Saving for decades is one skill. Turning that pile of money into a paycheck that lasts the rest of your life is a completely different one — and just as important.
The 4% Rule
The classic rule of thumb: withdraw 4% of your portfolio in the first year of retirement, then adjust that dollar amount for inflation every year after, and a portfolio invested in a reasonable stock/bond mix has historically had a strong chance of lasting 30 years.
It's a starting heuristic, not a guarantee — actual safe withdrawal rates depend on your specific asset mix, the sequence of market returns early in retirement, and how flexible you can be about spending in a bad year. Many retirees adjust spending somewhat based on how the portfolio is actually performing, rather than following the fixed formula mechanically.
Required Minimum Distributions (RMDs)
Traditional 401(k)s and IRAs come with a catch: starting at a specific age (currently 73, scheduled to rise further in future years), the IRS requires you to withdraw at least a minimum amount each year — and pay income tax on it — whether you need the money or not. Roth IRAs are exempt from RMDs during the original owner's lifetime, one more point in Roth's favor for long-term flexibility (see Lesson 8).
Which Account to Tap First
A commonly used general order, though your specific tax situation can change the optimal sequence:
- Taxable brokerage accounts first — letting tax-advantaged accounts keep compounding as long as possible.
- Traditional 401(k)/IRA next — especially useful to draw down before RMDs force the issue, potentially at a lower tax rate than later.
- Roth accounts last — since they have no RMDs and grow tax-free, letting them compound the longest is usually most valuable, and they're a flexible source for big one-time expenses without triggering extra tax.
In practice, many retirees blend withdrawals across account types each year specifically to manage their tax bracket — pulling a bit more from Traditional accounts in low-income years, and leaning on Roth or taxable accounts in years when extra Traditional withdrawals would push them into a higher bracket.
How to Set Up Your Retirement Withdrawal Plan
A withdrawal plan turns savings into a paycheck that's meant to last — here's how to build the first draft.
- Total your accounts by type. Taxable, traditional (401(k)/IRA), and Roth — the order you withdraw from each matters for taxes.
- Calculate a starting withdrawal using the 4% rule as a baseline. Not a guarantee, but a reasonable starting point for a sustainable first-year amount.
- Plan the withdrawal order. Taxable first, traditional next, Roth last — adjusting each year to manage your tax bracket.
- Mark your RMD start age. And set a calendar reminder well before it, since missing one carries a steep penalty.
- Revisit the plan every year. Market performance and spending needs both change over time.
Key Takeaways
- The 4% rule is a starting heuristic for a sustainable first-year withdrawal, adjusted for inflation afterward — not a guarantee.
- Traditional accounts require RMDs starting at a set age; Roth IRAs don't, during the original owner's lifetime.
- A common order is taxable, then Traditional, then Roth last — but real plans often blend across all three to manage tax brackets.
Check Your Understanding
Six quick questions — no grades, just a gut check before you move on.
1. After the first year, how does the 4% rule adjust withdrawals?
2. Which account type is exempt from RMDs during the original owner's lifetime?
3. In a common withdrawal order, which account type is often tapped last?
4. At what age do Required Minimum Distributions currently begin?
5. What happens if you miss a Required Minimum Distribution?
6. Why might a retiree blend withdrawals across taxable, Traditional, and Roth accounts each year instead of following one strict order?
Do This This Week
Reading is step one. Here's what actually moves the needle: