Which Dollars Should You Spend First in Retirement?

Deciding which dollars to spend first in retirement is one of the most important financial choices you’ll make. The order in which you draw down your assets can affect:

• How long your money lasts
• How much you pay in taxes
• How much you leave behind for loved ones

Many retirees assume they should just start with whichever account feels easiest to access. But smart planning means being intentional about the sequence of withdrawals.

Why the Order of Withdrawals Matters in Retirement

When you retire, your income will likely come from multiple sources:

• Tax-deferred accounts (401(k), IRA)
• Tax-free accounts (Roth IRA, Roth 401(k))
• Taxable brokerage or savings accounts
• Pensions
• Social Security benefits

Each of these accounts has different tax implications. By carefully coordinating how and when you tap into them, you can:

• Reduce your lifetime tax bill
• Preserve more money for later years
• Support a sustainable retirement income strategy

Common Withdrawal Strategies

There’s no one-size-fits-all answer, but here are the most common approaches financial planners consider:

1. Taxable Accounts First

Many retirees start by using after-tax brokerage or savings accounts. This allows tax-deferred accounts to keep growing.

Pros: Gives tax-deferred accounts more time to grow.
Cons: Could leave you with higher taxes and RMDs down the road if traditional IRA or 401(k) balances balloon.

2. Tax-Deferred Accounts First

Withdrawing from IRAs or 401(k)s early can help manage future RMDs and avoid big tax hits later.

Pros: Reduces risk of high RMDs in your 70s.
Cons: May push you into a higher tax bracket earlier. Also will reduce your tax deferred compounding interest benefits as you continue to withdraw.

3. Roth Accounts Last

Because Roth IRAs grow tax-free and have no RMDs during your lifetime, many advisors suggest using them last.

Pros: Preserves tax-free growth for as long as possible.
Cons: May not be tax-advantaged if your bracket is lower in retirement than your working years. Talk to your tax and financial advisors for more details of your specific situation.

Advanced Time Segmentation: A Smarter Approach to Retirement Spending Timelines

At Malecki Financial Group, we use an exclusive strategy called Advanced Time Segmentation (ATS). Instead of guessing which savings to spend first, ATS organizes your retirement savings into “buckets” of time.

• Income Now - This bucket is designed to provide stable cash flow for your initial needs in retirement and lifetime income. Funds here are invested conservatively to reduce risk, so you can feel confident your immediate income needs are covered.
• Income Later - The second bucket is a reserve that focuses on growth to refill the Income Now bucket as time goes on. Investments here aim for moderate growth, balancing safety with some risk. This helps ensure you’ll have income available as your needs evolve.
• Long-Term Growth - The third bucket is positioned for growth throughout retirement. These dollars are given time to compound and grow untouched since the other segments provide time.

This method aligns withdrawals with your retirement timeline while balancing growth, income, and tax efficiency while fighting inflation.

If you’d like to learn more about Advanced Time Segmentation, let’s set up a meeting to discuss specifics. Click here to book your complimentary intro meeting.

Coordinating With Social Security

Social Security benefits add another layer of complexity.

Deciding when to claim can impact how you sequence withdrawals. You can start taking benefits as early as 62, or you can delay benefits until age 70.

Sometimes, delaying Social Security while drawing down other accounts can help balance your income plan. Talk to your advisor for more details.

The Bottom Line

There’s no universal answer to the question: Which dollars should you spend first in retirement? The right strategy depends on:

• Your mix of account types
• Your long-term income needs
• Your goals for leaving a legacy

Working with a retirement income specialist ensures you don’t accidentally leave money on the table.

Ready to Plan Your Retirement Income Strategy?

At Malecki Financial Group, we help retirees and business owners create sustainable withdrawal strategies with tools like Advanced Time Segmentation. If you’re approaching retirement and wondering how to sequence your income, let’s talk.

[Contact us today to start your personalized retirement income plan.]