Which Accounts You Should Draw Down First in Retirement?

Turn your portfolio into a paycheck

dartsWhen we meet with near-retirees there is often a single question that cuts right through any discussion on economic outlook or investment strategy: “How will I replace my monthly paycheck, so I can pay all my bills in retirement?”

“Well, we can help turn your portfolio into a paycheck,” is typically our answer. Fortunately, strategic income planning not only brings retirees comfort and peace of mind, but it can also result in more assets.  In fact, according to Vanguard, retirees working with an advisor can expect around a 3% performance increase per year.[1]


Because financial advisors help you build a plan and stick to it.  We draw on the right accounts at the right times. We aim to maximize growth and minimize taxes. That said, in addition to working with an expert, it’s also important to know why you’re doing what you’re doing. Read on to understand a few general guidelines for retirement withdrawals.

1. Taxable Brokerage Accounts

The first places you should generally withdraw from are your taxable brokerage accounts—your least tax-efficient accounts subject to capital gains and dividend taxes. By using these first, you give your tax-advantaged accounts (IRA, Roth IRA) more time to grow and compound.  Brokerage accounts will never grow as quickly as tax-advantaged accounts because they are subject to the annual drag of taxation on interest, dividends, and capital gains.

2. Traditional IRA And 401(k)

A second lever to draw from are your Traditional IRA or 401(k) accounts. From a tax perspective, it doesn’t matter which you start with. Keep in mind that once you turn 72 years old, you’ll be required to take minimum distributions (RMDs) from both accounts.

3. Roth IRA

Your Roth IRA should remain untouched for as long as possible.  Roth IRAs are tax-free, which in retirement are two words you will always be happy to hear.  Unlike traditional IRAs and 401(k)s, you are never required to take minimum distributions from your Roth. That means your portfolio can continue compounding tax-free as long as you want (unless future laws change).

Easy as 1-2-3… Not So Fast

If you really want to maximize your portfolio’s retirement longevity, it’s not as easy as pulling from the above types of accounts one-two-three. It is beneficial to allow your IRAs to grow tax-deferred as long as possible, but with a significant caveat: if your IRAs grow too large, you may be subject to higher tax rates in the future.

Remember that every dollar you take from a Traditional IRA is included as taxable income.  This means if you simply spend down your brokerage accounts to zero and then plan to begin living off your IRA completely, all your withdrawal income will be taxed in this second phase of your plan, potentially pushing you into a higher tax bracket.

In addition, leaving your Traditional IRA to compound untouched in early retirement can result in larger RMDs at age 72 – so large in some instances that RMD income alone can push you into higher tax brackets.  Your first year’s RMD will be about 4% of the account value, meaning a $2 million IRA could produce enough required income alone ($80K) to nearly double your tax bracket, before even counting Social Security, pension, or other retirement income.  So much for low tax rates in retirement!

Filling the Buckets with Partial Roth Conversions

An ideal retirement income strategy will maximize tax-advantaged growth, while maintaining the flexibility to fund some portion of your retirement expenses with non-taxable income.  Good news, this is doable; it’s called a Roth Conversion strategy.

You can change (or “convert”) any portion of a Traditional IRA into a Roth IRA in a given tax year.  The cost is simply that you must pay income tax on the amount converted.  By systematically moving some of your Traditional IRA assets into a Roth IRA during your early years of retirement, you can create a future where a Roth IRA is available to fund a good portion of your retirement expenses.  Since Roth IRA accounts are tax-free, any dollars put into to a Roth can compound without any tax drag and be later taken out without paying additional taxes.  This is a great situation for retirees to be in.

Implementing a partial Roth Conversion strategy is different for each family, as everyone has their own unique circumstances.  As a general example, it may be possible to simply “fill up” the lower tax brackets with Roth conversion income each year while building your Roth accounts.  For example, the 12% tax bracket ends at about $80K of income for joint filers. Let’s say that after adding up any social security, pension, or other retirement income and accounting for deductions your taxable income lands at $40K.  Here, doing a 40K Roth conversion will bring your income right up to the top of the 12% bracket, allowing you to build a Roth account without paying higher rates in taxes.

Don’t Forget Social Security

So where does Social Security fit into your retirement income? Like most things in personal finance, it depends. Every situation is unique. One easy recommendation: start drawing when you need to—no sooner, no later.

Every month you delay taking Social Security your income increases.  Your survivor benefit will also increase, creating an increased insurance payment for your spouse.  However, there may be health or other reasons why you’d want to draw early.  Social Security payouts are based on life expectancy. So, if you live to an average age, you’ll receive the same total amount regardless of when you start drawing. Tap in early, and you’ll receive more checks for a smaller amount. Wait to draw, and you’ll receive fewer checks for a greater amount.

As you can see, there’s no one right answer. You must factor in your personal (and family) health, financial situation, and other individual needs.

Taking the First Step

The best way to be sure you’re maximizing the longevity of your accounts is to work with a financial advisor. If you’re interested in a personalized plan, we at Windgate Wealth are here to help. You can reach us by calling (844) 377-4963 or emailing You can also book an appointment online here.


Perritt Capital Management, Inc. is the Registered Investment Advisor for Windgate Wealth Management accounts and does not provide tax advice. Consult your professional tax advisor for questions concerning your personal tax or financial situation.

Data here is obtained from what are considered reliable sources; however, its accuracy, completeness, or reliability cannot be guaranteed.

First published May 2019. Updated March 2024.

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