You Saved $1 Million for Retirement. Now Comes the Hard Part: Turning It Into Income

The next challenge is determining how to turn those savings into a dependable income stream that can support your lifestyle throughout retirement.

A retirement portfolio does not come with a paycheck schedule. Withdraw too much too soon, and you could place unnecessary pressure on your savings. Withdraw too little, and you may unnecessarily restrict the lifestyle you worked hard to build. Add market volatility, inflation, taxes, healthcare expenses, Social Security decisions, and Required Minimum Distributions, and retirement withdrawals can become more complicated than they initially appear.

The reality is that two retirees with identical $1 million portfolios could experience very different outcomes depending on how and when they withdraw their money.

The difference is not always investment performance. Often, it is the strategy behind the withdrawals.

Why Is a Retirement Withdrawal Strategy Important?

A retirement withdrawal strategy is a coordinated plan for determining how much money to withdraw, when to take it, and which retirement or investment accounts to use. It may also account for taxes, market conditions, Social Security, Required Minimum Distributions, inflation, healthcare costs, and long-term goals.

During your working years, a paycheck may cover most of your regular expenses while your retirement savings remain invested. Once you retire, your portfolio may need to perform two jobs:

1. Produce income to support your current lifestyle.
2. Remain invested to help address future expenses.

Those objectives can sometimes conflict.

Taking larger withdrawals may satisfy today’s income needs, but it also leaves fewer assets invested for the future. Leaving more money invested may preserve additional assets for future needs, but it will not pay today’s bills.

A thoughtful strategy seeks to balance current income needs with market risk, taxes, inflation, longevity, healthcare expenses, and future spending.

Is $1 Million Enough to Retire?

A $1 million portfolio can sound like more than enough for retirement, but the portfolio balance alone does not answer the question.

Whether that amount may support your retirement depends on factors such as:

• Your anticipated retirement age
• Your annual spending
• Social Security benefits
• Pension income
• Business, rental, or employment income
• Taxes
• Healthcare expenses
• Inflation
• Market performance
• Your investment allocation
• The length of your retirement
• Your family, charitable giving, and legacy goals

A retiree who needs $35,000 annually from a portfolio faces a different situation than one who needs $90,000. Likewise, a retiree with a pension may have different portfolio income needs than someone who must rely primarily on personal savings and investment accounts.

Instead of asking only, “Is $1 million enough?” consider asking:

How much income must this portfolio produce, and what risks could affect its ability to support me throughout retirement?

What Happens if the Market Declines Early in Retirement?

One challenge retirees face is that they may need to continue taking withdrawals during periods of market volatility.

When you are still working and contributing to retirement accounts, your investments may have more time to recover before the money is needed. In retirement, withdrawals may continue regardless of market conditions because household expenses do not stop when the market declines.

If a retiree sells assets after account values have declined, those assets are no longer available to participate in a possible future recovery. The combination of declining account values and ongoing withdrawals can place additional pressure on a retirement portfolio.

This is why a market decline during the early years of retirement may affect a portfolio differently than a similar decline experienced during the accumulation years.

It does not mean retirees should attempt to predict the market. Instead, it shows the importance of coordinating investment decisions, income needs, and portfolio withdrawals.

A retirement income strategy may include periodic portfolio reviews, appropriate liquidity, and some flexibility around discretionary expenses. The right approach depends on the retiree’s complete financial circumstances.

How Can You Determine an Appropriate Retirement Withdrawal Amount?

There is no single withdrawal rate that is appropriate for every retiree.

Common rules of thumb may provide a starting point for discussion, but they cannot account for every retiree’s spending, tax situation, time horizon, investment allocation, healthcare needs, or legacy goals.

An appropriate retirement withdrawal amount should be evaluated using questions such as:

• How long might the portfolio need to provide income?
• How much income is needed from the portfolio each year?
• Which expenses are essential?
• Which expenses could potentially be adjusted?
• How much Social Security, pension, or other income is available?
• How is the portfolio invested?
• How much is held in taxable, tax-deferred, and Roth accounts?
• Will planned withdrawals increase with inflation?
• Are significant future expenses anticipated?
• Is money available for unexpected expenses?
• Does the retiree want to leave assets to family members or charities?

The initial withdrawal amount is only one part of the conversation. Retirees should also consider how that amount may need to change as markets, taxes, spending needs, and personal circumstances evolve.

