mind that one’s loved ones will be taken care of according to 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. Retirement Income Planning and Optimization For affluent individuals nearing retirement, an advisor’s expertise can be the difference between a merely sufficient retirement and an optimal one. One immediate benefit is greater retirement readiness and confidence . A 2024 survey ( Northwestern Mutual .)) found Americans who work with a financial advisor plan to retire about 2 years earlier  on average than those who don’t (age 64 vs. 66), and they have saved more than double  for retirement (a median of $132,000 saved vs. $62,000 without an advisor). Crucially, 75% of those with an advisor believe they’ll be financially prepared for retirement, compared to just 45% of those without. Beyond confidence, advisors bring technical expertise to maximize sustainable income. They craft strategies for optimal Social Security claiming, pension elections, and drawdowns  that DIY retirees often miss. According to CBS News , remarkably, about 96% of retirees  claim Social Security at suboptimal times, collectively forfeiting an estimated $3.4 trillion  in lifetime benefits – roughly $111,000 per household  on average – by claiming too early or without guidance. An advisor can help avoid being part of that 96%. Advisors also devise prudent withdrawal plans (e.g. the “4% rule” adjustments , dynamic spending strategies , or annuity inclusion) to ensure you don’t outlive your money. As part of a comprehensive financial plan, advisors can help clients access penalty free withdrawals from retirement accounts, such as a Roth IRA, by navigating complex rules and optimizing cash flow strategies. Morningstar research published by the financial planning association  shows that by making a series of smart retirement planning decisions – from total wealth asset allocation to dynamic withdrawal and tax-efficient allocation – a retiree can generate 22.6% more expected retirement income  versus a basic static approach. This uplift is akin to getting an extra ~1.5% investment alpha every year of retirement! In practice, that could mean the difference between, say, $100,000 vs. $122,600 of annual income in retirement for the same assets. A financial advisor brings all these pieces together into a coordinated retirement plan  that optimizes income streams (Social Security, investments, pensions), mitigates risks like outliving assets or sequence-of-return risk, and adjusts the plan as life unfolds. The result is not only a higher ROI on your retirement dollars , but also confidence that your retirement lifestyle is on solid footing. Coordination of Complex Financial Matters High-net-worth individuals often have complex, interlocking financial matters  – investments across accounts, businesses, properties, taxes, trusts, charitable endeavors, etc. The diverse and personalized nature of financial advice required for these clients means that advisors must tailor their approach to each client's unique financial needs. A key value of a financial advisor is acting as a “financial quarterback”  to coordinate all these moving parts. In practice, wealthy families tend to assemble a team: indeed, 90% of Americans with $5M+ in wealth use at least one financial professional , and 67% of the wealthy employ multiple advisors  (for example, a wealth manager, an attorney, an accountant, and perhaps a specialist planner). This, is according to Investment News . A primary advisor can liaise with your CPA on tax strategy, with your attorney on estate structuring, and with other specialists to ensure everyone is on the same page. This coordination is crucial – the Bank of America Private Bank study found that while almost all rich investors are satisfied with their advisors, only 46% were “highly satisfied” with how well their various advisors communicate with one another. In other words, there is huge opportunity (and demand) for an advisor who can integrate  the advice from different domains and deliver a cohesive plan. A thorough economic analysis is often necessary to coordinate these complex matters effectively, ensuring that the personalized nature of each client's situation is addressed. We believe that this is one of the reasons that our services are in such high demand at Covenant Wealth Advisors. High-net-worth clients also often face unique scenarios (executive compensation plans, sales of businesses, complex trust arrangements, etc.) that require knowledgeable oversight. A good advisor brings experience in handling these complexities, ensuring that one decision (like exercising stock options or selling real estate) is executed in a way that considers tax, legal, and portfolio implications holistically. By having one trusted point-person who understands the “big picture”  of your finances, you get streamlined decision-making and confidence that no part of your wealth is overlooked. This comprehensive coordination is a qualitative benefit that might not show up on a performance report, but it saves time, reduces errors, and adds immense value  for high-net-worth families with multifaceted finances. (Source: Vanguard  and Investment News ). Bottom Line:   What is a Financial Advisor Really Worth? When it comes to quantifying an advisor’s value, the numbers  (higher net returns, greater wealth accumulation, fewer costly mistakes, tax savings, optimized retirement income) are compelling – often amounting to a few percent of additional return per year  or significant dollar gains, which over a lifetime can far outweigh the typical advisory fee. The value of a financial advisor is most readily apparent when considering how they help clients achieve their financial goals through a comprehensive financial plan tailored to the client's portfolio and risk tolerance. But beyond the numbers, high-net-worth investors should also weigh the qualitative benefits : peace of mind, time freed up, confidence in your plan, and expert guidance through life’s financial complexities. Advisors help clients manage risk and adapt to changing market dynamics, external factors, regulatory policies, and technological innovation. As one large investor survey summed up , clients measure the value of their advisor not just in market-beating returns, but in the “security and peace of mind”  they gain from the relationship. In certain industries, such as those dependent on imported materials essential for solar panel production, advisors must also consider trade wars and supply chain risks when strategizing. In a world where investment markets, tax laws, and personal circumstances are always changing, a competent financial advisor  can be an invaluable partner – helping you avoid pitfalls, capitalize on opportunities, and achieve the ultimate goal of financial well-being in retirement . Each individual’s situation is unique, but a trusted advisor’s worth is best judged in the better outcomes and confidence  you achieve with their guidance. The main value drivers and primary categories of advisor value are optimizing investments and minimizing tax liabilities, and a financial advisor strategizes to deliver substantial value and significant value over the long term. Are you interested in seeing how Covenant Wealth Advisors can bring value to your individual financial situation? Contact us for a free Strategy Session today . Value of a Financial Advisor FAQs What is the value of a financial advisor?  A financial advisor helps grow and protect your wealth through personalized planning, investment management, tax strategy, and behavioral coaching. Is a financial advisor worth the cost?  Yes—research shows advisors can add up to 3% or more in net annual returns, often far exceeding their fees. How do advisors improve retirement outcomes?  They optimize Social Security timing, income strategies, and portfolio withdrawals to increase retirement income and reduce risk. Can a financial advisor help lower my taxes?  Absolutely—advisors use tax-efficient investing, asset location, and strategic withdrawals to minimize your tax burden. What’s the biggest difference between DIY investing and using an advisor?  DIY investors often make emotional mistakes, while advisors provide discipline, structure, and better long-term results. 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. These studies and analyses rely on gathering comprehensive data to assess advisor impact, but often the model employs proxies and reasonable projections to forecast financial scenarios and estimate lifetime value and final net worth. Technical finance limitations impact the accuracy of these projections, and past performance is not a guarantee of future results.