Before the article, here\u2019s what\u2019s happening this week on our podcast, <\/em>Personal Finance for Long-Term Investors<\/em><\/strong>:<\/em><\/p>\n Retirement withdrawal strategies<\/strong> are one of the most common topics that you readers write to me about. You ask questions like: <\/p>\n I put together a popular whitepaper to tackle some of these questions \u2013 but\u2026<\/strong><\/p>\n \u2026but even this whitepaper doesn\u2019t dive deep into specific withdrawal strategies<\/strong> and the \u201ccorrect\u201d order of operations.<\/strong><\/p>\n Why not?<\/p>\n Because your<\/em> income, your<\/em> account types, your<\/em> cost basis, your<\/em> Social Security benefit, your<\/em> everything<\/span><\/strong> will impact the best retirement withdrawal strategy for you. There are too many corner cases and \u201cif-then\u201d scenarios to address everyone\u2019s<\/strong> ideal withdrawal strategy in one white paper, let alone one blog post. <\/p>\n But I\u2019ll come close today. Or at least I\u2019ll try. That\u2019s the goal. <\/p>\n Buckle up, because the rest of this article will provide a universal framework of fundamentals for retirement withdrawal strategies<\/strong>.<\/p>\n I don\u2019t want to mislead you. This article is not one of my lighter, 3-minute articles.<\/p>\n This won\u2019t be short. This won\u2019t be light. This won\u2019t be pithy. We\u2019re diving deep. <\/strong><\/p>\n Ok, it\u2019s not that<\/strong> serious.<\/em><\/p>\n But even with this lengthy detail, we likely won\u2019t go so deep as to explore every nook and cranny of your specific scenario.<\/p>\n With retirement withdrawals, the stakes are high and pitfalls are plentiful. We want your retirement withdrawal plan to be optimized from Day 1, yet flexible enough to change along the way and account for things like the sequence of returns risk, down markets, taxes, RMDs, IRMAA, inheritance and gifting, etc.<\/p>\n If you\u2019re going to read this article, it probably means you\u2019ve saved and invested wisely. So let\u2019s withdraw and spend wisely too.<\/p>\n The main topic today is retirement withdrawal strategies<\/strong>. <\/p>\n But I finished this article and realized I should return here to point you to articles on similar topics.<\/p>\n For example: <\/p>\n We\u2019ve answered that here. <\/p>\n We\u2019ve answered that here. <\/p>\n This is one of my most common topics to write about, so please go dive into the blog\u2019s backlog of articles. Here are a couple interesting starting points:<\/p>\n Now, on with the main event.<\/p>\n Enough preamble. Let\u2019s begin.<\/p>\n What\u2019s the core goal of planning your retirement withdrawals? Usually, it\u2019s one of the following:<\/p>\n No matter your personal goal, it\u2019s essential to understand the following aspects of your situation. (Yes, we will dive further into each aspect.)<\/em><\/p>\n If you\u2019re unsure how these bullets apply to you, it\u2019s worth pausing to understand why. <\/p>\n Imagine a large auditorium with many, many small side rooms. You quickly get a solid overview of the space when you step into the large hall. You see the size, the seating, the stage \u2013 the main aspects. But you don\u2019t know much about the side rooms. If you want 100% understanding, you\u2019ll need time to explore every room.<\/p>\n The retirement withdrawal landscape is similar. In the remainder of the article, I\u2019ll describe the \u201clarge auditorium\u201d of retirement withdrawals, providing a solid overview of the space. I\u2019ll also allude to many of the \u201csmall side rooms\u201d and perhaps even peek inside a few of them.<\/p>\n Most of you will walk away with an adequate \u201clay of the land.\u201d Quite a few of you, in fact, will walk away with enough information to\u00a0completely<\/em>\u00a0plan your retirement withdrawal strategy. The rest of you will feel comfortable, but perhaps wa<\/span>nting more details about the specific side rooms that apply to you.<\/p>\n Let\u2019s talk about the \u201clarge auditorium\u201d \u2013 the \u201cstandard\u201d withdrawal order of operations. <\/p>\n What follow are rules of thumb, not laws. But they\u2019re rooted in logic and tax math. At its core, this framework is about maximizing after-tax <\/em>income over your retirement years<\/strong>.