You’ve likely spent years building your retirement nest egg—saving diligently, investing wisely, and contributing to retirement accounts along the way. But transitioning from earning a paycheck to relying on your savings can feel overwhelming. It’s a major life change, and having a clear strategy can help ease the stress. As financial professionals, we help clients navigate this shift by developing strategies that turn the wealth they’ve accumulated into reliable retirement income. In this blog, we’ll outline some key considerations to keep in mind as you make this transition.
Social Security as One of the Foundations of Your Retirement Income Strategy
While Social Security may not be your primary source of income in retirement, it can provide a steady stream of supplemental income—adding an important layer to your overall financial strategy.
In 2025, the maximum monthly Social Security benefit at full retirement age is $4,018, or roughly $48,000 per year. For some retirees, this can help cover basic living expenses and reduce the need to withdraw as much from retirement savings. That’s why Social Security can be an important factor when structuring your retirement cash flow.
Most people become eligible to claim Social Security benefits at age 62. However, to receive your full benefit, you will need to wait until your full retirement age—currently 67. If you delay benefits until age 70, your monthly payments will be even higher. Several personal factors should influence the timing of your claim, including your health, marital status, financial needs, and your plans for continued work. Taking benefits early can reduce your monthly payout by up to 30 percent, so it’s wise to consult a financial professional to help you evaluate your options before making a decision.
The Art of a Smart Withdrawal Strategy
Once you’ve determined the monthly benefit you can expect from Social Security, the next step is to evaluate your other potential income sources and decide how best to access them. Withdrawing money from your accumulated assets is often more complex than it appears. We frequently remind clients that creating an effective withdrawal strategy is both an art and a science—requiring a careful balance of longevity, tax efficiency, and income needs.
A good starting point is to develop a withdrawal sequence tailored to your personal circumstances.
Retirement portfolios are typically divided into three broad categories based on their tax characteristics:
- Taxed
- Pre-tax
- Post-tax
Before reviewing the specifics of each category, remember that this blog is intended for informational purposes only and is not a substitute for personalized financial advice. Be sure to consult with your tax, legal, and accounting professional—as well as a financial advisor—before making any decisions regarding your retirement withdrawal strategy.
The Taxed Portion of Your Portfolio
This part of your portfolio has no special tax advantages. It includes nonqualified or taxable accounts, such as savings, checking, and brokerage accounts funded with after-tax money. When you sell investments from these accounts, you may be required to pay capital gains tax on any profits, depending on how long you’ve held the assets and your overall tax situation.
The Pre-tax Portion of Your Portfolio
Your pre-tax portfolio comprises qualified retirement accounts like 401(k)s and IRAs that were funded with pre-tax dollars. Contributions to these accounts were tax-deductible at the time they were made, and the investments have grown tax-deferred over time. However, withdrawals in retirement are taxed as ordinary income.
The Post-tax Portion of Your Portfolio
Post-tax accounts include Roth IRAs and Roth 401(k)s, which are funded with after-tax dollars. While contributions to these accounts are not tax-deductible, the key advantage is that both the growth and qualified withdrawals are tax-free. A withdrawal is considered qualified if the account has been open for at least five years and the account holder is either age 59½ or older, permanently disabled, or using a portion of the funds for a first-time home purchase.
Things to Consider
A general rule to consider is to create a withdrawal strategy that allows your most tax-advantaged accounts to grow for as long as possible. This typically means withdrawing funds in order of their tax treatment—starting with fully taxable accounts. By doing so, you allow your tax-advantaged accounts more time to potentially grow. Once your fully taxable accounts are depleted, you can begin withdrawing from pre-tax accounts, preserving your post-tax accounts for longer growth. Finally, withdrawals can be made from Roth accounts. Note though, that this is simply a general rule and your particular circumstances may suggest another approach. For example, if you retire before you begin taking your social security or before you are required to take distributions from your tax deferred accounts, your taxable income could be quite low after you retire and before you take social security and RMDs. In this situation, it may be preferable to take money from your tax deferred accounts which will be taxed at a much lower rate than they may be in the future. It's complicated and you may want to ask a financial advisor or your CPA for help in how best to arrange withdrawals for your living needs.
Control What You Can, and Be Flexible When You Can’t
A well-thought-out withdrawal strategy should take many factors into account—some within your control, and others outside of it.
While you can’t control market performance, you can adjust your withdrawal strategy to manage “sequence risk,” which arises from market fluctuations during retirement. If you need to withdraw money from your portfolio while the market is down, you may be forced to realize losses. This could leave your portfolio with fewer assets to benefit from a potential market recovery.
If the market enters a prolonged downturn as you approach retirement, there are several actions you can consider:
- Diversify Assets—Maintaining a diversified portfolio may help mitigate the impact of a market downturn. However, keep in mind that diversification is a strategy to help manage—not eliminate—investment risk when security prices decline.
- Increase Reserves—To avoid withdrawing too much from your portfolio early in retirement, consider building short-term reserves designed to cover essential expenses as you transition into retirement.
- Flexible Withdrawals—Instead of taking fixed withdrawals, adjust the amount you withdraw based on market conditions—taking less when markets are down and more when they’re performing well. If you have a diversified portfolio with a strategic asset allocation, you could also use withdrawals to rebalance your portfolio to your desired asset allocation.
- Spending—Being flexible and intentional with your spending can help limit withdrawals and preserve your portfolio, especially in the early years of retirement.
Conclusion
You’ve worked hard to build your savings—and whether retirement is years away or just around the corner, the decisions you make now can have an effect on your future income. Creating a thoughtful withdrawal strategy is one way to help your savings support the lifestyle you envision.
You don’t have to navigate this alone. As financial professionals, we’re here to help you prepare with clarity and confidence.
If you’d like to explore a customized strategy, schedule a consultation with us today.