Best Withdrawal Strategy in Retirement

According to a recent poll by the Investment Company Institute, as many as one third of all investors find themselves with multiple accounts from which to draw upon in retirement (e.g., taxable, IRA, Roth IRA, etc.).  This is good news if you are in that situation, but we are often asked what the best order is to withdraw funds from these accounts to meet one’s retirement budget.  Too often, investors overly focus on generating and spending only income at the expense of a more systematic and valuable plan in retirement.

To be sure, tax efficient use of those multiple accounts in retirement can be nearly as valuable as tax efficient investment management in the accumulation phase.  For instance, one Registered Investment Advisor (RIA) estimated that tax efficient asset allocation and tax-loss harvesting can add anywhere from 1.00% to 1.62% annually to your after-tax returns in your accumulation phase.1  Vanguard estimates that an optimal spending strategy (i.e., withdrawal order) can add up to 0.70% annually relative to an haphazard approach.2

It is still important to keep close tabs on your overall asset allocation while making the withdrawals so that your risk level doesn’t deviate from plan.  Too, as part of this strategy, delaying taking Social Security as long as possible will generally be a benefit.  For every year Social Security is delayed after reaching the full retirement age, your benefits increase by 8% of your full retirement age benefit.  Delaying Social Security will also maximize the benefit to which the surviving spouse is entitled.

It makes sense every year to review your investment portfolio, your expected marginal tax rate, and your withdrawal strategy for the upcoming year.  It may also make sense to simplify your life by paring down the number of accounts and the custodians you use by combining like accounts or using a RIA that can combine your various accounts for tracking purposes.

Below is a general diagram to help you if you have this question and, of course, you can always contact one of Northwest’s Wealth Managers if you have a specific question.

Figure 1: Optimal Withdrawal Strategy

Optimal Withdrawal Strategy









  1. Study by Wealthfront, Inc.
  2. Vanguard, “Putting a value on your value: Quantifying Vanguard Advisor’s Alpha,” March 2014.