How To Avoid Running Out Of Money In Retirement With Tax-Smart Moves

Retirement Planning Insights & Strategies

Why running out of money in retirement is a real risk

If you are asking how to avoid running out of money in retirement, you are already ahead of many affluent retirees. The risk is real, even for households with several million in assets.

Longer lifespans, rising health care costs, and unpredictable markets can strain even large portfolios. Longer life expectancies mean your savings may need to last 20 to 30 years or more, as the average person reaching age 65 in the U.S. lives to about 85, with many living to 90 or beyond [1]. Over that time, even modest inflation can more than double your cost of living.

At the same time, about 45% of retirees could run out of money in retirement, and nearly 1 in 3 are already spending more than they can afford [2]. These statistics are not limited to people with modest balances. High earners are often exposed to additional risks, including concentrated stock positions, large lifestyle expenses, and complex tax situations.

This is where Integrative Planning becomes essential. Instead of treating investments, taxes, withdrawals, and estate planning as separate projects, you unify them into a single strategy designed to keep your lifestyle funded and your tax bill controlled year after year.

If you want to understand what is the best retirement strategy for high net worth individuals, you need to start with a clear, integrated framework.

Understand what really drives “running out of money”

You do not run out of money in retirement because of a single bad decision. It usually comes from several factors that compound over time. Clarifying these drivers helps you see where Integrative Planning delivers the most value.

Longevity and healthcare realities

A retirement that lasts 25 to 35 years is no longer unusual. During that period:

Health care expenses averaged about 8,027 dollars annually for Americans aged 65 and older in 2023, and Medicare does not cover everything [3].
Fidelity estimates a 65 year old retiring in 2025 may need roughly 172,500 dollars in after tax savings just to cover healthcare over retirement, on top of other living expenses [4].

If you do not explicitly set aside resources for these costs, they end up crowding out the rest of your budget, especially later in life.

Hidden lifestyle and family expenses

Housing remains a major expense, even when the mortgage is gone. Adults aged 65 and older spent an average of 21,445 dollars per year on housing in 2023, about one third of their total spending, even though 53% had no mortgage [3]. Maintenance, property taxes, insurance, and home upgrades add up.

Support for adult children is another common drain. Approximately 50% of parents routinely help adult children financially, averaging 1,474 dollars per month. That level of support can quickly erode a retirement portfolio or force you to work longer if it is not planned for [2].

Market volatility and sequence of returns risk

Big market drops in the early years of retirement are especially dangerous. You are taking withdrawals from a shrinking portfolio, which makes it harder for the portfolio to recover. This is known as sequence of returns risk.

Preparing for volatility early in retirement is critical. Merrill notes that a steep market decline in the first few years can significantly reduce portfolio value and magnify the damage from withdrawals, and suggests using cash reserves, short term bonds, or guaranteed income products like lifetime annuities to mitigate that risk [5].

You can dive deeper into this topic in what is sequence of returns risk and how to manage it.

Taxes and inflation working together

Retirement income from traditional IRAs, 401(k)s, pensions, and part of your Social Security is generally taxable. Required minimum distributions starting at age 73 can push you into higher brackets just as you want to simplify life, and can also lift your Medicare premiums [3].

At the same time, inflation quietly erodes buying power. U.S. inflation has averaged around 3% annually, but reached 7% in 2021 and 6.5% in 2022. Over 25 years, even 3% inflation more than doubles your cost of living [3].

If your portfolio is too conservative, it may not keep up. If it is too aggressive without risk controls, you are overly exposed to market shocks. An integrative approach balances these forces instead of trading one risk for another.

Use Integrative Planning as your framework

Integrative Planning is the process of coordinating your investments, withdrawal strategy, tax plan, estate goals, and risk management into one cohesive retirement income strategy. Instead of optimizing in silos, you optimize for your real objective: predictable, tax smart income that lasts.

At its core, Integrative Planning covers five interconnected areas:

Income planning and sustainable withdrawal rules
Tax diversification and tax efficient withdrawal order
Portfolio structure and risk management
Guaranteed income and principal protection where it matters most
Contingency planning for healthcare, long term care, and legacy

This integrated system is what separates a generic plan from one that truly addresses how to avoid running out of money in retirement.

Build a sustainable retirement paycheck

You can think of retirement planning as designing a paycheck to replace your working income. Done correctly, this paycheck adjusts for inflation, manages taxes, and is resilient in down markets.

Define your essential versus discretionary spending

Start with a clear budget based on how you expect to live, not just a broad rule of thumb. Merrill suggests calculating regular expenses such as housing, food, transportation, insurance, donations, education expenses for family, travel, and gifts, ideally with advisor input [6].

Fidelity recommends that in retirement you first cover essential expenses including healthcare, housing, transportation, and food, and then allocate remaining funds to discretionary spending, such as travel and entertainment [4].

Once you see the numbers, you can match the right types of income to each category.

