Why More Seniors Are Tapping Retirement Savings Too Soon

The Phone Call That Changed Everything

Last March, a longtime client of mine — I’ll call her Linda — phoned my office in a state of quiet panic. Linda is 68, a retired school librarian living outside of Charlotte, North Carolina. She’d done everything right. She’d saved diligently in her 403(b) for 30 years, claimed Social Security at 66, and kept her monthly budget modest. By every conventional measure, Linda was financially secure.

But something had shifted. Her grocery bill had climbed from around $340 a month to over $480. Her homeowner’s insurance premium jumped 23% in a single year. The property tax reassessment on her modest ranch home added another $1,100 annually. None of these increases were dramatic on their own, but together, they carved a hole in her budget that her Social Security check and a conservative 3.5% withdrawal rate simply couldn’t fill.

So Linda did what a growing number of retirees across the country are doing in 2025 and 2026: she started pulling more from her retirement accounts. Not recklessly. Not lavishly. Just enough to cover the gap between what her fixed income provided and what real life actually costs.

In my 20 years of practice as a CPA and Enrolled Agent, I’ve never seen this pattern so widespread. Linda isn’t an outlier. She’s the new normal.

The Quiet Crisis: Inflation’s Toll on Retirement Savings

The headlines have moved on from inflation. The Consumer Price Index has cooled from its 2022 peak of 9.1% to roughly 2.8% in mid-2025. Politicians and pundits are declaring victory. But here’s what I see most often in my practice: the cumulative damage is already done, and retirees are living inside it every single day.

A recent survey from the Employee Benefit Research Institute found that 37% of retirees are withdrawing from their savings faster than they had originally planned. The National Council on Aging reported that older adults on fixed incomes have seen their real purchasing power decline by an estimated 12-15% since 2021, even after accounting for Social Security cost-of-living adjustments.

“Inflation doesn’t need to stay high to hurt retirees. It just needs to have been high long enough to permanently reset the cost of living — and that’s exactly what happened between 2021 and 2024.”

The math is brutally simple. If your expenses rose 20% cumulatively over three years but your Social Security COLA increases totaled roughly 15% over that same stretch, you’re underwater. That gap has to come from somewhere. For most retirees, it’s coming straight from the nest egg.

What Early Withdrawals Actually Cost You

When I sit down with clients like Linda, the first thing I explain is that the dollar amount they withdraw is never the full cost. There’s a cascade of financial consequences that most retirees don’t see until tax season — and by then, it’s too late to undo the damage.

The Tax Trap on Social Security Benefits

Here’s something that catches almost every new retiree off guard. When you pull money from a traditional IRA or 401(k), that withdrawal counts as taxable income. And that additional income can push your “combined income” — which the Social Security Administration defines as adjusted gross income plus nontaxable interest plus half your Social Security benefits — above thresholds that trigger federal taxes on your Social Security checks.

For individual filers, once combined income exceeds $25,000, up to 50% of Social Security benefits become taxable. Above $34,000, up to 85% becomes taxable. For married couples filing jointly, those thresholds are $32,000 and $44,000 respectively.

These thresholds, by the way, haven’t been adjusted for inflation since 1993. That means more retirees cross them every single year. I often tell my clients that this is the most overlooked tax in retirement — and if you’re interested in the specific numbers, I’d encourage you to read this breakdown of Social Security COLA hidden tax math retirees must know.

The Medicare Premium Surcharge

This one stings. If your modified adjusted gross income exceeds $106,000 as an individual or $212,000 as a married couple (2025 thresholds), you’ll pay Income-Related Monthly Adjustment Amounts, or IRMAA, on your Medicare Part B and Part D premiums. A single large IRA withdrawal — say, to cover an unexpected home repair or medical bill — can push you into a higher IRMAA bracket two years later, because Medicare uses your tax return from two years prior.

I’ve seen clients trigger an extra $2,000 to $4,000 in annual Medicare premiums from a single withdrawal they didn’t plan carefully. For a deeper look at how this works, check out this article on whether your Medicare Part B premium is eating your Social Security raise.

The Longevity Risk You Can’t Undo

Beyond taxes and premiums, there’s a fundamental problem with accelerating withdrawals: you can’t put the money back. Every dollar pulled from your portfolio today is a dollar that won’t compound for the next 10, 15, or 25 years. According to Investopedia, even small increases in withdrawal rates — from 4% to 5.5%, for example — can dramatically shorten how long a portfolio lasts.

For a retiree with $400,000 in savings, the difference between a 4% and 5.5% annual withdrawal rate could mean running out of money seven to ten years sooner. When you’re 68, that math is terrifying. When you’re 82 and the account is empty, it’s catastrophic.

Why This Is Happening Now — and Who’s Most Vulnerable

Several forces are converging to push seniors into early withdrawals, and they go well beyond grocery prices.

