The start of a new year is often when people take a closer look at their financial picture — especially as many begin reviewing documents and scheduling time with their CPA for the upcoming tax season. Yet one of the most important parts of preparing for retirement income often goes unmentioned: how taxes, timing, and withdrawals interact behind the scenes. Most people were never taught how these pieces affect one another, and many advisors never bring it up. But understanding them early in the year can create far more stability in your long-term plan.
Here are three smart moves to consider:
1. Review of Which Accounts Your Income Is Coming From — and Why It Matters
Many people think of retirement income simply as “what I take out each month.” But the source of that income — taxable, tax-deferred, or Roth — affects far more than the tax bill.
There’s a risk many retirees have never been taught about: Sequence of Return Risk — or, as we shorthand it, SORR-Y (“Sequence Of Return Risk… Yikes”). Once you understand it, you’ll wonder why no one mentioned it sooner.
Whether you’ve already started taking withdrawals or haven’t touched your accounts yet, this is an ideal time to review your approach. Those who haven’t begun drawing income can set themselves up with a strong strategy from the start, and those already taking withdrawals can still benefit from making adjustments that improve long-term stability.
The order of withdrawals affects how long your money lasts, how much income you keep, and even whether Social Security becomes taxable. Drawing from the wrong bucket at the wrong time — especially during market fluctuations — can shrink a portfolio faster than most retirees expect.
This doesn’t require complicated formulas, just awareness and intention. Reviewing your withdrawal approach early in the year helps ensure you’re following a strategy rather than relying on guesswork or habit.
2. Understand How Income Affects Social Security & Medicare
Many retirees are surprised to learn that taking income from certain accounts can increase the portion of Social Security that becomes taxable — or even raise Medicare premiums the following year.
For example, drawing too much from tax-deferred accounts in a single year can trigger higher Medicare brackets (known as IRMAA adjustments). The goal isn’t to take less income — it’s to understand how the different pieces fit together so you can avoid unexpected costs.
3. Look Ahead to Future RMDs — Before They Sneak Up on You
Required Minimum Distributions often arrive faster — and hit harder — than retirees expect. When they do, they can stack on top of Social Security, pension income, and investment gains, creating an uncomfortably high tax bill.
Planning ahead doesn’t mean withdrawing early or changing your lifestyle. It simply means thinking about how today’s decisions shape tomorrow’s taxes and preventing surprises later.
A Smart Next Step
If you’ve ever wondered why some retirees navigate taxes and income with ease while others feel blindsided, it often comes down to this: they’re using a coordinated approach instead of handling each piece separately.
If you’re entering the new year wanting more clarity around how your income, taxes, and long-term plan fit together, this is an ideal time to revisit your strategy. Even a few thoughtful adjustments can help you feel more confident — and better positioned — in the year ahead.
Keith Leverentz, NSSA®, is the founder of The Life Group, guiding clients since 2003 with personalized financial planning, investment counsel, and retirement strategies. Learn more and view upcoming financial seminars at thelifegroupllc.com.
This article was originally published in CHOICES For Fifty Plus, a Dubuque area magazine for people that are 50 and older. Single copies are available at Dubuque area newsstands or click here to read the digital version of the latest issue.
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