Once you retire, certain expenses will diminish or disappear. You won’t spend as much on dry cleaning, for example, and if you’re in good shape, you can fire the dog walker. And you’ll no longer be saving for retirement—a much bigger expense. Read more
One expense that won’t go away is taxes. You may have $1 million in retirement savings, but the amount available for your retirement income is much less because a portion of the money will go to pay federal and state taxes. This is where having different types of retirement accounts—-taxable, tax-deferred and tax-free—-comes into play. Depending on the account you tap, along with the type of investment, your federal tax rate could range from 0% to 39.6%. You can keep your tax rate on the low end of the scale by taking tax-efficient withdrawals from your accounts.
Conventional advice has been that retirees withdraw money from taxable accounts first, then from tax-deferred accounts, and lastly from Roth IRAs. The article discusses a few good reasons beyond taking RMDs (required minimum distributions) to do something different.