Congratulations – you’ve retired! So, now what? 

Millions of baby boomers are crossing the retirement threshold every day, and perhaps you’re one of them. You’ve saved, you’ve invested, you’ve diversified – in short, you’ve done everything a prudent person should do to prepare for this important phase of your life, one that might very likely last for the next two decades or more. Now that it’s time to start spending your retirement savings, how do you know the safest way to decide how much to take, how often, and from which accounts? 

Financial planners all have their theories about the topic of retirement income distribution, and we encourage you (if you haven’t done so already) to sit down with a qualified planner to develop a financial dashboard to guide you. But if you’re looking for a more broad-brush look at the subject, this recent article from Kiplinger should prove useful. In it, certified financial planner John Smallwood offers us his list of income distribution strategies (10 in all) that he claims will help you make the most of your retirement savings while ensuring that it lasts.  

Will these strategies help secure your financial future? Let’s take a closer look. 

Tip #1: Adopt a Dynamic Withdrawal Strategy 

For years, retirees have used the traditional 4 percent rule — a fixed withdrawal rate of 4 percent per year — to avoid running out of money in retirement. But, says Smallwood, that advice may be wrong, particularly in volatile markets. He says, ujse a dynamic strategy instead. 

“A dynamic withdrawal strategy adjusts spending based on portfolio performance,” Smallwood says, “allowing retirees to preserve wealth during market downturns and enjoy more leeway in spending during strong years. He offers a simple illustration. 

“Consider the case of Emily,” he writes. “Her retirement begins with $500,000 in savings. In a year with strong market growth, she increases her withdrawal by 5 percent, taking out $21,000 instead of $20,000” – a 4.2 percent withdrawal rate. But when the market is soft, “she scales back to $18,500 to protect her portfolio” (equaling 3.7 percent).  

These dynamic strategies act like guardrails, Smallwood states, linking our spending to financial performance and making our savings more sustainable. 

Tip #2: Plan Your Withdrawals to Minimize Taxes 

Smart spenders plan carefully for taxes in retirement. “The order in which you withdraw funds from your various retirement accounts — called withdrawal sequencing — is the cornerstone of tax-efficient income planning,” Smallwood writes. A wise approach not only cuts taxes but also prolongs the life of retirement savings. 

Smallwood recommends optimizing your tax rate by balancing withdrawals from taxable, tax-deferred and tax-free accounts. “Taking advantage of today’s lower tax brackets can help reduce your overall lifetime tax burden,” he says, “and preserve more wealth for your heirs.” 

Here’s a breakdown of the sequencing approach he suggests, quoted verbatim from the Kiplinger article: 

Withdraw from taxable accounts first. Start with taxable accounts. This reduces exposure to capital gains taxes and decreases your current tax liability while allowing tax-deferred accounts to continue compounding without triggering immediate tax consequences. 

Tax-deferred accounts next. Carefully plan withdrawals from tax-deferred accounts, such as traditional IRAs or 401(k)s, to take advantage of your current tax rate. Doing so earlier — before required minimum distributions (RMDs) begin at age 73 —can prevent larger tax bills later and minimize the impact of deferring funds to potentially higher future tax brackets. 

Tax-free accounts last. Save Roth IRA withdrawals for last to maximize their tax-free growth. These funds can act as a safety net for unexpected expenses or be used strategically to offset taxable income, preventing higher tax rates or Medicare premium surcharges. 

Tip #3: Take Advantage of Roth IRA Conversions 

It can be a smart move, says Smallwood, to convert funds from a traditional IRA to a Roth IRA. This strategy means you pay taxes now, but enjoy tax-free withdrawals later.  

“It’s the difference between paying taxes on the seed of your income or the harvest of it,” Smallwood writes. After all, taxes will likely increase over time. “This approach is particularly advantageous during low-income years when the tax rates on the conversion may be lower than in future years,” he adds, “especially if you expect to be in a higher tax bracket later.” 

