Withdrawal Sequence

The Withdrawal Sequence setting is an important variable that determines the order of accounts that will be used to take withdrawals when funding cash flow needs. You can find this setting within the Gear Icon > Settings > Methodology tab of each client plan:

The default setting for the withdrawal sequence is Taxable, tax-deferred, tax-free. With this option selected, RightCapital will first pull money from a client's taxable account bucket in years with cash flow deficits (when a client's cash inflows are outweighed by their cash outflows). Once the taxable account bucket is fully depleted, it will dip into the tax-deferred account bucket. Only once the taxable and tax-deferred buckets are both depleted will it withdraw from the tax-free account bucket.

The impact of the withdrawal sequence can be best visualized in the Retirement > Cash Flows > Accounts tab, by viewing the 'Ending balance by accounts' and 'Withdrawal from accounts' tables. Here, you'll be able to see withdrawals shifting from one account bucket to the next as each bucket is depleted:

Making changes to the withdrawal sequence and clicking Save in the lower right corner, will update the plan projections to account for your new sequence. You can freely switch between withdrawal sequences without losing any plan data, which can be useful for visualizing the impact of different sequences on a client's plan:

Please note: when implementing a withdrawal sequence that draws from tax-deferred or tax-free assets first, RightCapital will default to withdrawing from taxable assets in the years prior to the client turning 59 and a half. This is a built-in safeguard to prevent withdrawals that would incur penalties. This can be seen occurring in the example above.