How Do I Take Withdrawals in Retirement? Part 3 & Conclusion.

Welcome back.  If you're just joining us, check out the introduction, and parts 1 and 2!

Withdrawal Method #3:  Pro Rata.  Take withdrawals each year proportionately from the 3 types of accounts.

Example:  Joe and Sue have 50% of their retirement money in tax-deferred accounts, 25% in taxable accounts, and 25% in Roth accounts.


  • More predictable tax bill throughout retirement
  • Can prevent a big tax bubble by taking money from tax-deferred accounts before age 73.
  • Keeps tax bill more manageable for retiree.
  • Hedging your bets on changing tax laws throughout retirement.


  • May take a little more calculation in the first years of retirement to get started.
  • Could result in taxable income to heirs if the IRAs are still a large portion of estate at retirees’ death.
  • May not be the “best” for tax planning, but who really knows that anyway?

I have to admit, this is my favorite method.  Especially for those who want to leave money behind for heirs, but don’t want to bear all the tax brunt themselves.

Mostly I like this because of ever changing tax and estate laws.  We really can only guess at the best withdrawal method at the beginning of a 30-year retirement.  The estate rules and tax brackets will change over time (See SECURE Acts), so by tapping into all assets all the time, you are sure to hit the “best” way for at least part of payout plan.

I also like the idea of taking Roth IRA money out during retirement.  You earned it, you should enjoy the tax-free benefit!  Roth money seems like it could be good for tax management and also good to think of as fun money.  Hey, we saved 25% on that vacation by taking the money out of a tax-free account!

Next: A wrap-up of how to apply these ideas to create your retirement paycheck.


I think of creating a retirement income plan in terms of funnels and buckets.  The funnel is the decision-making process.  The buckets are where your various accounts are placed and invested for income.

First, the funnel.  Start wide at the top with the overall retirement projection.  This informs how much you can safely spend in retirement and how much of that spending is coming from investments each year.  It’s especially important to know the yearly withdrawal amounts in Years 1-5 of retirement to create your bucket system.

The narrower part of the funnel is where we decide the details.  What are your values informing the withdrawal method choice?  Is it to leave the most tax efficient inheritance?  Or is it to have the least taxes during your own lifetime?  Is it ease of administration for you?  Or are you willing to spend extra time to beat the tax man at every turn?

Now the funnel has informed how we create the buckets.  Bucket 1 will contain enough cash or CDs to cover 18-24 months expenses.  You know exactly where the money is coming from to pay your monthly bills.  No surprises, not much growth.

Bucket 2 contains bonds/CDs/Annuities – something fixed and predictable to refill Bucket 1 once per year.  Bucket 2 can have Years 3-5 of retirement income.

Bucket 3 will have your longer term growth money.  You can take more risk here, and you will need to.  Your overall investments need to grow to keep up with inflation over time.  You have a safety buffer built in for the first 5 years of retirement (more, if you choose larger amounts in Buckets 1 and 2).

In good years, you’ll take your profits and invest to refill Bucket 2.  In down years, you can wait to pull from Bucket 3 because you have plenty to see you through in Buckets 1 and 2.

From here, you will decide which accounts fill each buckets.  Those accounts are then invested according to their new place in your withdrawal timeline.

Sounds easy, right?  Well, it’s not rocket surgery or brain science, but this exercise does take time and maybe a little distance.  You are rethinking everything you thought about money.  Saving is so much different than withdrawing.

Here is where a professional can help.  Whether your financial advisor charges you annually to manage assets or you are using a fee-for-advice model like mine, now is the time to be REALLY in touch with that advisor to plot your retirement paycheck strategy.

Contact me if you would like help creating your retirement income plan.

Written by Kristi Sullivan

My name is Kristi Sullivan and I have been helping people achieve financial security since 1996. I am a fee-only financial planner and public speaker. I do no investment or insurance sales for commissions. My clients pay me for guidance through their financial questions. I also work with employers to educate their employees about personal finance. I have been helping people make financial decisions for 18 years. I have worked in employee benefits and with individual clients/families. I hold the Certified Financial Planner designation. Sullivan Financial Planning, LLC is a Registered Investment Advisory firm with the State of Colorado. Areas of expertise include prioritizing savings goals, investment allocation, and wealth manager searches.

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