The Retirement Income Problem
During your working years, your paycheck arrives on a schedule. In retirement, you become your own payroll department. You need to decide how much to withdraw, from which accounts, in what order, and how to manage the risk that markets decline right when you need the money most.
For Southeast Texas retirees — many of whom have a combination of Social Security, a pension, a 401(k) or IRA, and personal savings — the coordination of these income sources is one of the most important financial planning tasks they will ever face.
Sequence of Returns Risk — The Retirement Threat Most People Miss
Sequence of returns risk is the danger that a significant market decline early in retirement permanently damages your portfolio's ability to sustain withdrawals. Unlike during your accumulation years — when a market drop just means buying more shares at lower prices — a drop in the first few years of retirement forces you to sell assets at depressed prices to fund living expenses. Those shares are gone and cannot recover with the market.
A retiree who experiences a 30% market decline in year one of retirement faces a fundamentally different outcome than one who experiences the same decline in year fifteen — even if average returns over the full period are identical. Managing this risk is a core component of retirement income planning.
Income Layering — Building a Reliable Income Floor
One of the most effective retirement income strategies is income layering — building a foundation of guaranteed or highly reliable income sources that covers essential expenses, then using investment assets for discretionary spending and growth.
For a typical Southeast Texas retiree, the income layers might look like this:
- Layer 1 — Guaranteed income: Social Security and pension benefits. These cover essential monthly expenses and are not subject to market risk.
- Layer 2 — Stable income: Conservative investment income from bonds, CDs, or dividend-producing assets. Provides additional income with lower volatility.
- Layer 3 — Growth assets: Equity investments that provide long-term growth and inflation protection. Not relied upon for near-term income needs.
Withdrawal Sequencing — Which Accounts to Tap First
The order in which you withdraw from different account types — taxable brokerage accounts, traditional IRAs, Roth IRAs — has a significant impact on your lifetime tax bill and portfolio longevity. A common general approach is to withdraw from taxable accounts first, then traditional IRAs, then Roth IRAs last (to preserve tax-free growth as long as possible). However, the optimal sequence depends on your specific tax situation, Required Minimum Distribution schedule, and income needs.
Strategic Roth conversions in the early years of retirement — when income may be lower before Social Security and RMDs begin — can reduce future tax liability and improve long-term portfolio sustainability.
Working With a Southeast Texas Financial Advisor on Retirement Income
Retirement income planning is not a one-time event — it requires ongoing monitoring and adjustment as markets change, tax laws evolve, and your personal situation shifts. Richard Placette II at MRB Capital Group works with retirees and pre-retirees throughout Southeast Texas to build and maintain retirement income strategies that are designed to last.
He serves clients in Beaumont, Port Arthur, Orange, Lumberton, Nederland, Vidor, Groves, Silsbee, Jasper, Warren, Woodville, and throughout Jefferson, Hardin, Orange, Jasper, and Tyler Counties.