Essentials are best covered by stable or guaranteed cash flows
Discretionary spending can be funded by more flexible, market based withdrawals

Convert assets into a coordinated income plan

The research highlights four broad approaches to generating retirement income [7]:

Live off interest and dividends only, if your portfolio is large enough
Take systematic withdrawals from total return (capital gains plus income)
Blend investment withdrawals with guaranteed income from annuities
Use short term “bridge” strategies, such as CD ladders, to cover gaps

Most affluent retirees end up with a blend of these, tailored to their timelines, risk tolerance, and tax picture. If you want to see how other affluent households do this, explore how do wealthy people generate income in retirement.

Fidelity suggests that withdrawing about 4% to 5% of your portfolio in the first year of retirement, then adjusting by inflation, can be a reasonable starting guideline in many scenarios [8]. For larger portfolios, you can refine this by working through what is the safest withdrawal rate for large portfolios.

In an Integrative Plan, you do not apply a rule blindly. You stress test different withdrawal rates under:

Poor early market performance
Different inflation scenarios
Varying levels of discretionary spending
Different tax assumptions and future bracket changes

Tools that use Monte Carlo simulations, like the Merrill Personal Retirement Calculator, show how often your plan is projected to succeed under 5,000 market paths, and estimate the contribution changes needed to close any gaps [9].

Make taxes a central design constraint, not an afterthought

Ignoring taxes in retirement can quietly undermine even well funded plans. High net worth households typically hold assets in a mix of taxable, tax deferred, and tax free accounts, and the order in which you use them can materially change how long your money lasts.

Build tax diversification before you retire

Tax diversification means intentionally spreading assets across accounts that will be taxed in different ways later, so you have flexibility when designing withdrawals. You can learn more in what is tax diversification in retirement.

For high earners, this usually includes:

Tax deferred accounts such as traditional 401(k)s and IRAs
Tax free accounts like Roth IRAs and Roth 401(k)s, when available
Taxable brokerage accounts with appreciated securities and municipal bonds
Possibly health savings accounts (HSAs) that can be used tax free for medical expenses

Fidelity recommends saving at least 15% of your income annually, including any employer match, targeting about 10 times your income by age 67 if you start at 25 [8]. For those starting later or with significant assets already accumulated, when should i start retirement planning if i have significant assets provides a useful framework.

Choosing what are the best retirement accounts for high income earners is a key step here.

Use a tax efficient withdrawal sequence

Merrill notes that a thoughtful withdrawal order can materially improve portfolio longevity. A common starting sequence is to draw from taxable accounts first, then tax deferred accounts, then tax free accounts, adjusted for your individual tax situation [6].

In practice, a tax smart sequence might look like:

Use dividends, interest, and a planned amount of capital gains from taxable accounts, managing gains to stay within favorable brackets where possible
Fill in any remaining income gap with targeted withdrawals from traditional IRAs or 401(k)s, watching for bracket thresholds and Medicare surtaxes
Preserve Roth assets for later years, high expense events, or as tax free legacy assets, unless it is tax efficient to draw earlier

Coordinating Social Security claiming with your withdrawal plan is part of this. Delaying Social Security past age 62 and up to age 70 increases monthly benefits, which can reduce how much you need to withdraw from portfolios later. Merrill notes that earlier claiming may still make sense in specific health or cash flow situations [6].

To go deeper into implementation details, see how to reduce taxes when withdrawing retirement funds and how do you create tax efficient retirement income.

Structure your portfolio for both growth and protection

To avoid running out of money, you need growth to outpace inflation and stability to handle downturns. For affluent investors, the challenge is not choosing between growth and safety, but combining them intelligently.

Keep a balanced, growth oriented allocation

Merrill’s guidance emphasizes maintaining a balanced mix of stocks and bonds in retirement. A 50% stock and 50% bond portfolio is a common reference point that helps protect against inflation, provides growth potential, and moderates volatility, since stocks have historically offered the best chance of outpacing inflation [5].

An Integrative Plan often tailors your allocation by bucket or by time horizon rather than using a single static mix:

A short term bucket for 2 to 5 years of essential expenses in cash and short term bonds
A medium term bucket in intermediate bonds and lower volatility equities
A long term growth bucket in diversified global equities and alternative assets aligned with your risk tolerance

This layered structure is closely related to how to structure investments before retirement, and can be especially effective for high net worth families who have the scale to separate capital into distinct objectives.

Prepare specifically for early retirement volatility

Since the first decade of retirement is so crucial, Integrative Planning typically includes:

At least several years of essential expenses in cash equivalents or short duration bonds
Short term bond ladders or CDs to fund near term withdrawals
Consideration of guaranteed income products, like lifetime income annuities, that begin paying in the early years

Merrill points out that holding cash, short term bonds, or guaranteed income products in early retirement can help offset sequence of returns risk when markets drop sharply [5].

U.S. Bank outlines several options you can use for the income piece, including diversified bond portfolios, total return strategies with balanced stock and bond mixes, and income producing equities such as dividend stocks and REITs [1].

