The single biggest money mistake retirees make isn’t picking bad investments — it’s pulling money from the wrong accounts at the wrong time. When you withdraw retirement funds without a strategy, you can accidentally push yourself into a higher tax bracket, trigger Medicare premium surcharges that cost thousands per year, and shrink the Social Security benefit you spent decades earning. The good news: with a little planning around the timing and order of your withdrawals, most of these traps are completely avoidable.

Why does withdrawal timing matter so much in retirement?

In your working years, your income was pretty predictable. In retirement, you’re the one deciding how much taxable income you create each year — and that decision has a domino effect across your entire financial picture.

Here’s the chain reaction that catches so many retirees off guard: you take a large withdrawal from your traditional IRA or 401(k) in one calendar year. That withdrawal counts as ordinary income. A higher income means a higher tax bill. But it can also push you over the thresholds that trigger Medicare’s IRMAA surcharges (more on those in a moment) and increase the percentage of your Social Security benefit that gets taxed. One poorly timed withdrawal can cost you in three different ways simultaneously.

The order in which you tap your accounts matters just as much as the amount. Most financial planners suggest a general sequence: spend taxable brokerage accounts first, then tax-deferred accounts like traditional IRAs and 401(k)s, and finally tax-free accounts like Roth IRAs. This approach gives your tax-advantaged money more time to grow and gives you more control over your taxable income year to year. That said, the right sequence for you depends on your specific situation, so it’s worth talking through with a fee-only financial advisor.

When should you claim Social Security to maximise your benefit?

You can start claiming Social Security as early as age 62, but doing so locks in a permanently reduced benefit — up to 30% less than if you wait until your full retirement age (which is 67 for anyone born in 1960 or later). Wait until age 70, and your benefit grows by 8% for every year you delay past full retirement age.

That’s a powerful incentive to wait, but it’s not always the right call. If you’re in poor health, need the income now, or have a spouse with a much larger benefit who can delay, claiming earlier may make sense. The breakeven point — the age at which waiting pays off more than claiming early — is typically around your late 70s. If you expect to live into your 80s or beyond, delaying is almost always the better financial move.

Timing your Social Security claim alongside your other withdrawals is where the real strategy lives. Many retirees use IRA withdrawals to bridge the gap between retirement and age 70, allowing Social Security to keep growing. Done carefully, this can significantly increase your lifetime income.

How much of your Social Security benefit is actually taxable?

This surprises a lot of people: up to 85% of your Social Security benefit can be subject to federal income tax, depending on your combined income. The IRS calculates this using something called “provisional income” — your adjusted gross income, plus any tax-exempt interest, plus half of your Social Security benefit.

If your provisional income is between $25,000 and $34,000 (for single filers), up to 50% of your benefit may be taxable. Above $34,000, up to 85% is taxable. For married couples filing jointly, those thresholds are $32,000 and $44,000. These thresholds have not been adjusted for inflation since 1983, which means more retirees are caught by them every year.

This is exactly why keeping your taxable income low — through smart withdrawal sequencing and strategic Roth conversions — can have such a meaningful impact on your bottom line.

What are the RMD rules you need to know for 2025 and 2026?

Required Minimum Distributions, or RMDs, are the IRS’s way of making sure you eventually pay taxes on money that’s been growing tax-deferred in traditional IRAs, 401(k)s, and similar accounts. Starting at age 73, you must withdraw a minimum amount each year based on your account balance and life expectancy tables published by the IRS.

Missing an RMD used to trigger a steep 50% penalty on the amount you should have withdrawn. Under current rules, that penalty has been reduced to 25% — and drops to 10% if you correct the mistake promptly. Still, it’s a painful and avoidable hit.

For 2025 and 2026, the rules remain largely the same: RMDs begin at 73, Roth IRAs are not subject to RMDs during the owner’s lifetime (a key advantage), and inherited IRAs have their own separate rules that have become considerably more complex in recent years. If you inherited an IRA after 2019, consult a tax professional to make sure you’re meeting your distribution requirements.