Tip #4: Enjoy the Benefits of Qualified Charitable Distributions 

Smallwood calls qualified charitable distributions, or QCDs, “a powerful strategy for retirees.”  Under the rules governing a QCD, those 70½ or older can use funds from an IRA to make tax-free gifts to charities. Because funds go directly from the IRA to the charity, there’s no taxable income (unlike with standard withdrawals), and the QCD also satisfies required minimum distributions.  

This combination, says Smallwood, makes the QCD “an excellent option for those looking to support causes they care about while minimizing their tax burden.” The IRS allows the transfer up to $105,000 annually directly to a qualified charity. The amount of a QCD can also be excluded from adjujsted gross income, which can help lower the impact of other taxes.  

Tip #5: Make Careful Use of Your “Bucket Strategy” 

Many financial planners employ what’s referred to as a “bucket strategy.” As Smallwood explains, this strategy “offers retirees a simple yet effective framework for managing their assets by dividing them into segments based on when the funds will be needed.” Resources are divided into so-called buckets as a means of balancing the need for immediate liquidity with the requirement for long-term growth. 

Smallwood offers this simple how-to explanation – again, presented verbatim: 

Assess time horizons. Identify short-term (one to three years), medium-term (four to 10 years) and long-term (10+ years) financial needs. 

Allocate funds. Divide assets into buckets: cash/short-term bonds for Bucket 1, balanced investments for Bucket 2 and equities for Bucket 3. 

Monitor and adjust. Review and rebalance buckets annually, transferring gains during strong markets and adjusting for changing needs. 

Withdraw strategically. Use Bucket 1 for monthly income, replenish it from Bucket 2 as needed, and let Bucket 3 grow for the long term. 

Tip #6:  Wait as Long as Possible for Social Security Benefits 

This should be an obvious tip, but it’s not. In fact, just last week here on the Blog, we wrote about how uncertainty over Social Security is triggering a rash of early benefit claims.  

However, the math is clear: if you delay Social Security benefits past your full retirement age, every year you wait boosts monthly payments by 8 percent annually until age 70. In classic understatement, Smallwood calls this “a reliable way to boost guaranteed income.” 

He gives an example of a beneficiary who claims Social Security at 70. His benefit is $3,100 monthly instead of the $2,400 he would have received at age 66. Over 20 years, he’ll receive nearly $170,000 more in benefits, not counting annual cost-of-living adjustments.  

“For retirees with other income sources, delaying Social Security can enhance lifetime payouts,” says Smallwood. We would also add that waiting to claim benefits is usually the best choice for a surviving spouse as well, since he or she will receive your Social Security income for life after you die, unless their own benefit is greater. 

Tip #7: Be Proactive, Not Reactive, with Your RMDs 

Now that you’re retired and have reached a certain age, Uncle Sam is going to expect you to start taking funds out of those tax-deferred accounts and start paying the taxes you owe. Is there a way to treat these so-called RMDs strategically? Smallwood says yes. 

“Required minimum distributions (RMDs) begin at age 73 for most retirees and can significantly impact taxes, potentially pushing you into a higher tax bracket,” he writes. “Strategic planning before RMDs are required can help reduce this tax burden and keep more of your savings intact.” 

Once again, we present his recommendations verbatim from the article: 

Withdraw early. Begin IRA/401(k) withdrawals in your 60s to spread taxable income over more years and avoid large RMDs later. Withdraw just enough to stay in your current tax bracket. 

Roth conversions. Convert small amounts to a Roth IRA during low-income years to reduce future RMDs. Spread conversions over several years to avoid high taxes on large conversions. 

Use QCDs. Donate up to $105,000 annually from your IRA after age 70½ to satisfy RMDs tax-free. Direct QCDs to charities you already support to reduce taxable income. 

Diversify accounts. Maintain Roth, traditional and taxable accounts to manage withdrawals flexibly. Build Roth and taxable savings early for more options in retirement. 

Consider annuities. Use an annuity to defer RMDs on up to $200,000 until age 85 through a qualified longevity annuity contract, or QLAC. Only choose annuities if you value guaranteed income and can part with funds for the long term. We’ll discuss this point more in the next section. 

