Withdrawal Sequencing: Turning Your Savings Into a Paycheck
By Jeffrey Meenes, CFP®
Tom and Linda are both 65 and recently retired. After decades of saving, they've built a solid foundation:
- $600,000 in a taxable brokerage account
- $1.8 million in traditional IRAs
- $400,000 in a Roth IRA
They need about $120,000 a year to live comfortably. They've done the hard part — they saved. Now they face a question almost no one prepares for: which account do they spend first?
One of the most common patterns I see among newly retired couples is that they've spent decades deciding how to save, but almost no time deciding how they'll actually take the money back out. The two are not the same skill — and the second one, done well, is worth more than most people realize.
Most retirees don't lie awake worrying about withdrawal sequencing. They worry about running out of money. The challenge is that the order and combination in which you draw your income quietly influences whether that happens — and how much you hand to the IRS along the way.
Most people have heard a reasonable rule of thumb for this. The limitation is that the rule, while sensible on its surface, doesn't account for how retirement decisions interact with one another. The conventional order isn't wrong. It's just incomplete.
The Conventional Rule
The standard advice goes like this: spend your taxable accounts first, then your traditional IRA, and save your Roth for last.
The logic is reasonable. Spending taxable money first lets your tax-advantaged accounts keep growing. Saving the Roth for last preserves your tax-free money the longest. It's familiar, it's easy to follow, and for some retirees it's close to right.
If Tom and Linda followed this rule, they'd draw down their $600,000 taxable account over the first several years, then begin pulling from their $1.8 million traditional IRA, leaving the Roth untouched until much later.
On paper, it looks sensible. The consequences don't appear until years later.
Why the Conventional Order Backfires
By spending only their taxable account in their late 60s, Tom and Linda report very little taxable income in exactly the years when their income is naturally lowest — the window between retirement and the start of Required Minimum Distributions at 75.
Those low-income years are some of the most valuable planning years a retiree will ever have. As I covered in the Retirement Tax Bomb article, this is the window when strategic Roth conversions and careful tax planning can dramatically reduce a lifetime tax bill. By spending only taxable dollars and letting the traditional IRA grow untouched, the conventional approach lets that window close unused.
The result: when RMDs begin at 75, that $1.8 million IRA — now grown even larger — forces out far more taxable income than Tom and Linda need. Their tax bracket jumps. More of their Social Security becomes taxable. They risk crossing IRMAA thresholds that raise their Medicare premiums. And if one spouse passes, the survivor faces all of this in the narrower single tax brackets.
The conventional rule didn't make a mistake in any single year. It simply optimized one year at a time, and missed the bigger picture across decades. That's the heart of the matter: retirement income is a decades-long problem disguised as an annual one.
The Coordinated Approach
A coordinated withdrawal strategy starts from a different question. Instead of "which account do I empty first," it asks "how do I use all three accounts together?"
For Tom and Linda, that might look like this:
Rather than living purely off the taxable account, they draw from it for cash flow while also converting a portion of the traditional IRA to Roth each year — enough to fill up the lower tax brackets, but not so much that they spike into a higher one or cross an IRMAA threshold. They blend sources: some taxable, some traditional, with an eye on the total taxable income they show each year.
This does several things at once. It smooths their taxable income across decades instead of leaving it artificially low now and dangerously high later. It shrinks the traditional IRA before RMDs force the issue, reducing those future forced withdrawals. It builds up the Roth, which will eventually provide tax-free income and pass to heirs tax-free. And it coordinates with their Social Security decision — by keeping income managed in the early years, they preserve the flexibility to delay Social Security and lock in a larger benefit, an idea I explored in last month's article on Social Security timing.
None of these moves is dramatic on its own. A modest conversion here, a blended withdrawal there. But repeated thoughtfully over a decade or more, they compound.
The Difference
When we model both approaches for a couple in Tom and Linda's situation, the coordinated strategy produces roughly $95,000 in additional after-tax spending over the course of retirement — while reducing those future required distributions and lowering the likelihood of Medicare premium surcharges later on.
What's striking is where that difference comes from. It isn't investment performance — both approaches assume the same returns. The entire gap comes from what Tom and Linda chose to do during the quiet years between retirement and the start of RMDs. Same portfolio, same markets, same savings. Different sequence.
That's not a dramatic, headline-grabbing number. It comes from small decisions, repeated year after year, each one barely noticeable on its own. But that's exactly the point. Retirement income planning isn't about one brilliant move. It's about coordinating a series of ordinary decisions so they work together instead of against each other.
The question was never which account to empty first. It's how to use all three together.
Why This Is Hard to Do Alone
The reason coordinated withdrawal planning is difficult isn't that any single piece is complicated. It's that all the pieces move at once.
Your withdrawal sequence affects your tax bracket. Your tax bracket affects how much of your Social Security is taxed. Your income affects your Medicare premiums. Your Roth conversions affect your future RMDs. And every one of these decisions plays out over 20 or 30 years, with the rules shifting as you age and as one spouse eventually outlives the other.
Looking at any one of these in isolation produces a reasonable answer. Looking at all of them together produces a different — and usually better — one. That coordination, sustained year after year, is where the real value lies.
Frequently Asked Questions
What is withdrawal sequencing? Withdrawal sequencing is the order and combination in which you draw income from your different retirement accounts — taxable, tax-deferred (traditional IRA/401(k)), and tax-free (Roth). The goal is to fund your retirement while minimizing taxes and preserving flexibility over your full retirement, not just in the current year.
Isn't it always best to spend taxable accounts first? It's a reasonable starting point, but not always optimal. Spending only taxable accounts in your early retirement years can leave your traditional IRA to grow unchecked, leading to large required distributions — and higher taxes — later. A blended approach that manages your taxable income each year is often more effective.
What are the low-income years everyone talks about? These are typically the years between retirement and the start of Required Minimum Distributions. Depending on your birth year, RMDs generally begin at age 73 or 75 under current law. With no paychecks and no forced withdrawals yet, your taxable income is often at its lowest, creating room for strategic Roth conversions and capital gains planning at favorable rates.
How does this connect to Social Security and Medicare? Closely. The income your withdrawals generate determines how much of your Social Security is taxed and whether you cross the IRMAA thresholds that raise Medicare premiums. Coordinating withdrawals with your Social Security claiming decision is part of a well-built income plan.
Do I need a financial advisor to do this? Not necessarily — but coordinating withdrawals, Roth conversions, Social Security timing, and Medicare thresholds over multiple decades is genuinely difficult to do well on your own, especially as the rules and your circumstances change. It's one of the areas where thoughtful, integrated planning tends to earn its keep.
If you're approaching retirement and want clarity around the decisions ahead, schedule an introductory call.
About the Author
Jeffrey Meenes, CFP®, is the founder of Meenes Wealth Partners, a fee-only, flat-fee fiduciary RIA in Shrewsbury, Massachusetts. He helps pre-retirees and retirees navigate the financial decisions surrounding the transition into and through retirement, with a focus on tax planning, retirement income strategy, and evidence-based investment management.
This content is developed from sources believed to be providing accurate information and provided by Meenes Wealth Partners. It may not be used to avoid any federal tax penalties. Please consult legal or tax professionals for specific information regarding your situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.