Decide where guaranteed income and safety fit

Social Security usually replaces only a portion of your pre retirement earnings. U.S. Bank notes that Social Security typically covers about 40% of income for those earning less than 100,000 dollars a year and around 33% for higher earners, which makes supplemental income sources essential [1].

Match guaranteed income to essential expenses

Many affluent retirees choose to:

Cover essentials like housing, food, basic transportation, core insurance, and baseline healthcare with Social Security, pensions, bond ladders, and income annuities
Use portfolio withdrawals and more volatile investments for discretionary spending and legacy goals

Guaranteed income strategies, such as income annuities and fixed income investments like Treasury bonds and CDs, can provide reliable cash flow for essentials and reduce the risk of outliving savings [10].

Income annuities can create lifetime or period certain income, with the potential for inflation adjustments, and typically start distributions after age 59½ [1].

Use principal preservation selectively

Principal preservation vehicles such as money market funds, CDs, Treasury bonds, and fixed deferred annuities offer safety, but generally yield lower returns that may not keep up with inflation or your lifestyle needs [10].

An integrative approach does not put everything into “safe” assets. Instead, it:

Allocates enough to safety to cover planned near term spending and emergency reserves
Leaves a meaningful portion of capital invested for long term growth
Coordinates these decisions with your withdrawal strategy and tax plan

This is particularly important if you are considering early retirement, such as in your mid fifties. Merrill notes that retiring at 55 instead of 65 often means funding an extra decade or more, while managing higher costs such as private health insurance before Medicare, and possibly tuition or mortgage expenses [6].

Plan explicitly for healthcare, long term care, and inflation

Even with a solid portfolio and tax strategy, certain categories can derail your plan if they are treated as afterthoughts.

Healthcare and long term care

Fidelity estimates that a 65 year old retiring in 2025 may need around 172,500 dollars in after tax savings for healthcare alone over retirement [4]. On top of that, long term care can be a major risk factor:

Nearly 70% of U.S. 65 year olds will require some form of long term care during their lifetime
Average nursing home costs exceeded 100,000 dollars per year as of 2025 [3]

Integrative Planning addresses this by:

Evaluating long term care insurance or hybrid life / LTC policies
Setting aside earmarked assets or “care buckets”
Aligning these decisions with your estate and gifting strategy

Keeping your lifestyle aligned with reality

Even affluent retirees are not immune to lifestyle creep. First National Bank & Trust Wealth Management reports that nearly 1 in 3 retirees in 2023 were spending more than they could afford, almost double the rate in 2020, underscoring the need to track spending and update budgets regularly [2].

Fidelity recommends limiting withdrawals to about 4% to 5% of savings in the first retirement year and adjusting in later years, to help keep funds on track and manage market variability and unexpected expenses [4].

From there, integrating a realistic spending plan with your portfolio and tax strategy is what makes your retirement income structure durable. You can see how professionals approach this in how do financial advisors plan retirement income.

Coordinate as a couple and across generations

Affluent households almost always need to plan as a unit. That includes both spouses and, increasingly, adult children and future heirs.

Couples often have:

Different retirement ages and benefit start dates
Separate 401(k)s and IRAs with different investment mixes
Different risk tolerances and spending styles

Proper Integrative Planning aligns these into one household plan. For guidance, see how do couples plan retirement with large assets.

At the same time, high net worth retirees frequently want to support family during their lifetimes and leave a legacy. That requires:

Balancing current gifts to children and grandchildren with your own income security
Coordinating Roth accounts, life insurance, and taxable assets to pass wealth efficiently
Avoiding one of the most common issues, which is supporting adult children at unsustainable levels, as the 1,474 dollars per month average support figure indicates [2]

You can explore typical pitfalls in what are the biggest retirement mistakes high earners make.

Integrative Planning is not about a single tactic. It is about making sure every decision you make about savings, investments, taxes, and spending supports the same long term objective: sustainable, flexible income that fits your life.

Putting Integrative Planning into action

If you are serious about how to avoid running out of money in retirement, the next step is to translate these concepts into a specific plan for your situation.

A practical sequence is:

Clarify your target lifestyle and timing, including whether you want to retire early and how much you really need. For perspective, see how much do i need to retire with 1 million dollars or more.
Inventory your accounts and build tax diversification where possible, especially while you are still earning.
Structure your portfolio into growth and safety buckets aligned with your time horizons and withdrawal needs.
Map out a withdrawal policy that coordinates with Social Security, pensions, and potential annuity income, with clear rules for adjusting in down markets.
Integrate healthcare, long term care, and estate considerations so that large unexpected costs do not undo your plan.
Review regularly. Merrill suggests a comprehensive portfolio review at least three years before retirement and quarterly reviews after retirement to adjust allocation and manage inflation and sequence risks [5].

Integrative Planning is not a one time project. It is an ongoing process of aligning your investments, taxes, and spending with the life you want to live, so that your money has the highest probability of lasting as long as you do.