It’s Time to Pay Yourself a Salary in Your Golden Years








  • Many successful people entering their golden years have multiple retirement accounts with different tax statuses (IRAs, 401(k)s, Roth IRAs and more).
  • While it’s nice to have multiple retirement accounts to draw from, the order of withdrawals can be perplexing.
  • Managing the tax implications of withdrawals plays a huge role in the success of your retirement plan. Conventional wisdom may not apply to your unique financial situation.
  • Tax rules and personal life circumstance constantly change. Review your retirement withdrawal plan regularly with your advisor.


Wouldn’t it be great if our financial lives become simpler, not more complex, as we prepared for retirement? Suppose there was only one type of savings account, one tax rate to worry about, or no required minimum distributions? Retirement planning would be simple. But’s that’s rarely the case as many of you know.

We recently had a consultation with Bob and Barb, a couple in their mid-60s preparing to retire from their successful careers at Microsoft. Early in the meeting we reviewed a large stack of account statements. That mountain of paper revealed a combination of IRAs, Roth IRAs and multiple 401(k)s from Bob and Barb’s previous stints at Amazon and a startup they left in early 2000. There were also account statements from a pension, a large taxable savings account, and a small annuity. What’s more, the accounts were spread across multiple custodians (Schwab, Vanguard, Fidelity and Morgan Stanley). Bob and Barb were clearly overwhelmed by the prospect of figuring out how they were going to pay for their retirement living expenses now that their regular paychecks had stopped.

Drawdown Strategies and Timing

Bob and Barb asked us if there was good rule of thumb to follow, such as “Bengen’s 4 Percent Rule.” That’s when retirees withdraw 1/25th (i.e. 4%) of their nest egg every year throughout their retirement. I told them that conventional wisdom recommends drawing on your taxable accounts first, thus allowing your IRA to continue to benefit from tax-deferred growth. Then once your taxable accounts are depleted, start drawing from your IRAs, and lastly your tax-free Roth IRAs.

The problem with this strategy is that it does not maximize your tax efficiency. In the early years of retirement, your taxes may be low as you draw on your taxable account. But as that account diminishes, you find yourself needing to take your entire annual living expense out of your IRA at a higher marginal tax rate.

A more efficient strategy may be to tap into your IRA accounts early in retirement to take advantage of Roth conversions at a low tax cost. You will see a higher tax bill early in retirement, but will likely reduce your tax exposure in the future. This approach can spread out your tax burden more efficiently over your retirement years and help you stay in a lower marginal bracket. The amount of IRA funds you convert depends on your unique situation and should be evaluated each year with your advisor. We have seen this strategy improve the longevity of our client’s retirement projections by several years and increase the amount of tax free dollars they leave to their heirs.

Bob and Barb had sufficient assets to fund their retirement, but they had no plan for drawing on those assets efficiently to fund their post-employment lifestyle. While every family has unique circumstance, when it comes to tapping your hard-earned savings in retirement, you should review your drawdown plan carefully with your financial advisor.

Real World Example


























We Can Help

You’ve heard the familiar disclaimer: “Past performance does not guarantee future results.” Well that also applies to today’s tax landscape. Tax laws change frequently and will likely do so in the future, just as your personal life circumstances change. It is important to update your retirement strategies frequently as laws and your situation change. If you or someone close to you has concerns about your retirement withdrawal strategy, don’t hesitate to contact us any time to discuss in more detail. We offer complementary initial consultations through our Second Opinion offering.


James Nevers, CFP® is an Associate Advisor at Soundmark Wealth Management, LLC. James works closely with physicians, business owners, Directors and Executives at Amazon, Microsoft, and Boeing, and other high-net-worth individuals to help them define their financial goals and implement an ongoing financial planning process.