For engineers and DIY investors close to retirement, Ritholtz Wealth Management does retirement income planning that combines 401(k)s, IRAs, pensions and brokerage accounts into a single monthly deposit with a set draw order. You get a draw order naming which account pays each month, mapped from the last paycheck through age 75, when required minimum distributions begin for people born in 1960 or later.
What age does retirement income planning start to matter?
Couples often assume income planning begins on the retirement date. The useful work usually starts three to five years earlier, because age 59½, Social Security at 62, and Medicare at 65 can all change the monthly draw before the first paycheck disappears. For hypothetical Ramon, age 61, that window is now: he is one year from earliest Social Security, Yolanda’s pension already pays, and $1.1M sits in four accounts with different tax rules.
The Social Security Administration says benefits can begin at 62, while full retirement age is 67 for people born in 1960 or later. Medicare costs also replace employer coverage at 65. A plan that treats every account as one pile of money misses the part where the rules arrive at different times.
| Milestone | Ramon | Yolanda | What it changes in the paycheck |
|---|---|---|---|
| 59½: IRA penalty ends | Already passed | In five months | Her IRA can join draw |
| 62: earliest Social Security | In one year | In three years | Benefit 30% lower than at 67 |
| 65: Medicare | In four years | In six years | Premiums replace employer coverage |
| 67: full retirement age | In six years | In eight years | Unreduced benefit available |
| 75: RMDs begin | In 14 years | In 16 years | Forced IRA withdrawals start |
When taxes, Social Security and the will pull on the same dollars
A couple may see taxes, claiming, and estate paperwork as separate jobs. They are tied together because every account sale changes taxable income, and the IRS says up to 85% of Social Security benefits may be taxable. Beneficiary forms on a 401(k) and IRA generally pass outside a will, so a will alone does not settle who receives those accounts.
When Ritholtz Wealth Management changes the draw order, it checks whether beneficiary paperwork still fits the estate documents and records which decisions await the Social Security claiming choice. A separate Roth conversion strategy may be useful, but it is not folded into this income plan without first measuring the tax effect.
Five steps from account balances to a monthly paycheck at Ritholtz Wealth Management
People often begin with a portfolio return guess. Ritholtz Wealth Management begins with the net amount that must arrive in the checking account, then tests whether each account can legally and tax-efficiently supply it at that age. Market forecasts do not decide the draw order; long-term diversification and the known tax and age rules do.
For Ramon and Yolanda, the starting request is $8K a month after tax. Yolanda’s small state pension supplies about $1,200 a month, leaving a $6,800 gap. That gap is the number the account schedule has to cover, month after month.
Start with the after-tax gap
Change the plan when facts change
- 1. Net spending: Set the monthly amount after tax, not the gross withdrawal amount.
- 2. Income already arriving: List pension income and both spouses’ Social Security estimates at ages 62, 67, and 70.
- 3. Age access: Mark which spouse can use each account without an early-withdrawal penalty.
- 4. Written draw order: Name the account that fills each month’s gap and estimate federal tax by year. Any growth assumption is labeled, such as “assuming 4% a year, for illustration.”
- 5. Real-event review: Rework the order after Ramon’s last day, a Social Security claim, a large market drop, or a tax-law change. The calendar alone is not a reason to trade.
If one of us is still under 59½
The smallest account can look like the obvious account to empty first. The IRS generally charges a 10% additional tax on an IRA withdrawal before age 59½ unless an exception applies, and that age follows the account owner, not the household. Yolanda is 59, so her IRA should stay out of the monthly draw for five more months unless a confirmed exception applies.
Ramon is past 59½, so withdrawals from his IRA are not subject to that age-based penalty. Their $200K brokerage account also offers a temporary source of cash. A brokerage sale is not tax-free, but only its gain is generally taxable, while an IRA withdrawal is generally taxable income.
For illustration, Ramon retires in spring. He and Yolanda spend $8K a month after tax, and her pension pays about $1,200 a month, leaving a $6,800 monthly gap. Their first draft takes that gap from Yolanda’s IRA because it is the smallest account. But she turns 59½ five months later.
