Considerations when withdrawing from your portfolio in retirement

For decades, retirement planning is centered on one objective: accumulating enough money to retire. We contribute to our 401(k)s, IRAs, brokerage accounts and other investment vehicles with the goal of one day reaching financial independence.

Then retirement finally arrives.

Ironically, the most difficult part of retirement planning is often no longer accumulating assets. It is figuring out how to turn those assets into a reliable, tax-efficient income stream that may need to last 25 to 30 years or longer.

The transition from saving to spending is one of the most complex financial decisions retirees face, yet it often receives far less attention than investment performance.

How Should My Portfolio Be Invested?

One of the first questions we hear from new retirees is, "Should my portfolio change now that I'm retired?"

The answer is often yes, but not in the way many people expect.

Some retirees assume they should move everything into conservative investments because they are no longer working. Others continue investing as though they still have decades before retirement.

Neither approach is typically ideal.

Instead, a retirement portfolio should reflect your income needs, tolerance for risk, anticipated spending and life expectancy. Someone retiring at age 65 may realistically need their investments to continue working for another 30 years. That often means maintaining meaningful exposure to stocks to help offset inflation while also holding enough fixed income and cash to provide stability during market downturns.

Retirement investing becomes a balancing act between preserving assets and continuing to grow them.

Which Account Should I Withdraw From First?

Perhaps the most overlooked retirement planning question is not how investments should be allocated, but which account should provide your retirement paycheck.

Many retirees have accumulated assets in several different types of accounts, including taxable brokerage accounts, Traditional IRAs, Roth IRAs, 401(k) plans and Health Savings Accounts. Each account receives different tax treatment, and withdrawing from the wrong account at the wrong time can significantly increase lifetime taxes.

For example, taking large withdrawals from a Traditional IRA may push someone into a higher tax bracket, increase the taxation of Social Security benefits or even increase Medicare premiums through Income Related Monthly Adjustment Amounts, commonly known as IRMAA.

On the other hand, preserving Traditional IRA assets for too long may result in large required minimum distributions later in retirement, creating an unnecessary tax burden that might have been avoided through earlier planning.

The answer is rarely as simple as spending one account completely before moving to the next. More often, the most effective strategy is coordinating withdrawals from multiple accounts each year to manage taxes over an entire retirement rather than minimizing taxes in any single year.

How Much Can I Safely Withdraw?

Another common question is, "How much can I safely withdraw without running out of money?"

Many investors are familiar with the traditional 4 percent rule. While it remains a useful starting point, retirement is rarely that simple.

Market performance, inflation, health care costs, longevity, tax law changes and personal spending patterns all influence how much can be safely withdrawn over time.

Retirement spending also tends to change throughout life. Many retirees spend more during the early years traveling and enjoying hobbies, while health care expenses often become more significant later in retirement. A flexible withdrawal strategy frequently proves more effective than withdrawing the same amount every year regardless of circumstances.

Taxes Continue Into Retirement

One of the biggest misconceptions is that taxes largely disappear after retirement. In reality, retirement often creates some of the greatest tax planning opportunities.

Every decision becomes interconnected. Required minimum distributions, Roth conversions, Social Security claiming decisions, capital gains, charitable giving and Medicare premium surcharges can all influence one another.

Thoughtful planning may significantly reduce lifetime taxes. For example, delaying Social Security may allow for additional Roth conversions during lower-income years. Carefully selecting which accounts to draw from may reduce lifetime taxes while preserving tax-free assets for later years or future generations.

Retirement Is More Than an Investment Decision

Many people think retirement planning is simply about generating investment returns. In reality, it requires coordinating cash flow, taxes, health care planning, Social Security, estate planning and investment management into one comprehensive strategy.

Rarely is there a single perfect decision. Success usually comes from making many thoughtful decisions that work together over time.

Retirement represents one of the biggest financial transitions most people will ever experience. After years of focusing on accumulating wealth, the challenge shifts to distributing that wealth in a way that supports both your lifestyle and your long-term financial independence.

Having enough money is only part of the equation. Knowing how your portfolio should be invested, which accounts to draw from, how much to withdraw and how to help minimize taxes are equally important.

A successful retirement is not simply measured by the size of your portfolio. It is measured by having a thoughtful distribution strategy that allows your savings to provide confidence, flexibility and independence for decades to come.

Reid Schwartz is a columnist for The Item and Co-Founder of Creech Schwartz Wealth Management in Sumter, SC, where he works as a financial advisor helping individuals, families, businesses, and nonprofits plan for long-term financial success.

*Tax and accountancy services are not available through or provided by Creech Schwartz Wealth Management or &Partners, LLC.

This article is for educational purposes only and not to be interpreted as tax or legal advice. Any tax planning strategies discussed by Creech Schwartz Wealth Management will be in conjunction with your tax/legal professional.

Securities and investment advisory services offered through &Partners, LLC, a broker-dealer and investment adviser registered with the U.S. Securities and Exchange Commission and member FINRA, SIPC.