Week 13: What’s the best way to manage retirement withdrawals?

Managing retirement withdrawals well can help your savings last longer and reduce taxes over time. Here’s a simple framework many financial planners use, often called the "tax-efficient withdrawal strategy."

Know Your Buckets

Most retirees have savings spread across different types of accounts:

• Taxable accounts (brokerage, savings)

• Tax-deferred accounts (401(k), traditional IRA)

• Tax-free accounts (Roth IRA, HSA)

Understanding the tax treatment of each “bucket” is key to choosing the right withdrawal order.

Follow a Smart Withdrawal Order

Here's a common approach but that does not mean it works for your circumstances:

1. Use cash and taxable accounts first
   This gives your tax-advantaged accounts more time to grow.

2. Next, draw from tax-deferred accounts
   This helps reduce required minimum distributions (RMDs) later.

3. Save Roth accounts for last
   Roth money grows tax-free and has no RMDs—great for long-term needs or leaving a legacy.

Watch Your Tax Bracket

You want to avoid “tax bracket creep.” For example, if you’re in the 12% tax bracket, you might withdraw a little more from your IRA each year to fill up that bracket, avoiding big jumps later.

Consider Roth Conversions

Early in retirement (before Social Security or RMDs kick in), converting some traditional IRA dollars to Roth can reduce future taxes.

Delay Social Security

Every year you delay past full retirement age (up to 70), your benefit grows—about 8% per year. That’s a guaranteed return you can’t get anywhere else.

The best way to manage withdrawals depends on your income sources, tax situation, and goals. A well-timed withdrawal strategy can save tens of thousands in taxes and help your money last longer.

Want a personalized withdrawal game plan? Let’s talk.