Spending Strategies for Retirees

Which Assets Should I Spend First?

As a retiree, you may be fortunate enough to find that your Social Security, pension, minimum required distributions from your IRA, and dividends and interest on your after-tax investments provide enough funds for your living expenses. However for many that is not the case. You may be required to either tap into your after-tax funds or make taxable withdrawals from your IRA or retirement accounts to make ends meet.

In general it’s preferable to spend principal from your after-tax investments rather than taking taxable distributions from your IRA and/or retirement plan.  Leaving money in the tax-deferred environment for a long as possible confers advantages that almost always outweigh concerns over paying capital gains on your after-tax assets.

The optimal spending order is first your after-tax dollars, then your IRA dollars and then your Roth IRA dollars.

( Taken in large part from Section 4 of Retire Secure! by James Lange)