Once you reach retirement, the question isn’t just how much income you’ll need—it’s also where and when to take that income. Withdrawal sequencing and retirement income planning can play an important role in shaping a distribution strategy that reflects your lifestyle, tax considerations, and required minimum distributions (RMDs). 

By thinking carefully about which accounts to tap and in what order, you can work toward aligning your income needs with your overall financial goals in retirement. 

What Is Withdrawal Sequencing? 

Withdrawal sequencing refers to the order in which you draw funds from different income sources in retirement. These sources may include: 

• Traditional IRAs and 401(k)s 

• Roth IRAs 

• Taxable investment accounts 

• Pensions 

• Social Security 

• Annuities 

• Cash savings or CDs 

The sequence of withdrawals can affect your taxable income each year and may influence the longevity of your retirement portfolio. 

Why RMDs Are a Key Part of the Equation 

For retirees with tax-deferred retirement accounts, RMDs begin at age 73 (for individuals turning 72 after January 1, 2023). These mandatory withdrawals increase taxable income and can impact everything from tax brackets to Medicare premiums. 

Failure to take your RMD can result in a significant penalty. As such, RMDs are often a starting point for planning income each year. However, simply defaulting to taking RMDs first without considering other sources may limit flexibility. 

Withdrawal Sequencing and Retirement Income: The Big Picture 

Effective sequencing can help align your retirement distributions with goals such as: 

• Reducing overall lifetime tax liability 

• Managing tax bracket creep 

• Limiting the impact of RMDs on other benefits 

• Balancing short-term income with long-term preservation 

For example, it might make sense to draw from taxable accounts in early retirement, before RMDs begin. Doing so may allow tax-deferred accounts to continue growing while keeping taxable income lower in the initial years. 

Coordinating RMDs with Other Retirement Income 

Here’s how some retirees approach blending different income sources around their RMDs: 

1. Use Taxable Accounts First

• Early in retirement, some people begin with taxable accounts, which often generate capital gains or dividends taxed at lower rates. 

• This approach can help keep adjusted gross income (AGI) lower and potentially reduce future RMD size. 

2. Fill Up Lower Tax Brackets

• If you’re in a lower tax bracket early in retirement, partial Roth conversions or voluntary withdrawals from IRAs can help reduce future RMD amounts. 

• This can spread out taxable income more evenly over time. 

3. Coordinate With Social Security Timing

• Delaying Social Security can lower taxable income in early retirement and increase future monthly benefits. 

• This can be paired with strategic withdrawals from tax-deferred or taxable accounts before RMDs begin. 

4. Integrate Guaranteed Income Sources

• If you receive a pension or income annuity, these sources can fill a baseline of essential expenses, allowing you to better time portfolio withdrawals. 

• These payments are often taxable and should be considered when planning around RMD thresholds. 

Common Mistakes in Withdrawal Sequencing 

A few common missteps include: 

• Waiting too long to plan for RMDs: Ignoring RMDs until age 73 can result in high required withdrawals that push you into a higher tax bracket. 

• Overlooking healthcare-related thresholds: Higher income can trigger increased Medicare Part B premiums and taxation on Social Security. 

• Tapping Roth IRAs too early: Roth accounts can provide tax-free income later in retirement when other income sources are higher. 

Understanding the tax treatment and timing of each income source helps reduce surprises and support informed decision-making. 

Customizing the Approach to Your Retirement 

There is no one-size-fits-all withdrawal sequence. Each retiree’s situation is different based on: 

• Age and timing of RMDs 

• Tax bracket and other income sources 

• Healthcare needs and costs 

• Retirement goals and spending patterns 

Working with a financial planner can help you build a personalized distribution strategy that reflects your full financial picture. 

How Withdrawal Sequencing and Retirement Income Work Together 

Effective retirement income planning involves more than setting a budget. The order in which you draw funds—from IRAs, taxable accounts, or annuities—can influence how long your money lasts, how much tax you pay, and how easily you can adjust to life’s changes. 

If you’re navigating how to blend RMDs with your other income sources, Milford Financial can help you assess your income streams, evaluate tax considerations, and build a strategy that adapts with you. Reach out to start the conversation. We look forward to speaking with you!