Living in Retirement

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Set up a retirement income plan

You may not miss working after you retire, but you'll almost certainly miss the paycheck

If you're like most retirees or soon-to-be retirees, you're concerned about maintaining a steady income and making your savings last. See how tax-efficient withdrawals from your investments can help you reach both goals.


Your retirement income checklist

1. Decide how much to withdraw
Setting a 4% annual withdrawal rate from a portfolio is reasonable for many retirees. That may seem conservative, but remember you may be retired for 30 years or more. If 4% isn't enough, consider ways to cut expenses or consider other alternatives.

Use our income and expense calculator to help you plan

2. Consider taking withdrawals in tax-efficient order
It's generally best to start by taking withdrawals from accounts you're already paying taxes on. That lets you delay pulling from tax-advantaged accounts (like an IRA) and preserve the tax-sheltered part of your portfolio for potential growth that can help your savings last.

Consider withdrawing from your accounts in this order for maximum tax efficiency:

  1. Taxable.
  2. Tax-deferred (from traditional IRAs or 401(k)s and other employer plans).
  3. Tax-free (from Roth IRAs or Roth employer plans).

After you reach age 70½, you're required by the IRS to take a certain amount out of your traditional IRAs and other tax-deferred accounts every year. You'll want to draw these required minimum distributions (RMDs) first before tapping other accounts.

Set up an exchange

3. Create a cash reserve
You'll need a place to put the money you're moving out of your investments. A low-cost, high-quality money market mutual fund can be a smart choice for this cash reserve. You can move the amount you expect to need for 12 months into your money market fund at one time. That way you won't have to worry about market swings affecting your immediate spending needs.

Open a money market fund (You also can use an existing money market fund.)

4. Direct your distributions
Consider taking, rather than reinvesting, dividends and capital gains distributions from your taxable accounts. This provides income and can save on taxes. If you reinvest in taxable accounts, you'll likely have to pay taxes again when you later withdraw the money.

Direct your distributions

5. Connect to your bank
You can link your cash reserve money market fund electronically with your bank account, so you can conveniently move money to your bank. For efficiency's sake, move a month's worth of expenses at a time.

Set up automatic transfers

How to stay on track
Review your portfolio's asset allocation at least once a year and, if you're off your desired asset mix, consider rebalancing back to your target. You'll also need to replenish your cash reserve once a year. 


  • All investments are subject to risk.
  • Investments in bond funds are subject to interest rate, credit, and inflation risk.
  • Past performance is not a guarantee of future results.
  • An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.
  • If you take withdrawals from a tax-deferred investment before age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax on withdrawals.
  • We recommend that you consult an independent tax or financial advisor about your situation.
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