Five Ways Retirement Withdrawals Can Put Pressure on a Portfolio

1. Withdrawing the Same Amount Regardless of Market Conditions

A fixed withdrawal schedule may be easy to follow, but retirement is rarely predictable.

If a portfolio experiences a significant decline, temporarily reducing discretionary spending may reduce the need to sell investments at reduced values. Other income sources or available liquid assets may also play a role, depending on the retiree’s circumstances.

During stronger market periods, retirees may have an opportunity to reevaluate cash reserves, future expenses, and planned withdrawals.

Flexibility does not mean abandoning the retirement lifestyle you envisioned. It means identifying which expenses are essential and which could potentially be adjusted if circumstances change.

2. Taking Money From Accounts Without Considering Taxes

The amount withdrawn from a retirement account is not necessarily the amount available to spend.

The Internal Revenue Service states that retirement account withdrawals are generally included in taxable income, except for amounts previously taxed or amounts that qualify to be received tax-free.

Traditional IRAs, Roth IRAs, taxable brokerage accounts, and employer-sponsored retirement plans can receive different tax treatment. The consequences also depend on the investments involved and the individual’s complete tax situation.

Whether it is appropriate to withdraw from a taxable account, traditional retirement account, Roth account, or a combination of accounts depends on the retiree’s broader financial circumstances.

A tax-aware withdrawal strategy may consider:

• Current taxable income
• Anticipated future taxable income
• Required Minimum Distributions
• Social Security benefits
• Capital gains and losses
• Medicare premiums
• Charitable giving
• Roth conversion opportunities
• Estate and beneficiary goals

The goal should not necessarily be to pay the least tax in a single year. A more complete analysis considers how today’s withdrawal decisions may affect taxes and income throughout retirement.

3. Waiting Until Required Minimum Distributions Begin

Required Minimum Distributions, commonly called RMDs, are minimum annual withdrawals that generally must be taken from certain retirement accounts after the account owner reaches the applicable starting age.

According to the Internal Revenue Service, traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan owners generally must begin taking RMDs at age 73.

Under the SECURE 2.0 Act, the applicable RMD age increases to 75 for individuals who attain age 74 after December 31, 2032. In practical terms, this generally applies to people born in 1960 or later. Because individual circumstances and account types matter, retirement account owners should verify their required beginning date before acting.

The IRS also states that Roth IRAs and designated Roth accounts in 401(k) and 403(b) plans do not require lifetime withdrawals while the original account owner is alive. Beneficiaries may still be subject to RMD rules.

For traditional IRAs, the first RMD generally must be taken by April 1 of the year following the year the owner reaches the applicable RMD age. Subsequent RMDs generally must be taken by December 31 each year. Delaying the first RMD until the following year could result in two taxable RMDs during the same calendar year.

Some workplace retirement plan participants may be able to postpone RMDs until retirement if the plan permits it. The IRS notes that this exception generally does not apply to individuals who own more than 5% of the business sponsoring the plan. It also does not postpone RMDs from traditional IRAs.

RMD planning can begin before the first distribution is required. An earlier review may provide more time to evaluate withdrawals, taxes, charitable goals, and potential Roth conversion strategies.

4. Treating Social Security as a Separate Decision

Social Security is one part of a retirement income plan, not an entirely separate decision.

The Social Security Administration states that eligible workers can typically begin receiving retirement benefits at age 62. Starting benefits before full retirement age results in a reduced monthly benefit. For individuals born in 1960 or later, full retirement age is 67.

The SSA also states that delaying benefits beyond full retirement age can increase the monthly benefit through delayed retirement credits until age 70. There is no additional increase for delaying benefits beyond age 70.

The decision to begin Social Security may influence how much money must be withdrawn from a portfolio during the early years of retirement.

Beginning benefits earlier may reduce immediate portfolio income needs, but it generally results in a lower monthly Social Security benefit. Delaying benefits may increase the eventual monthly benefit, but it could require investments or other income sources to cover more expenses temporarily.

The appropriate timing depends on an individual’s health, longevity expectations, marital status, employment, cash flow needs, taxes, survivor considerations, and other available assets.

For that reason, Social Security timing and portfolio withdrawals should be evaluated together.

5. Assuming Retirement Spending Will Stay the Same

Retirement spending is unlikely to remain exactly the same every year.

