Almost everything written about retirement is about saving for it. Far less is written about spending it down, even though the order you draw from your accounts can meaningfully change how long your money lasts and how much of it goes to taxes.
This kind of planning didn't used to be necessary for most people. For a long time, this country ran largely on pensions, defined benefit plans that handled the payout, and the order, for you automatically. As those have been replaced by defined contribution plans like the 401(k), that responsibility shifted from the employer to the employee, and I don't think the education around it has caught up to match. I've seen this up close, in my own family and among friends' parents: people who worked 40 years and never gave much thought to how they'd actually draw the money down, simply because nobody handed them a framework for it the way a pension used to. The account exists. The plan for spending it usually doesn't, unless you build one yourself.
Why the order matters at all
By the time you retire, you likely have a few different types of accounts: taxable brokerage accounts, tax-deferred accounts like a traditional 401(k) or IRA, and tax-free accounts like a Roth. Each is taxed differently when you withdraw. Draw them down in the wrong order and you can push yourself into higher tax brackets earlier than necessary, or lose years of tax-free growth in a Roth that didn't need to be touched yet.
A common default order, and why
- Taxable brokerage accounts first. You've already paid tax on the money you put in, and you'll only owe tax on the gains, often at favorable long-term capital gains rates. Spending this down first lets your tax-advantaged accounts keep growing untouched.
- Tax-deferred accounts next (traditional 401(k)/IRA). Withdrawals here are taxed as ordinary income. Drawing these in years when your income is otherwise lower, early retirement, before Social Security starts, can mean paying tax at a lower rate than you would later.
- Roth accounts last. Roth withdrawals are tax-free, and the account keeps growing tax-free the longer you leave it alone. It's also the account with no required minimum distributions during your lifetime, so it's the most flexible one to hold in reserve.
This is a default, not a rule. Required minimum distributions, healthcare subsidy income limits, and your own tax situation can all change the ideal order for a given year.
Where this gets more complicated
Traditional accounts come with required minimum distributions starting at a certain age, currently in the 70s depending on your birth year, which forces withdrawals whether you need the income that year or not. Some retirees deliberately draw down traditional accounts earlier and faster than the strict "last" order above, specifically to shrink the account before those required distributions kick in and create a larger tax bill later. This is a case where a financial advisor or CPA who knows your full picture can add real value.
The bridge years matter most
The years between when you stop working and when Social Security and Medicare start are often the highest-leverage years for this decision, because your taxable income can be unusually low, and unusually low income is exactly when it makes sense to draw from tax-deferred accounts or even do partial Roth conversions at a low rate.
A common default is taxable accounts first, tax-deferred accounts next, Roth accounts last, but required minimum distributions and your specific tax situation can change the right order for you. The savings phase gets all the attention. The withdrawal order deserves real planning too, ideally with a CPA or financial advisor who can look at your full picture.