<\/p>\n Before each step, please imagine the phrase, \u201cIf you still need money\u2026\u201d<\/em><\/p>\n It might go without saying, but if you don\u2019t need the money, you shouldn\u2019t withdraw anything. You should allow your portfolio to continue to compound. <\/p>\n But rather than write, \u201cIf you still need money\u2026\u201d dozens of times, please imagine it\u2019s there. <\/p>\n<\/blockquote>\n (\u201cIf you still need money\u201d)<\/em> You should first withdraw money from your taxable accounts.<\/strong> If you have \u201cextra\u201d cash in your bank account \u2013 that is, extra beyond your emergency fund \u2013 spend that first. It\u2019s a no-brainer. <\/p>\n Next, tap into the interest and dividends that might have accrued in your taxable brokerage investing account. You will be taxed on that money anyway in the year it\u2019s been paid out to you. Better to use it on your monthly spending needs than re-invest it and realize other taxable income elsewhere. <\/p>\n Typically, though not always (small side room!), you should realize capital gains in your taxable account next. Long-term capital gains have preferential tax treatment compared to normal income (e.g., withdrawals from Traditional accounts). Selling from a taxable account also creates cost-basis flexibility. You can choose which lots to sell, managing gains and losses to control your taxes. You can realize capital gains at a 0% tax rate in years with little-to-no other income. Not bad. <\/p>\n Next, tap into your tax-deferred accounts, such as Traditional 401(k) or IRA accounts. These are the accounts where you haven\u2019t paid a lick of tax (yet), but each dollar you withdraw will be treated as income<\/strong>, and be subject to income taxes<\/strong>.<\/p>\n Ideally, though, you won\u2019t touch this account until after<\/strong> age 59.5. Though (side room!) there are interesting workarounds to this age limit, such as Rule 72(t) \/ \u201csubstantially equal periodic payments,\u201d or SEPP.<\/p>\n These withdrawals are taxable as income and will affect other parts of your financial plan, such as your marginal tax bracket, Social Security taxation, and Medicare IRMAA brackets.<\/p>\n Nevertheless, starting withdrawals from tax-deferred\/Traditional accounts from an earlier age can be smart. Doing so prevents future large RMDs that might push you into higher tax brackets or affect your Medicare premiums. Roth conversions accomplish the same goal, although the converted dollars do not end up as spendable money but instead go into your Roth IRA. <\/p>\n \u201cBracket stuffing\u201d<\/strong> is a common tactic here, too. Not to be confused with a Thanksgiving dish, it describes the process of intentionally taking tax-deferred withdrawals or, more commonly, using Roth conversions to \u201cstuff\u201d your particular tax bracket until it\u2019s \u201cfull\u201d of income before getting pushed into a higher bracket. <\/p>\n The goal is to maximize or \u201cfill\u201d your lower tax brackets every year, especially if high RMDs are in your future.<\/p>\n The caveats are to ensure you have cash on hand to pay your taxes, to be wary of IRMAA territory, and to understand how your Social Security taxation might be affected, too. I cannot recommend this enough: you or a professional you hire should understand enough about the Federal 1040 tax return to (at least) lightly dig into your specific tax scenario.<\/strong> I frequently use this 1040 tax calculator for just that purpose.<\/a><\/p>\n Tax-free accounts are the \u201choly grail\u201d of retirement planning. No, they don\u2019t provide eternal life. <\/em><\/p>\n Or perhaps a better metaphor is the \u201cjoker\u201d or \u201cwild card.\u201d In a tight tax bind, you can withdraw money from these accounts (for qualified purposes on the HSA side) with no tax consequence. <\/p>\n Why save them for last? <\/p>\n First, they are your \u201cMVCs\u201d \u2013 most valuable compounders<\/strong>. Unlike your dollars that compound with capital gains taxes or income taxes attached, these tax-free dollars compound with no taxes.