Strategically Spending Down Assets in Retirement – A Key to Retiring Successfully


By Louis Horkan
Reviewed by Nathan Kattner

Table Of Contents

    Enjoying a successful retirement often requires a strategic income approach built into an overall flexible plan to guide you when you retire.


    Here’s a little secret. Retirement is a process. You don’t just one day call it quits and ride off into the sunset. If you haven’t already figured that out, then sorry for breaking the news to you.

    Chances are you have though, which is one of the reasons you’re here reading this article.

    Back to process and planning. There is no one way to prepare or to go about living in retirement. It takes planning and there’s a lot of details and considerations that go into the process.

    Ultimately, you’re trying to figure out what’s the best way to retire efficiently, live out your dreams, achieve your goals and not end up in a situation where you outlive your assets.

    To give yourself the best opportunity for achieving success in your retirement, you will definitely need to have a comprehensive plan in place that encompasses all phases of retirement, including how much you can spend, where to take the money from, when you can do so, and what approach will save you the most in taxes.

    Today we look at spending so you gain a sense of how important it is to have a plan for the spending you may do in retirement.

    Connect to your money

    When it comes to planning of any sort, you need to take time to dig down and understand all the issues, variables, risks, potential problems, probabilities in terms of outcomes, and much more.

    At Oak Harvest, we refer to this as “connecting to your money.” From the top down, all the planners and advisors make it a point to explain to people they work with that it’s critically important to know that decisions made today do come with consequences down the line.

    Those consequences can be good. And they can be not so good and lead to bad outcomes.

    So, why would we start an article on how to spend down your assets in retirement with a section on connecting to your money?

    Because many people believe the cookie cutter approach is good enough. You see it in print and throughout the media, so it must be true. Things like “spend just 4-percent per year and you’ll be good.”

    Fact is this is your money and it must last. You need to take some time familiarizing yourself with the issues.

    Don’t misunderstand what this means. You don’t need to become a financial expert. Or walk around scared that you’re doomed to blow your retirement.

    Working with a qualified planner can help you to gain an understanding of the major issues to be aware of and equip you with the knowledge to make informed decisions. To live confidently in retirement. To work together to build a plan that you understand and that will act as a roadmap for you as you navigate retirement confidently…connected to your money.

    Take stock

    Breakdown of Assets and Tools for Retirement SpendingRecognizing that you should be engaged in the process of planning out your retirement (again, not an expert), the next step is determining what you have in terms of total assets, as well as their types.

    Looking at your assets before you are in retirement and starting to spend them down is important for a number of reasons. Chief among those is tax treatment, along with how they will fit in with your post-retirement plans.

    Looking at your monthly and annual budget, how much will you need to pay your bills and maintain your standard of living? What are your plans in terms of where you will live, extensive travel, passing on wealth to family and loved ones? Donating to charities and organizations you wish to assist, such as philanthropic entities? All of these go into the mix. And are foundational to your retirement plan.

    A major component within your retirement plan is the issue of spending. In order to address that, you need to know what you have. The assets and tools you take into retirement will constitute a major portion of what you will have to meet your goals.

    Assets and tools might include:

    • Cash in banking accounts or anywhere else you can easily access
    • Near-cash, like CDs and money market accounts
    • Income from a job you might perform in retirement or a company you plan to start at that time
    • All securities you have in non-qualified brokerage accounts (stocks, bonds, mutual funds, ETFs, REITs, etc.)
    • Holdings in your qualified retirement accounts (IRAs, 401(k)s, pension plans, etc.)
    • Roth IRAs that are funded with after-tax dollars and that can be tax-free
    • Social Security benefits (factored in once you expect to start taking them)
    • Lifetime-income assets (ex. – Fixed Index Annuity or FIA)
    • Annuities and insurance policies
    • Home(s) and separate properties or real estate
    • Trusts
    • Inheritance
    • Vehicles
    • Any other type of assets with value

    You’ll want to assemble a complete list of assets and tools you have at your disposal in order to move forward in creating a new plan or to alter an existing one, accordingly.

    What’s owed

    Additionally, you’ll also want to document all your debts, be they credit cards, short-term loans, longer-term such as mortgages, business loans you’re responsible for, etc.

    You can use your pre-retirement expenses and budget as a guide for putting together a comprehensive, well-planned retirement budget.

    In considering what you’ll need, you’ll often hear you only need 75- to 80-percent of your pre-retirement income in retirement. The fact is that varies depending on a number of variables and is tied to your particular needs, lifestyle and goals.

    People often spend more on travel and other discretionary items early on in retirement, but as they slow down and age up, they tend to do less. At that point they tend to need more for health and long-term care expenditures.

    Even keeping with the 75- to 80-percent estimation, which means if you currently spend $8,000 monthly (just under $100k annually), you’re going to need close to $75k to $80k annually in order to pay your bills and maintain your standard of living.

    And you haven’t even accounted for taxes and inflation.

    What’s your plans

    You’ve taken stock of what you have. And figured out what you probably need to cover your monthly bills and discretionary spending, and also your heath- and long-term care needs. That’s it, you’re done!

    Not so fast…

    There’s still another important area to cover – your goals.

    These are things that are important to you that you’ve probably long dreamt of doing. Helping your kids, especially if they are still trying to establish themselves in some way, or simply to better their lives and those of their kids.

    Putting your grandkids through school or specialized training. Giving more to charities, such as faith-based or secular organizations. Contributing to the arts and other philanthropic endeavors, et. cetera.

    And then there are legacy issues. Passing on wealth you’ve acquired once you pass. Ensuring a spouse and loved ones are accounted for.

    quote from blogThere’s obviously a lot to unpack there, but for now you want to create your own list of important goals and even your bucket list to ensure you account for all of that in the retirement plan you put together or have constructed.

    Okay, so the good news at this point is the fact you will have connected even more with your money. You know what you have, what you will need, and have taken time to solidify what your goals are for retirement. Now you can begin to move forward into comprehensive planning.

    Retirement income can cost you

    You may be thinking at this point that you’re set. You’ve already considered what you’ll need for covering your monthly bills and to fund your plans and goals.

    What you are going to find, if you don’t know already, is the fact not all assets are created equal. Especially in the eyes of the IRS. The agency treats assets differently. The type, where they are held, for how long, if taxes have been previously paid, and even when you access them. All of those issues factor into the taxes you may owe in eventually utilizing your assets.

    Another common misconception. Many think that taxes are no longer an issue (or they are a smaller issue) when they stop collecting a regular paycheck. For many seniors they finds the opposite to be true.

    How can that be? Well, consider the following. There’s a good chance you took advantage of the benefits offered to you while you were working. The IRS offered such benefits to encourage saving for your retirement.

    Doing so reduced your taxable income – you were able to invest pre-taxed dollars into qualified tax-deferred accounts, such as IRAs and employer-sponsored plans, like 401(K) and similar accounts.

    This allowed you to pay less taxes and invest more at that time, and from that point forward take advantage of the power of compounding interest over years.

    The key term to remember is tax-deferred.

    As long as the money that was invested, and the interest earned, remained in the respective account(s), it remained tax-deferred.

    But once you retire and no longer have that regular paycheck, you may need some of that money. Most people will.

    As soon as you take money out of any of those accounts in the form of distributions to help fund your retirement, now you owe the IRS taxes. In this case, those distributed funds are treated like ordinary income in the year you take the distribution.

    The rate you will be taxed depends on your income at that time and your tax bracket. If you’ve accumulated a fair amount, that tax bracket may be higher than when you were working.

    Whatever the case, distributions are treated as income tax for that year. The more income you receive the higher the tax bracket you’ll be in…and taxed. Keep in mind that as you move up in tax brackets, you can owe more on Social Security benefits and your Medicare premiums can go up.

    Keep in mind that you will have to take RMDs from your IRAs once you reach that age, even if still working.If you happen to be in a position where those qualified funds will be needed frequently (even monthly), the distributions will get costly. Chances are you will end up in a higher tax bracket and pay more – even much more.

    Which is why you need a tax plan and to be strategic in your spending.

    Gotcha – the RMD

    Say you have been disciplined in adhering to your accumulation plan and created a well-allocated portfolio that will provide the income you need without necessitating the need to tap into your “retirement funds,” once you retire. In fact you hope to pass that money and assets on as part of your lifetime gifting or estate plans.

    Well done!

    But the IRS still wants to get paid at some point before you pass on your wealth to your beneficiaries. Which is why they created the required minimum distribution (RMD) rule.

    It states you must start taking distributions from qualified accounts once you reach a certain age. That’s 72, unless you turned 73 in 2023 or thereafter, in which case it’s age 73. That age increases to 75 in 2033.