Tip #8: Consider the Power of Annuities for Guaranteed Income 

Should annuities be part of your retirement planning? Smallwood is a fan. 

“Annuities offer predictable income,” he writes, “making them a valuable tool for retirees seeking stability.” He differentiates between immediate annuities, which start payments right away, and deferred annuities which begin at a future date. Annuities he suggests, can supplement Social Security, covering essential expenses or filling gaps in income.  

In order to make the most of annuities in your retirement income distribution strategy, Smallwood advises that annuity income should be matched to specific, essential expenses, such as housing or health care. This protects stable cash flow for critical needs. He also advises to avoid putting too much savings into the “annuity basket,” keeping a portion of your savings in accessible accounts for emergencies.  

Annuities can be costly and complex, so shop with care, Smallwood warns. His advice: “Compare fees, payout rates and terms from multiple providers to get the best value.” 

As noted, Smallwood seems to favor annuities. “By carefully integrating annuities into your retirement plan, you can create a reliable income stream while preserving the flexibility to adapt to future needs,” he writes, “striking a balance between financial security and long-term growth potential.” 

Tip #9: Plan Ahead to Manage Health Care Costs 

Health care costs represent a huge storm cloud on the retirement horizon for millions of us. As Rajiv often says, uncovered care costs are the greatest single threat to our retirement plans. 

Smallwood agrees. “Health care costs, including premiums, deductibles and long-term care, are among the most significant expenses retirees face,” he writes. “Planning ahead can help mitigate these expenses and preserve your retirement savings for other needs.” 

Smallwood offers these specifics. 

First, he says take advantage of a Health Savings Account, or HSA. “If you’re enrolled in a high-deductible health plan, maximize contributions to your HSA during your working years,” he advises. “These funds grow tax-free, and withdrawals for qualified medical expenses in retirement are also tax-free.”  Funds from your HSA can help pay for Medicare premiums, dental care or other eligible costs, reducing the strain on your budget. 

Smallwood’s second piece of advice: consider purchasing a long-term care insurance policy in your 50s or early 60s. “This helps cover costs for nursing homes, assisted living or in-home care, which are not typically covered by Medicare,” he writes. “Look for hybrid policies that combine long-term care coverage with life insurance for added flexibility.” 

Finally, when it comes to health care costs, prepare for the inevitable. “Set aside a portion of your retirement savings to cover out-of-pocket medical expenses,” he advises, “which can average hundreds of thousands of dollars over a lifetime” in the form of private insurance premiums, deductibles, and co-pays. 

Tip #10: Reassess Your Plan Annually – and Stay Flexible 

“Circumstances change,” says Smallwood, “and so do your financial needs and tax regulations, making an annual review of your retirement strategy essential. Checking in on your income, expenses and any new developments in tax laws ensures your plan adapts to life’s changes and keeps you on track.” 

He offers these practical steps to stay on track – which we’re presenting directly from his Kiplinger article: 

Set a review date. Schedule a specific time each year, such as January, to evaluate your plan. 

Compare income and expenses. Check whether your withdrawals align with your spending and adjust if needed. 

Monitor tax changes. Stay informed about tax law updates that may affect your distributions. 

Consult tools or experts. Use online retirement calculators or consult tax resources to refine your approach. 

(Once again, we have to add the power of a financial dashboard here – the perfect tool to help guide you and your planner through the review process.) 

Bottom Line: It’s Never “Just About the Numbers” 

Ultimately, the goal in all this isn’t statistical. The goal is a better, more secure quality of life in retirement. 

“Effective income distribution in retirement isn’t just about the numbers,” Smallwood concludes, “but rather aligning financial decisions with your lifestyle goals. By combining dynamic withdrawals, tax-efficient strategies and thoughtful planning, retirees can ensure their savings last, providing financial confidence and security for years to come.” 

Sounds like a good retirement goal for us all! 

(originally reported at www.kiplinger.com)