<\/p>\n Second, they\u2019re not subject to RMDs. You can let them compound forever<\/em>. <\/p>\n Third, your Roth dollars are ideal for legacy giving and estate planning. Your heirs can inherit the assets, let them continue compounding, and then withdraw them after 10 years without tax consequence. [This idea does not<\/strong> apply to HSA dollars \u2013 you do not<\/strong> want to leave HSA dollars to non-spouse heirs, and we will discuss that later]<\/em><\/p>\n And last, these dollars provide the aforementioned tax flexibility later in life, when RMDs and IRMAA surcharges become bigger concerns. Imagine an additional surprise expense pops up in your late 70s, when you already have high RMD income. To cover your unexpected need, you could realize capital gains (possibly at 15% or 20% tax, plus the 3.8% NII tax) or realize income (at 24%, 32%, or higher tax, plus State tax). Or, you can withdraw Roth dollars tax-free. That\u2019s a nice safety valve.<\/p>\n Roth dollars and HSA dollars should generally be the last dollars you withdraw. <\/p>\n That\u2019s the auditorium.<\/p>\n This is the starting point<\/em>. We haven\u2019t explored the \u201csmall rooms\u201d yet. As your retirement unfolds, many other scenarios can affect when and how to tweak this order.<\/p>\n The first \u201cside room\u201d we\u2019ll explore involves Roth conversions and tax bracket management. <\/p>\n I\u2019ve written extensively on these topics before. I recommend you start with these previous articles. I won\u2019t copy all the details word-for-word.<\/p>\n What are the critical details here?<\/p>\n We want to use our early retirement years for Roth conversions. These years tend to be lower income, as you\u2019ll typically be pre-RMD and might not have started Social Security yet.<\/p>\n We use these low-income years to intentionally and artificially realize income in lower tax brackets by \u201cconverting\u201d dollars from tax-deferred accounts into tax-free accounts, accomplishing the \u201cbracket stuffing\u201d we described above.<\/p>\n Is this guaranteed to be a smart tax move? We each have to make a judgment call. How do we feel about today\u2019s known tax brackets vs. tomorrow\u2019s uncertain ones? It\u2019s a difficult wager. But if we feel comfortable that taxes will remain stable or increase, then Roth conversions are a smart move.<\/p>\n The goal is to avoid nasty future tax scenarios, like the unholy interference of RMDs and Social Security. In retirement, every extra dollar of income doesn\u2019t just create its own<\/strong> tax bill, but can also pull more of your Social Security into the taxable column. It\u2019s not just what you earn. It\u2019s what your earnings trigger<\/em>. Another goal is to simply add more \u201cmost valuable compounders\u201d to your balance sheet. <\/p>\n What are other important \u201cside rooms\u201d in our retirement withdrawal optimization? Or, put another way, when should we \u201cbreak the rules\u201d of the standard order? And why?<\/p>\n In general, your retirement withdrawal plan should be measured in decades<\/strong>. You want to think far ahead. <\/p>\n After looking far into your future, you might realize that you\u2019ll pay high marginal taxes during your early retirement years \u2013 and this will stick out like a sore thumb compared to the rest of your plan. Instead of paying those high marginal taxes, you might \u201cfill the gap\u201d with early Roth withdrawals.<\/p>\n Rather than realizing capital gains at 20% + 3.8% NIIT, or rather than withdrawing from Traditional tax-deferred accounts at 32% Fed + 7% State tax rates, perhaps you make a simple Roth withdrawal with no<\/strong> tax consequence.<\/p>\n This strategy can also manage IRMAA, ACA, or other income cliffs. These \u201ccliffs\u201d are (pardon my French) stupid.<\/em> Going just\u00a0one dollar<\/em>\u00a0over a cliff can result in thousands of dollars of extra costs, penalties, etc. <\/p>\n If you need $500 more in a particular year and withdrawing that $500 from a Traditional IRA would push you into the next IRMAA bracket \u2013 stop! <\/em><\/strong>Make a strategic tax-free withdrawal instead \u2013 likely from a Roth account.<\/p>\n As you withdraw assets from your taxable account, you might see opportunities for tax-loss harvesting<\/a> and tax-gain harvesting. In short: <\/p>\n These two practices can open up other strategic doors in your withdrawal strategy or might take precedence over your predetermined plans. <\/p>\n But taxable cost basis is a funny thing. Any sort of tax-loss, tax-gain, or capital gains minimization strategy highly depends<\/strong><\/span> on your age. Not to be crass, but \u201ccost basis optimization\u201d becomes a moot point when you die. Your heirs will inherit your taxable assets at a stepped-up basis.<\/p>\n If you\u2019re 60 and healthy and considering this side room? Good. Go for it.