Retirement Withdrawal Strategies That Can Stretch Your Savings

You’ve worked hard to save enough for retirement, and now it’s time to enjoy it. Now that you’ve officially left full-time work behind, you’re concerned about making your money last. That’s a concern that 33% of retirees share, according to a 2025 Schroders report. ¹ Reviewing retirement withdrawal strategies that stretch savings can help you make the most of your money. 

A financial advisor can help you build and expand your retirement plan.

Understanding the Importance of Your Retirement Withdrawal Strategy

Making the transition from saving to spending in retirement may feel stressful. The right retirement withdrawal strategy can help you feel more confident about the choices you’re making with your money.  

Additionally, a well-thought-out strategy can help you:

• Minimize your taxes in retirement
• Preserve the longevity of your assets
• Ensure compliance with required minimum distributions (RMDs), reducing the risk of costly penalties
• Manage risk to minimize losses during downturns
• Pace your spending and manage your retirement budget more efficiently

You can also gain some peace of mind. For example, the Schroders report asked retirees what they were most concerned about. The biggest worries cited were inflation (92%), higher than expected healthcare costs (86%), major market downturns (80%), and outliving their assets (70%). A clear withdrawal strategy can help ease those fears if you share them.

4 Retirement Withdrawal Strategies Can Stretch Your Savings

Here are four common withdrawal strategies that can help make your savings last for a more comfortable retirement.

4% Rule (Now 4.7%)

How does it work? The 4% rule is a popular retirement withdrawal strategy. It involves withdrawing 4% of your total retirement savings during your first year of retirement. In subsequent years, you adjust the withdrawal amount for inflation, ensuring that your spending power remains consistent. The idea is that if you follow this plan, you should never run out of money in retirement.  

The 4% rule was developed based on historical market performance. It also carries the expectation that investors who use it will spend 30 years in retirement. Its creator has since updated the initial withdrawal rate to 4.7%. This is the amount you should be able to safely withdraw in your first year of retirement, with subsequent withdrawals adjusted for inflation. 

Who should use it? The 4.7% rule can work well for retirees who have a moderate risk tolerance and are comfortable maintaining a diversified investment portfolio. Again, it’s designed for people who plan to spend 30 years in retirement so if you have a shorter window (or a longer one because you retired early) it may not work as well. If you decide to apply the 4.7% rule,  be prepared to adjust your spending during periods of extreme market volatility.

Fixed-Dollar Strategy

How does it work? The fixed-dollar strategy involves withdrawing a specific, predetermined amount from your retirement savings each year, regardless of market performance. This approach offers simplicity and predictability, making it easy to plan your annual budget. However, the fixed-dollar amount doesn’t account for inflation, which may decrease your purchasing power. 

Who should use it? Retirees with stable income from pensions or Social Security who want a predictable supplement from their savings. Of course, it assumes that your retirement budget won’t change much from year to year. While a fixed-dollar strategy does offer stability, it may not work as well for longer retirements. 

Total Return Strategy

How does it work? The total return strategy focuses on maintaining a diversified investment portfolio that creates an income stream in retirement through a combination of interest, dividends and capital gains. Retirees withdraw a certain percentage based on their portfolio’s total returns, adjusting the amount each year based on market performance. This strategy is more flexible and can help extend the life of your savings. However, it requires active management and a higher risk tolerance. 

Who should use it? It’s ideal for retirees comfortable with market fluctuations and willing to adjust their withdrawals in response to investment performance. You may also appreciate the potential for more growth over the long term. This could leave you with more wealth to pass on to your heirs. 

Bucket Strategy

How does it work? The bucket strategy divides your retirement savings into three separate “buckets” based on time horizons: short-term, mid-term and long-term. The short-term bucket contains cash or low-risk investments to cover immediate expenses. The mid-term and long-term buckets have higher growth potential. As you draw down funds from the short-term bucket, you replenish it with gains from the other buckets. 

Who should use it? This strategy provides stability and growth potential. It suits retirees who want to balance income needs with the potential for long-term investment growth. You might prefer this approach if you have guaranteed income from a pension, annuity or even a reverse mortgage. 

How to Choose the Right Retirement Withdrawal Strategy

When choosing a retirement withdrawal strategy, consider the factors that affect your financial needs and goals, such as:

• Life expectancy: Consider your health, family history and lifestyle when estimating your life expectancy. If you expect to live a long life, you’ll need a strategy that ensures your savings last. Those with a longer life expectancy may benefit from more conservative withdrawal rates, while those with shorter horizons might be able to withdraw more aggressively.
• Required minimum distributions (RMDs): Once you reach age 73, you’re required to start taking RMDs from certain retirement accounts, such as traditional IRAs and 401(k)s. Failure to take RMDs can result in hefty penalties, so be sure to incorporate RMDs into your withdrawal strategy. (RMDs start at age 75 if you were born in 1960 or later.)

