Planning
An industry built around accumulation, and then a client retires and every instinct that worked for thirty years inverts.
An entire industry is built around helping people accumulate, and then a client retires and every instinct that worked for thirty years inverts. The decisions are now about which account to draw from, in what order, and at what tax cost.
Most firms handle this with a rule of thumb: taxable first, then tax-deferred, then Roth. It is a reasonable default and it is wrong often enough to be worth examining every time.
Drawing taxable accounts first can leave a client with a large deferred balance that becomes a problem when required distributions begin, potentially pushing them into a higher bracket in their seventies than they occupied in their sixties.
It can also waste the low-bracket years — the window between retiring and the start of required distributions, when a client's income is often at its lowest and conversions or deliberate withdrawals are cheapest they will ever be.
Bracket management across the whole horizon, not year by year. The goal is a smooth marginal rate over decades, which frequently means voluntarily paying tax earlier than required.
The interaction effects. Additional income can affect the taxation of Social Security benefits and can push clients over thresholds affecting Medicare premium surcharges. Both mean the marginal cost of a dollar of income is sometimes far higher than the bracket implies.
The surviving spouse. The bracket structure for a single filer is less generous than for a couple. A plan optimised for two people can be badly wrong for the one who outlives the other, and this is routinely missed.
What is left to heirs, and in which wrapper. Different account types are inherited on very different terms, and the optimal sequence for the client and for their children are not always the same.
The portfolio question in retirement is largely solved. The sequencing question is not, it is genuinely hard, and it is worth more to the client in dollars than most investment decisions you will make for them.
It is also the clearest answer available to "what am I paying you for", because it is specific, quantifiable and impossible for the client to do alone.
Doing this properly requires seeing every account, including the ones you do not manage, and knowing the client's actual tax position rather than an assumed bracket.
Firms that cannot see the whole household in one place tend to default to the rule of thumb, not because they believe in it but because the alternative is a spreadsheet somebody has to maintain.
Questions this did not answer? Ask them directly — that is what the twenty minutes is for.
Book 20 minutes with Kyle