Three Common Retirement Withdrawal Mistakes

Katie Braden | Dec 17, 2025

Why Doesn’t the 4% Rule Work for All Retirees?

The 4% rule has become shorthand for retirement planning: withdraw 4% of your portfolio in year one, increase that amount with inflation each year, and theoretically you won’t run out of money for 30 or more years.

It sounds appealingly simple. But simplicity can come at a cost.

The 4% rule makes several assumptions that may not match your reality.

It assumes your spending will be consistent and only increase with inflation. But is that realistic? Your first decade of retirement might involve extensive travel, home renovations, or helping adult children. Your second decade might be quieter. Your third decade could involve significant healthcare or long-term care expenses.

It doesn’t specify which accounts you’re withdrawing from or how taxes factor in. Are you pulling from IRAs (taxable as ordinary income), brokerage accounts (potentially triggering capital gains), or Roth accounts (tax-free)? The tax implications of each are different.

It provides no framework for major purchases. If you want to buy a car, take a special anniversary trip, or help a grandchild with college, how does that fit into your 4% calculation? Do you finance purchases you could afford to pay cash for, just to stick to the formula?

What Are the Different Phases of Retirement Spending?

Financial advisors often talk about three phases of retirement spending: go-go years, slow-go years, and no-go years.

Go-go years typically occur in your 60s and early 70s when you’re healthy, active, and eager to do the things you’ve been putting off during your working years. This is when you might take that trip to Europe, visit national parks, go on safari, or pursue expensive hobbies. These tend to be higher-spending years.

Slow-go years usually happen in your mid-to-late 70s and into your 80s. You’re still active and engaged, but perhaps less interested in extensive travel or physically demanding activities. Spending may decrease during this phase as your lifestyle naturally becomes less expensive.

No-go years typically occur in your late 80s and beyond, when health limitations might restrict activity significantly. Ironically, spending can increase again during this phase if long-term care becomes necessary.

The 4% rule treats all years identically. But your actual spending will likely vary significantly across these phases.

How Do Taxes Affect Your Retirement Withdrawals?

One of the biggest oversights with simple withdrawal rules is ignoring the tax opportunities available during retirement.

Different account types are taxed differently when you withdraw from them:

Traditional IRAs and 401(k)s are taxed as ordinary income when withdrawn. If you’re in a 24% or 32% federal tax bracket, that’s a significant portion of each withdrawal going to taxes.

Taxable brokerage accounts may trigger capital gains taxes on appreciated assets, but those gains are typically taxed at lower federal capital gains rates (0%, 15%, or 20% depending on your income).

Roth IRAs come out completely tax-free – both your contributions and all the growth (as long as your withdrawal counts as a “qualified distribution,” meaning the account has been open at least five tax years and you’re 59½ or older, or meet another IRS exception such as death, disability, or a first-time home purchase up to the allowed limit).

What Is the Value of Roth Conversions in Retirement?

Here’s where strategic planning can make a difference.

Through planning, I’ve worked with clients who have been able to process Roth conversions during lower-income years in early retirement. One particular client currently has over $130,000 in gains in Roth IRAs that are tax-free and will continue to grow tax-free, whereas that growth would have otherwise been in an IRA and subject to income tax when withdrawn.

This wasn’t a special circumstance or unusual situation. It was simply the result of analyzing their specific tax picture and making strategic decisions about when and how much to convert.

Every situation is different – some clients have substantially more in tax-free Roth gains, depending on how long they’ve been implementing these strategies and the size of their accounts.

Why Do Retirees Often Underestimate Their Spending?

Many people approaching retirement assume their expenses will drop significantly once they stop working. The thinking goes: no more commute, no more work wardrobe, no more paying into retirement accounts.

But what about all that free time you’ll have?

If you’ve been putting off travel for decades, you might finally take those trips you’ve dreamed about. If you’ve always wanted to pursue expensive hobbies, retirement is when you’ll have time. If you have grandchildren, you might want to create experiences with them that cost money.

How Do Family Experiences Factor Into Retirement Spending?

