Your Retirement Paycheck: Four Steps to Help Build a Smart Withdrawal Plan

You have planned your retirement, and the big day has finally arrived. You have a solid investment plan in place, ideally guided by an Investment Policy Statement, to help keep your portfolio aligned for the years ahead.

Now comes the next big question: Where will your retirement income come from, and when should you take it?

A withdrawal plan is just as important as your investment strategy. While the immediate goal is to make sure you have enough income to support your lifestyle, the bigger opportunity lies in how you take that income and how to minimize taxes over your entire retirement, not just this year.

A thoughtful, tax-efficient withdrawal strategy can potentially reduce your lifetime tax bill and help your money last longer. Let’s walk through how to build one.

Understanding the Basics: How Tax Brackets Work

Before we discuss the strategy, it’s worth revisiting how our tax system works.

The U.S. federal tax system is progressive, meaning the more you earn, the higher the percentage you pay in taxes. There are currently seven brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Think of these brackets as buckets that fill up as your income increases. Your income first fills the 10% bucket, then spills into the 12% bucket, then the 22%, and so on. These buckets reset every year, so if you don’t “use” the lower ones, that opportunity disappears.

Here’s where strategy comes in. Sometimes it can make sense to pay some tax now at a lower rate (say 22%) rather than delay income and end up paying at a higher rate later (such as 32% or 35%). The goal isn’t to avoid taxes altogether, but to pay the least total tax possible over your lifetime.

It’s also important to note that “lower brackets” are relative to your own situation. For example, if your income typically puts you in the 24% bracket, then anything below that is a lower bracket for you. For someone else with higher income, their “lower bracket” might be 32%. The key is understanding where your opportunities lie.

Step 1: Determine Your Annual Income Needs

Start by estimating how much you’ll need to live on each year.

Will you spend more in the early years on travel and hobbies and taper off later? Or will you need more to fund health care down the road? Be realistic, and don’t forget to include inflation.

It’s also important to distinguish between cash flow and taxable income:

• Taxable income includes things like Social Security (partially), pensions, traditional IRA or 401(k) withdrawals, and earned income.
• Cash flow might come from Roth IRA or 401(k) withdrawals or distributions from regular (non-retirement) savings or brokerage accounts, which aren’t necessarily taxable, although capital gains could apply.

In short, not all cash flow is taxable and understanding that difference is key to managing your income within your desired tax brackets.

Step 2: Map Out Your Future Income Sources

Next, take inventory of all your current and future income sources including Social Security, pensions, part-time work, required minimum distributions (RMDs), and investment income such as dividends or interest.

Some of these are fixed (such as pensions that are already paying out), while others you can control (for example, when to start Social Security). Be sure to project them in future dollars, adjusting for cost-of-living increases and expected account growth when calculating future RMDs.

Once you’ve mapped everything out, you’ll see where your taxable income is flexible and where it isn’t.

Many retirees experience a “tax valley,” a few lower-income years between retirement and the start of RMDs. Those years are prime opportunities to recognize income strategically and fill those lower tax brackets.

Step 3: Use Your Lower Tax Brackets Strategically

Now comes the fun (and powerful) part: finding ways to put your lower tax brackets to work.

If your early retirement includes low-income years, you might want to intentionally recognize more income through a Roth conversion, for example. This allows you to move money from a traditional IRA into a Roth, lets you pay taxes now at a lower rate, and reduces future RMDs.

If your early years are higher-income years, you might go the other direction, delay Social Security and draw from after-tax savings first to help temporarily reduce taxable income.

Running the numbers can be eye-opening. Professional-grade tax planning software can model different scenarios and show how each decision impacts your long-term tax picture. Even a spreadsheet can help, but the more precise your modeling, the clearer your opportunities become.

Step 4: Revisit Your Plan Each Year

Your plan isn’t a “set it and forget it” exercise. Tax laws change, investment returns fluctuate, and life events, like an inheritance, relocation, or health change, can all impact your strategy.

For example, recent legislation (such as the One Big Beautiful Bill Act) provides an additional $12,000 deduction in 2026 for couples over 65 with income under $150,000. Small updates like that can influence when and how much income to recognize.

Reviewing your plan every year keeps it current to reflect your life and the ever-changing tax code.

Final Thoughts: Don’t Go It Alone

Creating a tax-efficient withdrawal plan is one of the best ways to make your retirement savings last, but it’s also one of the most complex. Between tax brackets, RMDs, Roth conversions, and ever-changing laws, there’s much to consider.

And while most people focus on federal taxes, your withdrawal choices can also affect state taxes, Medicare premiums, and other areas of your financial picture. Even small adjustments can have ripple effects, so it’s important to review any changes carefully and avoid unintended consequences.

That’s why it often makes sense to partner with a Certified Public Accountant (CPA) or Certified Financial Planner® professional who specializes in retirement income planning. A qualified professional can help you model different strategies, spot hidden pitfalls, and align every move with your long-term goals.

Because ultimately, the goal isn’t just to minimize taxes this year, it’s to create a plan that gives you confidence throughout retirement.

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP® in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.

This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.