Five months × $6,800 = $34K. A 10% penalty on $34K is $3,400, on top of regular income tax. Funding those five months from the $200K brokerage account produces a $0 early-withdrawal penalty; the same is true if Ramon’s IRA supplies the money. The brokerage-first months can also keep ordinary income lower, although capital gains still need to be measured.
At 59½, Yolanda’s IRA joins the monthly draw. That is a small timing change with a visible price tag. The plan does not remove market risk: every holding in these accounts can fall in price, and the couple could end up with less than they originally invested.
A Roth conversion strategy can change future account balances and taxes, but it deserves its own calculation before it is added to this draw order.
The penalty follows the account owner
A five-month error costs $3,400
Until the younger spouse turns 59½, keep that spouse’s IRA out of the monthly draw unless a penalty exception is confirmed. Use taxable brokerage assets or accounts owned by a spouse already past 59½ for those months.
How much does a gross budget plus missing withholding cost together?
Budgeting $6,800 of IRA withdrawals as take-home pay, then electing no federal withholding, can leave a tax bill that is larger than expected. For illustration, 12 × $6,800 = $81,600 of withdrawals; at an assumed 15% combined tax, $12,240 is owed in April, plus a possible underpayment penalty. The IRS reports IRA distributions on Form 1099-R, so the withdrawal does not disappear because no tax was withheld.
Paying that $12,240 bill from the IRA requires about $14,400, because $12,240 ÷ 0.85 = $14,400 and that extra withdrawal is taxed too. Ritholtz Wealth Management builds the spending figure in net dollars and addresses withholding or quarterly estimated payments in the month withdrawals begin.
Your questions about retirement income planning, answered
Isn't a retirement income plan just the 4% rule with nicer formatting?
No. A 4% starting withdrawal idea does not decide which spouse’s account pays in a given month, how withholding is handled, or whether age 59½ creates a penalty. Ritholtz Wealth Management turns a spending need into an account-by-account schedule, then revisits it when a pension, claim, market decline, or tax law changes.
If we draw from the brokerage account first and the market drops, can we change the order later?
Yes, the draw order can change when facts change. A market drop may call for using available cash, reducing discretionary spending, or changing which account supplies the next months. The written plan is a decision record, not a promise to sell the same holding every month regardless of conditions.
My firm will let me keep my 401(k) after I retire at 61; can the monthly withdrawals come straight from it?
They may, but first check the plan’s withdrawal options, timing, and withholding choices. Some plans permit regular installments while others make them awkward. Ritholtz Wealth Management compares that access with your IRA and brokerage choices before naming the 401(k) as a monthly income source.
How much of a withdrawal from a $200K brokerage account counts as taxable income?
Only the gain portion of a taxable brokerage sale generally counts as taxable capital gain, not the full sale amount. Selling $6,800 of shares with a $5,500 cost basis creates a $1,300 gain. Cost basis records matter, and the IRS may require Form 8949 for sales reporting.
My wife retired from teaching three years before me; do we plan income as one household or two?
Plan the cash need as one household, then assign withdrawals by account owner and age. Her pension may reduce the household gap, but her IRA age and beneficiary choices remain hers. That distinction is why a couple’s spreadsheet can look correct while its first withdrawal still triggers an avoidable penalty.
How long before the last paycheck should the income plan be done?
Finish the draw order before the first month without a paycheck. Ideally do it while a salary is still arriving, so an error can be fixed before it costs anything. Ramon needs it before his last day because the first five months depend on Yolanda’s age-59½ timing.
If pension and Social Security income already pays for almost everything the household spends, a full income plan adds little; a short draw order you write yourself may be enough.
Ritholtz Wealth Management asks you to send the request form, then uses the first conversation to discuss spending, accounts, and the fee. The fee is discussed openly and confirmed in writing before work begins. The client minimum is $500K in investable assets.
- Pension estimate letter: Bring the monthly amount and survivor option.
- Social Security estimates: Bring both spouses’ amounts at 62, 67, and 70.
- Latest statements: Bring all four accounts and brokerage cost basis.
Five months × $6,800 = $34K, and a 10% early-withdrawal penalty is $3,400.
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This article provides general information only and is not individualized investment, tax or legal advice. Investing involves risk, including the possible loss of principal. Talk to a qualified professional about your specific situation before making any financial moves.