Estimate your annual RMDs and see how they fit into your broader retirement picture. SmartAsset’s RMD Calculator gives you a clear snapshot of your withdrawal obligations.

• Taxes: Different retirement accounts have varying tax implications. For example, withdrawals from traditional IRAs and 401(k)s are taxed as ordinary income, while Roth IRAs offer tax-free withdrawals. Understanding the tax implications of your withdrawals can help you optimize your strategy.
• Social Security and pension benefits: Consider how your Social Security and pension benefits will impact your overall retirement income. If these benefits cover a significant portion of your expenses, you may have more flexibility with your withdrawal strategy. Conversely, if you rely heavily on your portfolio, you’ll need an approach that can stretch your savings.

Keep in mind that some retirement expenses may be planned, while others might take you by surprise. If you’ve always been a healthy person, for example, you may be caught off guard if a serious health condition leaves you needing long-term care. Likewise, if you have to assume the role of caregiver to a grandchild, that could disrupt your withdrawal plans. Anticipating these types of situations can help you build a contingency plan for retirement withdrawals. 

Which Accounts Should You Withdraw From First?

How much you withdraw each year is only half the equation. Which accounts you pull from and in what order can have a significant impact. It affects your tax bill, your Medicare premiums, and how long your savings last.

The general approach most financial advisors recommend is to draw from your accounts in this order:

• Taxable accounts first: Brokerage accounts, savings accounts and other non-retirement accounts. Investment gains in these accounts are taxed at capital gains rates, which are typically lower than ordinary income tax rates. Drawing from these accounts first allows your tax-deferred and tax-free accounts to keep growing.
• Tax-deferred accounts second: Traditional IRAs and 401(k)s. Every dollar you withdraw from these accounts is taxed as ordinary income. Waiting to tap them until your taxable accounts are drawn down can help you stay in a lower bracket longer. Once you reach age 73 (or 75 if born in 1960 or later), you are required to take minimum distributions from these accounts whether you need the money or not.
• Roth accounts last: Roth IRAs and Roth 401(k)s grow tax-free and withdrawals are tax-free in retirement. They also have no required minimum distributions. Letting these accounts grow untouched for as long as possible maximizes the tax-free compounding and gives you a source of income that will not add to your taxable income later in retirement.

Why the Order Matters

Taking money from the wrong account at the wrong time creates a chain reaction across your tax return, your Social Security and your Medicare costs. Traditional IRA and 401(k) withdrawals are reported as ordinary income on your tax return. A large withdrawal in a single year can bump your adjusted gross income high enough to change the percentage of Social Security that gets taxed, move you into a more expensive Medicare premium tier under IRMAA (which looks at income from two years prior), and result in a bigger federal tax bill than if you had pulled the same amount from a different account type.

For example, a retiree collecting $50,000 in Social Security who also takes $30,000 from a 401(k) reports $80,000 in combined income. If that same retiree instead sold $30,000 worth of long-term holdings from a brokerage account where the original cost was $25,000, only $5,000 in gains would be taxable and at a lower rate. The Social Security calculation and Medicare premium lookup would both produce different results because the brokerage sale does not inflate adjusted gross income the way a retirement account withdrawal does.

When to Break the Rules

The general order is not always the right order. There are situations where pulling from a different account first makes more sense:

• Roth conversions in low-income years: If you retire before age 73 and your income drops significantly, those years between retirement and RMDs are an opportunity to convert traditional IRA or 401(k) money into a Roth at a lower tax rate. You pay taxes on the Roth conversion now, but every dollar moved to the Roth grows and comes out tax-free going forward. This can reduce the size of your future RMDs and the taxes that come with them.
• High-income years: If you have a year where a pension payment, capital gain or other income source already has you in a higher bracket, it may make sense to pull from your Roth that year instead of adding more taxable income from a traditional account.
• Early retirement before Social Security starts: If you retired at 60 and are not collecting Social Security yet, your income may be low enough to take larger traditional IRA withdrawals at a lower tax rate than you will face once Social Security and RMDs begin at the same time.

What the 4.7% Rule Looks Like With Real Numbers

The concept behind the 4.7% rule is simple. A retiree with $750,000 in total retirement savings withdraws 4.7% in the first year, which comes to $35,250. If inflation runs at 3% that year, the second-year withdrawal increases to $36,308. In year three, assuming 3% inflation again, the withdrawal rises to $37,397.

Over 10 years at a steady 3% inflation rate, the annual withdrawal grows to roughly $46,000. Over 20 years it reaches approximately $60,000. The portfolio needs to keep up with these increasing withdrawals without running dry at the 30-year mark.