    The significance of the RMD is the fact that whether you need the funds or not to live in retirement, you must take distributions that are based on the value of the assets in your retirement accounts, as well as a life expectance factor from the IRS. And that figure goes up each year thereafter until you pass.

    Keep in mind that you will have to take RMDs from your IRAs once you reach that age, even if still working. If instead you are in an employer-sponsored plan you can delay taking RMDs until you retire from that employer, as long as you don’t own five-percent or more of that company.

    And if you fail to take the distribution you are in for a significant penalty in the form of an excise tax. It used to be 50-percent of what was supposed to be withdrawn for the year (on top of taxes owed), but that was reduced to 25-percent in 2023, and it can be further reduced to 10-percent if corrected within two years.

    Strategic spending

    We mentioned previously that not all assets are treated equally. Same holds true in terms of income and the sources it comes from in retirement. Even when you receive it in the form of a distribution during retirement can make a big difference.

    Which is why you need a spending plan that is strategic in nature. And a key reason you can’t just follow cookie cutter advice for how much to spend and how to go about spending down your assets.

    A major component will be a tax plan created specifically with your issues and overall situation in mind. With a tax plan, you can get strategic in terms of determining in advance what you might owe, when it might make sense to take distributions, the accounts you will take them from, and more.

    This can limit tax liability in any given year and save you money. Over time this can account for tens to even hundred of thousands of dollars or more in tax savings. That equates to less you’ll need to cover income needs, and more you’ll have available to pass on or use as you please.

    In terms of cookie cutter, you’ve probably heard it’s best to spend down taxable assets first, tax-deferred second, and tax-free last.

    Oak Harvest Founder and CEO Troy Sharpe believes that approach can cost you. In fact, he points out that holding on to your retirement account assets (e.g., IRAs, employer-sponsored) too long can lead to a huge tax bill at a point in your retirement that could cost you significantly more in taxes in the year(s) you take distribution from those accounts.

    Depending on your situation, it might be better to take some each year from different accounts (including IRAs) in a systemized, strategic fashion over the course of your retirement.

    He also cautions regarding a cookie cutter spending rate, such as the generic 4-percent advice often bandied about in the media. There are many factors that have to be taken into consideration when it comes to determining what your spending rate should be.

    Key considerations can include the age(s) at which you and your partner retire, needs and goals, quality of life you’ve maintained, risk tolerance, portfolio performance, net worth, health and life expectancy, unexpected issues or events that are sure to arise at times, and much more.

    To deal with everything life may throw your way, there’s a need for flexibility.

    If you splurge one year and end up overspending by a fair amount, that can be okay. But you still need to account for it in your plan. You can do so by spending less in a subsequent year.

    Overall, there will be times when you might need to spend more, and other times you don’t need to spend that set percentage. Having a dynamic spending plan that adjusts helps provide confidence so you don’t worry about your spending. And it helps to make your assets last.

    Understanding this helps keep you connected to your money.


    Wow! That is a long list, with lots of things to consider.

    In truth that is just scratching the surface and narrowly focused on spending. Where you’ll draw from, what it costs you to do so, et. cetera. How different assets are treated differently, depending on timing and even where taken from. Tax treatment, be it ordinary income versus capital gains (short or long).

    When you begin to factor in how to continue to grow your assets, taxes (and strategies to minimize them), how to deal with inflation, protecting your assets (example – estate), creating lifetime income, ensuring your loved ones and beneficiaries are cared for when you pass…

    Obviously, there is so much to consider and deal with that in fact you will need to be an expert just to cover the bases.

    In the event you’re not, you will need to work with someone. There is simply too much at stake. A qualified planner can help you stay connected to your money and stay on track as you plan and then live out your life in retirement.

    If you do happen to have an existing retirement plan (either your own or one created for you), our team would be happy to review it to determine if it is capable of adequately and securely meeting your goals.

    Or we can assist you by creating a retirement plan capable of helping you to retire with confidence. We can build a holistic, comprehensive retirement plan addressing relevant issues, utilizing strategies that cover Social Security, taxes, income, spending, healthcare, legacy, and more, customized to your family’s specific needs.

    A plan created with the goal of ensuring you can successfully live out the retirement you envision.

    If you are ready to take the next step and talk to a team of retirement planners who can advise on all your retirement needs, and who will put your interests first, Schedule a call today!

    Let Us Help You Achieve the Retirement You Deserve!

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