One smart move: if you don’t need your RMD for living expenses, consider using it to fund a Qualified Charitable Distribution (QCD). You can donate up to $105,000 per year directly from your IRA to a qualified charity, and that amount is excluded from your taxable income — which can help you stay below key tax and Medicare thresholds.

How do you avoid Medicare IRMAA surcharges?

IRMAA stands for Income-Related Monthly Adjustment Amount — it’s the extra premium higher-income Medicare enrollees pay on top of the standard Part B and Part D premiums. For 2025, the standard Medicare Part B premium is $185 per month. But if your income exceeds certain thresholds, that surcharge can add hundreds of dollars per month to your costs.

The tricky part: Medicare uses your tax return from two years prior to determine your IRMAA. So your 2026 Medicare premiums are based on your 2024 income. A single large withdrawal or Roth conversion in one year can follow you into your Medicare costs for years.

The IRMAA thresholds for 2026 start at $106,000 for single filers and $212,000 for married couples filing jointly. Managing your income to stay just below these thresholds — through careful withdrawal timing, strategic Roth conversions, and charitable giving — can save a couple thousands of dollars per year.

If your income drops significantly due to a life event (retirement, divorce, death of a spouse), you can appeal your IRMAA determination using IRS Form SSA-44. Many retirees don’t know this option exists.

The bottom line on withdrawal timing

Retirement income planning isn’t just about how much you’ve saved — it’s about how smartly you spend it down. The sequence of your withdrawals, the timing of Social Security, your awareness of RMD deadlines, and your attention to income thresholds for taxes and Medicare all work together. Getting them right can mean tens of thousands of dollars more in your pocket over the course of retirement.

Start by mapping out your expected income sources and their tax treatment. Then look at which thresholds matter most for your situation — whether that’s the Social Security taxation threshold, the IRMAA brackets, or your RMD amounts. Small adjustments, made consistently, add up to a much more comfortable retirement.

Frequently Asked Questions

Frequently Asked Questions

When should I claim Social Security to maximise my benefit?

The latest you can claim Social Security to maximise your monthly benefit is age 70, when delayed retirement credits stop accumulating. For every year you wait past your full retirement age (67 for those born in 1960 or later), your benefit grows by 8%. If you’re in good health and expect to live into your 80s, waiting typically results in significantly more lifetime income.

How much of my Social Security benefit is taxable?

Up to 85% of your Social Security benefit can be subject to federal income tax, depending on your provisional income — which is your adjusted gross income plus tax-exempt interest plus half your Social Security benefit. Single filers with provisional income above $34,000 and married couples above $44,000 face the maximum 85% taxable portion. Keeping your taxable income low through smart withdrawal strategies can reduce how much of your benefit gets taxed.

What are the RMD rules for 2025 and 2026?

Required Minimum Distributions must begin at age 73 for traditional IRAs, 401(k)s, and most other tax-deferred retirement accounts. The penalty for missing an RMD is 25% of the amount that should have been withdrawn, reduced to 10% if corrected quickly. Roth IRAs are not subject to RMDs during the owner’s lifetime, making them a valuable tool for managing taxable income in retirement.

How do I avoid Medicare IRMAA surcharges?

IRMAA surcharges kick in when your income from two years prior exceeds $106,000 (single) or $212,000 (married filing jointly) for 2026 premiums. You can avoid or reduce IRMAA by managing your taxable income through careful withdrawal sequencing, Roth conversions in lower-income years, and Qualified Charitable Distributions from your IRA. If your income has dropped due to a life event, you can appeal your IRMAA determination using IRS Form SSA-44.

What is the Medicare Part B premium for 2025?

The standard Medicare Part B premium for 2025 is $185 per month, up from $174.70 in 2024. Higher-income enrollees pay more through IRMAA surcharges, which can push the monthly premium to $628.90 or higher at the top income tier. Staying below the IRMAA income thresholds through smart retirement income planning is one of the most effective ways to keep your Medicare costs manageable.