<\/p>\n If you\u2019re 85, in a nursing home, and taking a hard look in the mirror\u2026well, you might not want to do any<\/em> of this stuff in your taxable account. <\/p>\n On that same note, it\u2019s worth asking yourself: <\/p>\n Leaving money to your spouse<\/strong> differs from any other person in your life. <\/p>\n Leaving money to charity<\/strong> has special rules about it. Some accounts are better off going to charity than others. And if you\u2019re giving to charity while you\u2019re alive, there are really smart (and really dumb) ways you should be doing that, too!<\/em><\/p>\n Leaving money to high-earning heirs<\/strong> should be fundamentally different than leaving money to low-earning heirs<\/strong>, because their tax situation can affect the benefit (or annoyance) of your bequest to them.<\/p>\n Leaving money after your death is an important \u201cside room\u201d when it comes to optimal retirement withdrawal strategies.<\/p>\n When designing someone\u2019s retirement paycheck, we generally think about fixed income sources first<\/strong>. We want to understand your Social Security income before<\/strong> determining your withdrawal order of operations. But I still wanted to touch on a few key points today. <\/p>\n Perhaps the biggest question to start is, \u201cWhen should I take Social Security?\u201d<\/em> Rather than reinventing the wheel, I suggest you read this: <\/p>\n The key takeaways: <\/p>\n Health Savings Accounts (HSAs) are highly valuable (somewhat like Roth dollars). When used for medical expenses, HSA dollars are tax-free \u201cmost valuable compounders.\u201d But what happens if your HSA is too<\/em> big, such that you might never spend it?<\/p>\n First, we should answer: what happens if you die with HSA assets?<\/strong><\/p>\n If you leave the HSA to your spouse, the account effectively becomes their<\/em> HSA, with all the excellent tax-free benefits. <\/p>\n But if your spouse has passed, or you simply want to leave the HSA to another person, then the entire account becomes taxable income<\/strong> to the beneficiary in the year of your death. Ouch! This is not<\/strong> an ideal outcome.<\/p>\n For that reason, it\u2019s worth considering a second optio<\/span>n: If your HSA is\u00a0too\u00a0big, and you might never spend it, do you have another option?<\/strong><\/p>\n Yes!<\/strong> Starting at age 65, you can essentially utilize HSA dollars as if they were in a Traditional IRA. You can spend the money on anything<\/strong>, not just medical expenses. But those withdrawals will be treated as taxable income (not<\/strong> tax-free income). There\u2019s a trade-off.<\/p>\n Which is better? It\u2019s a tough choice. If you spend too many HSA dollars starting at age 65, you might run out before later years when you have high medical costs. But if you die with too many HSA dollars, you might inefficiently saddle your beneficiary with a big tax bill. <\/p>\n All else being equal, I\u2019d prefer not to purchase annuities in the first place. Even the few \u201cgood\u201d annuities do not have enough investing merit to interest me. The math is clear. <\/p>\n A SPIA (Single Premium Immediate Annuity) is about as good as annuities come, but the rate-of-return math of a typical SPIA isn\u2019t attractive.<\/p>\n A SPIA is as simple an annuity as you can get \u2013 and that\u2019s a good thing. You trade in a chunk of your money today in exchange for lifetime income. It\u2019s longevitiy insurance, where you and other SPIA customers essentially pool your risk together, much like the inverse of term life insurance. <\/p>\n As of this writing, a 65-year old male can purchase a SPIA with a 7% to 7.5% annual return payout. NOTE \u2013 the payout is NOT the same as an investment rate of return, because the annuity first pays you back your own money<\/strong><\/p>\n By using simple internal rate of return (IRR) math, we see what a 7.5% payout equates to. If this 65-year old males dies at\u2026<\/p>\n As we know from our deep dive on life expectancy<\/a>, the average 65-year old American male will live to age 82. This annuity would provide a 2.8% rate of return for that average male. <\/p>\n That is simply not good enough. <\/p>\n<\/blockquote>\n Ok \u2013 but let\u2019s assume you already own some annuities and you really like them. <\/p>\n Much like Social Security, your annuity income can create a \u201cfixed floor\u201d from which you can build the rest of your withdrawal strategy. <\/p>\n Pension income works the same way. It creates a floor. <\/p>\n Now, if you have control<\/strong> over collecting your pension or annuity income, it\u2019s worth understanding if delaying those income sources will open other doors for you. Namely, tax<\/em> doors, such as the oft-mentioned Roth conversions.