If the same retiree splits that $750,000 across three account types, withdrawal sequencing changes the math. Drawing the first $35,250 from a taxable brokerage account with a high cost basis might result in only a few thousand dollars in capital gains taxes. Drawing the same amount from a traditional IRA would add $35,250 to taxable income. Over a decade of withdrawals, the difference in total taxes paid between these two approaches can add up to tens of thousands of dollars.

What the Bucket Strategy Looks Like With Real Numbers

A retiree with $750,000 divides the money into three buckets based on when they expect to need it:

• Bucket one covers the first two years of expenses: If annual spending is $45,000, this bucket holds $90,000 in cash or short-term bonds. The money is safe and available immediately with no market risk.
• Bucket two covers years three through eight: This bucket holds $270,000 (six years of spending) in a mix of intermediate-term bonds and conservative balanced funds. It provides modest growth with lower volatility than stocks.
• Bucket three covers year nine and beyond: The remaining $390,000 goes into a diversified stock portfolio designed for long-term growth. This money has 8 or more years before you need it, giving it time to recover from downturns.

As the retiree spends down bucket one, gains from bucket two refill it. Over time, growth in bucket three replenishes bucket two. This structure keeps two years of cash on hand at all times so the retiree never has to sell stocks during a downturn to cover living expenses.

5 Ways a Financial Advisor Can Help With Retirement Withdrawals

A financial advisor can look at your full financial picture and help you withdraw money in a way that keeps your tax bill low, your savings lasting and your income steady. Here are five specific ways they can help.

1. Build a Tax-Efficient Withdrawal Sequence

An advisor can map out which accounts to draw from each year based on your income, tax bracket, Social Security timing and RMD schedule so you do not pay more in taxes than necessary.

Example: A retiree with $200,000 in a traditional IRA, $150,000 in a Roth IRA and $100,000 in a brokerage account plans to retire at 63. The advisor recommends drawing from the brokerage account first while converting $30,000 per year from the traditional IRA to the Roth during the low-income years before Social Security begins at 67. By the time RMDs start, the traditional IRA balance is smaller, the Roth is larger and the retiree’s future tax bill is significantly reduced.

2. Set Your First-Year Withdrawal Amount

An advisor can calculate how much you can safely withdraw in your first year of retirement based on your total savings, expected lifespan, other income sources and how your money is invested.

Example: A retiree with $600,000 saved wants to know if they can withdraw $40,000 per year. The advisor runs projections showing that $40,000 (6.7% of the portfolio) has a high probability of depleting savings within 20 years. The advisor recommends starting at $28,200 (4.7%) and supplementing with Social Security at 67 to reach the desired income level without drawing down too fast.

3. Structure a Bucket Strategy Around Your Spending

An advisor can divide your savings into time-based buckets and assign the right mix of investments to each one based on when you will need the money.

Example: A couple retiring with $900,000 and $50,000 in annual expenses works with an advisor to set up three buckets. The advisor places $100,000 in cash and short-term bonds for the first two years, $300,000 in intermediate bonds and balanced funds for years three through eight, and $500,000 in a diversified stock portfolio for year nine and beyond. The advisor reviews the buckets annually and refills the short-term bucket from the mid-term bucket as needed.

4. Plan Around Required Minimum Distributions

An advisor can calculate your future RMDs and help you plan withdrawals in the years before they start so you do not face a sudden spike in taxable income at age 73 or 75.

Example: A retiree with $800,000 in a traditional IRA at age 65 will face RMDs of roughly $31,000 at age 73 based on current IRS life expectancy tables. Combined with Social Security, that would put the retiree in a higher tax bracket. The advisor recommends taking voluntary withdrawals of $40,000 per year from the IRA between ages 65 and 72 to reduce the balance before RMDs kick in, resulting in smaller required distributions and a lower tax bill in later years.

5. Adjust Your Strategy When Markets Drop

An advisor can help you reduce withdrawals or shift where you pull money from during a downturn so you do not lock in losses by selling investments at the wrong time.

Example: A retiree following the 4.7% rule is scheduled to withdraw $38,000 this year, but the stock market drops 25% in the first quarter. The advisor recommends pulling the full amount from the cash and bond portions of the portfolio instead of selling equities at depressed prices. The advisor also temporarily reduces discretionary spending by $5,000 for the year to give the equity portion more time to recover.

Bottom Line

Selecting a retirement withdrawal strategy is an important step that could help your savings last a lifetime. Make sure to prioritize your needs, like housing and healthcare, before wish listing things like hobbies and vacations. Balancing your financial needs with your risk tolerance and different withdrawal strategies can help you develop a sustainable plan.

Tips to Help You Save for Retirement

• A financial advisor can help you build a long-term retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Social Security benefits alone won’t be able to support your current lifestyle. However, they can certainly help with your living expenses in retirement. Try SmartAsset’s Social Security calculator to see how much of a benefit you can expect.
• If you want to know how much your retirement savings can grow over time, SmartAsset’s free retirement calculator can help you get an estimate.

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