I’ve worked with clients who take their entire extended families – children and grandchildren – on vacations to places like South Africa for safari trips, all-inclusive resorts in Mexico, or multi-generational cruises. These clients are intentionally creating and leaving their family a legacy of memories, not just dollars.

I had a client years ago tell me about his Monday night tradition: steak dinners with his entire family every week. He paid for all of it. He joked that his family thought he was being generous, but he was actually spending their inheritance – and getting to enjoy his family around the table while he could.

This resonated with me because it was exactly how my grandfather approached his later years. He wanted nothing more than to have his whole family together.

These aren’t wasteful or irresponsible uses of retirement assets. They may be major drivers behind why you focused on accumulating wealth in the first place.

What About Major Purchases During Retirement?

Cars, second homes, home renovations, RVs – these purchases often don’t fit neatly into a 4% withdrawal calculation.

Some retirees finance these purchases because they feel locked into their withdrawal formula, even when interest rates aren’t favorable. Others make large withdrawals that spike their income for that year, potentially pushing them into higher tax brackets or affecting Medicare premiums.

Is There an Optimal Order for Retirement Account Withdrawals?

You might have heard conflicting advice about which accounts to tap first.

Some advisors say to pull from taxable accounts first to enjoy lower capital gains rates in early retirement. Others say to pull from tax-deferred accounts first to reduce future Required Minimum Distributions (RMDs).

The answer isn’t universal. It depends entirely on your specific situation.

Saving taxes in any single year isn’t necessarily optimal for your lifetime tax picture. What matters is your expected tax situation over your entire retirement, not just this year.

How Can You Control the Timing of Large Withdrawals?

Sometimes clients only have tax-deferred accounts – no taxable brokerage accounts, no Roth IRAs. In these situations, you still have control over timing.

I’ve worked with clients who wanted to make major purchases, and we’ve structured the withdrawals to improve their tax situation. In one case, a client wanted to buy a truck, and we financed just that purchase for a few months to shift the withdrawal into the next tax year when their tax picture was more favorable. They paid it off quickly since they didn’t want long-term debt, but the short-term financing gave us flexibility.

Another client recently bought a truck and is paying half this year and half in January to split the tax impact across two years. They were even able to get a financing rebate with no prepayment penalty, which was a bonus.

These aren’t complex financial maneuvers. They’re just examples of thinking strategically about timing when you know major expenses are coming.

How Should Withdrawal Strategies Evolve Each Year?

Your withdrawal strategy shouldn’t be set-it-and-forget-it. It should be nimble and adapt based on what’s happening in your life and in your financial picture each year.

Maybe one year your income is lower, and you can create more room for Roth conversions by pulling from taxable accounts. Maybe another year you have a large purchase with significant capital gains, so you might skip Roth conversions that year to manage your tax bracket.

Planning ahead for the next year gives you the most control, though adjustments can often be made throughout the year or during fall tax planning season.

What Should Your Retirement Withdrawal Strategy Actually Accomplish?

The goal of retirement withdrawal planning isn’t just to make sure you don’t run out of money.

The goal is to help you live the life you’ve worked so hard for, to use and enjoy the wealth you’ve spent decades building.

Thoughtful planning around how you access your retirement assets may allow you to withdraw more and enjoy more than you thought possible, while still maintaining appropriate security and peace of mind.

That involves looking at your complete picture: your tax situation, your spending goals, your account types, your family priorities, and how these might change over time.

How Can You Create a Personalized Withdrawal Strategy?

If you’d like to explore withdrawal strategies tailored to your specific situation, schedule a call below.

We can review your tax picture, your spending plans, your account structure, and create an approach that helps you use the wealth you’ve built, not just preserve it.

If you’re ready to start the conversation, schedule a call today: https://capsouthwm.com/connect-with-us/

Investment advisory services are offered through CapSouth Partners, Inc, dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. This material has been prepared for planning purposes only and is not intended as specific tax or legal advice. CapSouth does not offer tax, accounting or legal advice. Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences. This article was produced with the assistance of Claude Sonnet 4.5 (Dec25), an artificial intelligence model developed by Anthropic PBC. CapSouth is not affiliated with Anthropic.