<\/p>\n We\u2019ve covered so much ground! We\u2019ve already touched on the many common mistakes. But let\u2019s rehash them anyway. How can a withdrawal order of operations go wrong?<\/p>\n Your ideal retirement withdrawal strategy will be a function of you<\/strong> and your unique circumstances<\/strong>. But the framework provided today should give you an excellent starting point. <\/p>\n Getting this step of retirement planning correct is just as important as the decades of saving, accumulating, and investing you\u2019ve been doing. A little math and planning can add so much value. <\/p>\n Questions? Concerns? Did I miss something obvious? Let me know! <\/p>\n Thank you for reading! Here are three quick notes for you: <\/p>\n First<\/strong> \u2013 If you enjoyed this article, join 1000\u2019s of subscribers who read Jesse\u2019s free weekly email, where he send you links to the smartest financial content I find online every week. 100% free, unsubscribe anytime.<\/p>\n Second<\/strong> \u2013 Jesse\u2019s podcast \u201cPersonal Finance for Long-Term Investors\u201d<\/a><\/strong><\/em> has grown ~10x over the past couple years, now helping ~10,000 people per month. Tune in and check it out.<\/a> <\/strong><\/p>\n
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![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/04\/cropped-cover-sheet-854x1024.png\")
<\/figure>\n<\/div>\nSome Expectations\u2026<\/h2>\n
![\"a](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/06\/pexels-photo-7714764.jpeg\")
Answering Some Other Questions\u2026<\/h2>\n
How Much Can You Safely Withdraw From Your Portfolio Each Year? <\/h4>\n
How Should You Tax-Optimize Where Your Assets Live?<\/h4>\n
What Assets Should You Own? How Much Risk Should You Take? How Do You Design a Good Portfolio? <\/h4>\n
The Foundational Concepts of Retirement Withdrawals <\/h2>\n
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![\"green](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/06\/pexels-photo-439416.jpeg\")
<\/figure>\n<\/div>\n\n
The Standard Withdrawal Order of Operations<\/h2>\n
![\"theater](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/06\/pexels-photo-109669.jpeg\")
<\/figure>\n<\/div>\n\n
Taxable Accounts First<\/h4>\n
![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/06\/image-2.png\")
Tax-Deferred Accounts Next<\/h4>\n
![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/06\/image-3.png\")
<\/figure>\n<\/div>\nTax-Free Accounts Last (Roth, HSA) <\/h4>\n
![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/06\/image-1.png\")
<\/figure>\n<\/div>\n\n
![\"athletes](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/06\/spot-runs-start-la.jpg\")
<\/figure>\n<\/div>\nOptimizing With Roth Conversions and Tax Bracket Management <\/h2>\n
Other Side Rooms: When and How to Break the Standard Order<\/h2>\n
Filling Gaps with Roth Withdrawals<\/h4>\n
![\"yellow](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/06\/pexels-photo-3482442.jpeg\")
<\/figure>\n<\/div>\nTaxable Asset Liquidation \u2013 Looking At Cost Basis<\/h4>\n
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![\"blue](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/06\/harvest-grain-combine-arable-farming-163752.jpeg\")
<\/figure>\n<\/div>\n\n
Optimizing for Post-Death<\/h4>\n
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![\"a](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/06\/pexels-photo-7317916.jpeg\")
<\/figure>\n<\/div>\nThe Role of Social Security Timing<\/h2>\n
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What About HSAs, Annuities, Pensions, etc? <\/h2>\n
![\"seven](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/06\/pexels-photo-277593.jpeg\")
<\/figure>\n<\/div>\nWhat About Annuities?<\/h3>\n
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![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/06\/image-4.png\")
<\/figure>\n<\/div>\nCommon Mistakes and How to Avoid Them <\/h2>\n
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![\"pexels-photo-374918.jpeg\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/06\/pexels-photo-374918.jpeg\")
<\/figure>\n<\/div>\nConclusion<\/h2>\n