Designing a Sustainable Withdrawal Strategy for High-Net-Worth Retirees

For affluent retirees, managing income and assets in a way that sustains lifestyle goals, minimizes taxes, and preserves family legacies is a main priority. With multiple income sources, high-net-worth (HNW) individuals face more complex withdrawal decisions that require coordination across investments, considering the full breadth of their substantial portfolios, tax ramifications, and estate plans.  A thoughtful withdrawal strategy can transform accumulated wealth into a steady, tax-efficient income stream that supports current living and long-term goals.  Here are some components of a successful withdrawal strategy.

Set a Reasonable Withdrawal Rate

Financial planners help clients determine an annual withdrawal percentage for their portfolio.  This can help protect them from running out of money in the future. For example, the “4% rule” is a common guideline that suggests a retiree could withdraw 4% of their portfolio in the first year of retirement and then adjust the amount for inflation each year, thereby maintaining the high probability that the funds will last 30 years.  However, recent research suggests that today’s economic conditions require a bit more caution.  In some cases, Morningstar now recommends a starting withdrawal rate of 3.7% for a retiree with a 30-year horizon.  For HNW retirees, the starting number may be even more conservative depending on lifestyle expectations, tax environment, and longevity assumptions.

Create a Responsive Plan

Timing is one of the biggest risks in retirement planning.  A portfolio can lose value permanently if substantial withdrawals are needed early in retirement and the market suffers a downturn.  This concept is known as “sequence-of-returns” risk, and most fixed plans can’t accommodate it.  Flexible withdrawal strategies that temporarily scale back spending after negative returns or increase spending when markets are strong can improve portfolio longevity.  For a wealthy retiree, that might mean determining a floor and a ceiling (minimum and maximum spending), and adjusting within that range based on investment performance.  Disciplined withdrawals and an adaptable plan can help a portfolio withstand market fluctuations.

Consider Tax Sequencing and Account Types

HNW retirees often hold a mix of investments, which may include taxable brokerage accounts, tax-deferred retirement accounts, like 401(k)s and IRAs, and tax-free accounts (Roth IRAs).  The order and timing of withdrawals from each source can significantly affect long-term tax outcomes.  For instance, converting portions of a traditional IRA or 401(k) to a Roth account during lower-income years can help create a stream of future tax-free income and reduce the impact of the required minimum distributions (RMDs) that hit later.

Recent changes under the SECURE 2.0 Act have added new planning opportunities. The law increased the RMD starting age to 73 in 2023, and it will rise to 75 by 2033, providing retirees with more flexibility in managing their withdrawals.  Coordinating withdrawals with other income sources, such as Social Security, pensions, and investment earnings, allows affluent retirees to smooth taxable income over time.  An advisor can help retirees build a multi-year tax plan for long-term wealth preservation.

Structure the Portfolio for Spending and Risk Management

HNW individuals should create a “spending buffer” separate from their growth portfolio, allocating cash and conservative holdings, such as short-term bonds and inflation-protected securities, to cover expenses for several years. This can provide protection when markets decline, potentially preventing the forced sale of growth assets at a loss to fund living costs. The rest of the portfolio stays invested for recovery and growth. Research indicates that having a buffer improves overall financial sustainability, helping preserve value for future years and meet legacy goals.

Plan for Longevity and Legacy

Retirees today live longer than ever, facing retirements lasting 30 years or more.  Regarding legacy (gifts to heirs, philanthropy) and extended care needs, those extra years matter.  A sustainable withdrawal strategy must account for this potential longevity and long-term care cost, which can strongly influence how much a retiree withdraws and when.  A 2024 Fidelity study estimates a 65-year-old couple may need more than $350,000 for medical expenses alone.  Setting aside assets or insurance for healthcare helps prevent large, unexpected withdrawals that can disrupt income plans.  It also enhances the portfolio’s capacity to fulfill legacy aspirations, to help support family, philanthropy, and future generations.

Schedule Regular Reviews

The assumptions surrounding withdrawal strategies, including investment returns, inflation, tax policy, health, and market valuations, all shift with time.  Annual check-ins (or sooner if circumstances change) ensure that the strategy aligns with reality.  Scenario analyses can simulate low returns, tax increases, and other situations to help determine the best course of action.

A sustainable withdrawal strategy balances lifestyle, longevity, taxes, and legacy.  The SHP Retirement Road Map® incorporates all of these into a personalized plan that combines realistic withdrawal rates, smart sequencing, tax efficiency, and extended care and legacy planning.  If you are ready to design or review your withdrawal strategy, an SHP Financial advisor stands ready to assist.  Contact SHP Financial today for a complimentary portfolio review and the beginning of a beautiful partnership.