• Housing costs: Property taxes, insurance, and maintenance are rising sharply in many states. Homeowner’s insurance premiums rose an average of 11.3% nationally in 2024, with some Sun Belt states seeing increases above 30%. These are aging in place costs that surprise most retirees.
• Healthcare out-of-pocket expenses: Even with Medicare, retirees face rising copays, deductibles, and prescription costs. The average 65-year-old couple will need an estimated $315,000 in after-tax savings to cover healthcare costs through retirement, according to Fidelity’s 2024 Retiree Health Care Cost Estimate.
• Helping family members: A growing number of my clients in their 60s and 70s are financially supporting adult children or grandchildren. This “sandwich generation” dynamic doesn’t end at retirement.
• Debt carried into retirement: The Federal Reserve Bank of New York reported that Americans aged 60 and older held over $4.3 trillion in debt as of late 2024, including mortgages, auto loans, and credit card balances.

The retirees most at risk are those with limited savings — under $300,000 — who rely heavily on Social Security and have little margin for unexpected expenses. But I’m increasingly seeing it affect clients with $500,000 or even $750,000 in retirement accounts. Inflation doesn’t discriminate by account balance.

Smarter Strategies to Avoid Depleting Your Savings

I want to be clear: sometimes you have to tap your savings. That’s what they’re for. The goal isn’t to die with the most money — it’s to not run out. But there are ways to be strategic about it, and the difference between a thoughtful withdrawal plan and an ad hoc one can be six or seven figures over the course of a retirement.

Build a One-Year Cash Buffer

I advise every retired client to keep at least 12 months of essential expenses in a high-yield savings account or money market fund. Right now, these accounts are still paying between 4% and 5% APY. This buffer means you never have to sell investments or take IRA distributions during a market downturn just to pay the electric bill.

This isn’t about hoarding cash. It’s about buying yourself the flexibility to make withdrawal decisions on your timeline, not the market’s.

Sequence Your Income Sources Strategically

Most retirees default to pulling from whichever account is most accessible. That’s almost always the wrong approach. Income sequencing — the order in which you draw from taxable accounts, tax-deferred accounts (traditional IRAs, 401(k)s), and tax-free accounts (Roth IRAs) — can dramatically affect your total tax bill over retirement.

In many cases, it makes sense to draw from taxable brokerage accounts first in early retirement, allowing tax-deferred and Roth accounts more time to grow. Then, in years when your income is lower — perhaps before Social Security kicks in or in a year with large medical deductions — you can strategically convert some traditional IRA funds to a Roth, paying taxes at a lower rate.

“I’ve helped clients save $40,000 to $80,000 in lifetime taxes simply by changing the order in which they drew from their accounts. It’s the same money — just withdrawn more intelligently.”

Revisit Your Withdrawal Rate Every Year

The “4% rule” is a useful starting point, not a commandment. Real life doesn’t move in straight lines. I recommend my clients review their withdrawal rate every January with their CPA or financial advisor. If the market had a strong year, you might be able to take a bit more. If it didn’t — or if a new expense has appeared — you need to adjust immediately, not wait until the account is dangerously low.

Don’t Ignore Small Income Opportunities

I’ve had clients reduce their withdrawal needs by $3,000 to $8,000 a year through small adjustments they hadn’t considered:

• Renting out a spare room or garage storage space
• Taking advantage of senior property tax exemptions and freezes available in many states
• Reviewing insurance policies for bundling discounts or coverage they no longer need
• Claiming all eligible tax credits, including the often-missed Credit for the Elderly or Disabled (IRS Schedule R)

None of these are life-changing on their own. But in retirement, $500 a month is the difference between a sustainable plan and a shrinking one. You can find more guidance on credits and deductions at the IRS website.

What Linda Did — and What You Can Do Today

After our March conversation, Linda and I rebuilt her withdrawal plan from scratch. We moved $18,000 from her traditional IRA into a high-yield savings account as her cash buffer. We identified $2,400 in annual savings by switching her Medicare Supplement plan during open enrollment and filing for her county’s senior property tax freeze, which she hadn’t known existed. We set up a modest Roth conversion ladder — $12,000 per year — to reduce her future required minimum distributions and give her tax-free income in her mid-70s.

Most importantly, we slowed her withdrawal rate back down from 5.2% to 4.1%. That single adjustment, according to our projections, extends the life of her portfolio by roughly eight years.

Linda isn’t out of the woods. Nobody on a fixed income truly is, in an economy where costs keep resetting higher. But she has a plan now — a real one, built on actual numbers and reviewed every quarter.

The Bigger Picture for 2026 and Beyond

If you’re a retiree reading this — or you’re approaching retirement — I want you to hear this clearly: withdrawing from your savings isn’t a failure. But doing it without a strategy is a risk you don’t have to take.

The economic pressures on American seniors are real and they are intensifying. From Social Security COLA myths that lead to poor planning, to rising healthcare costs, to the simple reality that everything from eggs to electricity costs more than it did three years ago — the challenges are stacking up.

But so are the tools available to you. Tax-smart withdrawal strategies, Roth conversions, senior-specific benefits, cash buffers, and annual plan reviews aren’t complicated. They just require attention — and ideally, a qualified professional who understands both the tax code and the reality of living on a fixed income.

In my experience, the retirees who fare best aren’t the ones with the most money. They’re the ones who look at their numbers honestly, adjust when reality changes, and ask for help before the problem becomes a crisis. That’s what Linda did. And it’s what I’d encourage every reader of this piece to do before the end of this year.