Some retirees spend more during the early years of retirement when they are traveling, pursuing hobbies, or completing home projects. Healthcare and support costs may become more significant later. Inflation can also increase the cost of everyday expenses over time.

A retirement income plan may need to account for:

• Regular living expenses
• Travel and discretionary purchases
• Federal and state taxes
• Healthcare and insurance premiums
• Home maintenance
• Family support
• Long-term care considerations
• Charitable giving
• Major purchases
• Unexpected expenses

Planning for changing expenses can provide a more realistic view of how much income a retirement portfolio may need to produce.

Which Retirement Accounts Should You Withdraw From First?

A common retirement planning question is whether to withdraw from taxable accounts, traditional retirement accounts, or Roth accounts first.

There is no universal withdrawal order that works for everyone.

The U.S. Securities and Exchange Commission describes traditional and Roth IRAs as tax-advantaged retirement accounts. Traditional IRA earnings are generally taxed when withdrawn, while Roth contributions are made with after-tax dollars and qualified withdrawals are generally tax-free.

One retiree may choose to use taxable assets while allowing tax-deferred accounts to remain invested. Another may evaluate calculated traditional IRA withdrawals before RMDs begin. Some retirees may use a combination of account types each year.

Factors that may influence the withdrawal order include:

• Current and anticipated tax brackets
• Capital gains and losses
• Required Minimum Distributions
• Social Security and pension income
• Medicare income-related premium adjustments
• Roth conversion opportunities
• Charitable giving
• Estate and beneficiary goals
• The types of investments held in each account
• Available cash and other income sources

What appears to be the most tax-conscious decision in one year may not necessarily produce the preferred result across an entire retirement. Withdrawal planning should consider both current and future years.

Could Retirement Withdrawals Affect Medicare Premiums?

Retirement withdrawals do not automatically increase Medicare premiums. However, taxable withdrawals may increase modified adjusted gross income, which can affect income-related Medicare premium adjustments.

Medicare states that individuals with modified adjusted gross income above applicable thresholds may pay the standard Medicare Part B premium plus an income-related monthly adjustment amount. The determination generally uses income reported on the federal income tax return from two years earlier.

Higher-income Medicare beneficiaries may also pay an additional income-related amount for Medicare Part D coverage.

This does not mean a particular withdrawal should be avoided solely because it could increase income. It means the potential interaction among taxable distributions, Roth conversions, capital gains, Medicare premiums, and other income should be considered as part of a coordinated retirement strategy.

Should You Keep Cash Available in Retirement?

Maintaining an appropriate source of liquid funds may reduce the need to sell long-term investments solely to meet immediate expenses during a period of market volatility.

Depending on the household, liquid funds could include cash, cash equivalents, short-term investments, or another readily available source of money.

The appropriate amount depends on:

• Regular spending needs
• Stability of Social Security, pension, and other income
• Anticipated major expenses
• Investment allocation
• Risk tolerance
• Access to other assets
• The overall financial plan

Holding additional cash may reduce short-term market exposure, but it may also affect the portfolio’s long-term growth potential and purchasing power. The right balance will vary from one retiree to another.

A liquidity strategy should be coordinated with the broader retirement income and investment plan rather than treated as a separate decision.

Why Should a Retirement Income Plan Be Reviewed Regularly?

A retirement withdrawal strategy should not be created once and then placed on autopilot.

The U.S. Securities and Exchange Commission encourages older investors to monitor their accounts and periodically review whether their investment allocation remains appropriate as personal circumstances and securities markets change.

A retirement plan may need to change because of:

• Market performance
• Tax law changes
• Inflation
• Changes in health
• Higher or lower spending
• The death of a spouse
• The sale of a home or business
• Changes in Social Security or pension income
• Required Minimum Distributions
• Family or charitable goals

A regular review can help determine whether the current withdrawal amount remains appropriate, whether the account selection should change, and whether the investment allocation continues to support the retirement income plan.

Significant financial or personal events may warrant an additional review during the year.

What Is the Best Withdrawal Strategy for Retirement?

The best retirement withdrawal strategy depends on your income needs, tax circumstances, account types, investment allocation, Social Security timing, healthcare costs, and long-term goals.

For some retirees, the strategy may involve taking distributions from multiple account types. Others may rely more heavily on guaranteed income sources or use available cash to meet short-term expenses.

A coordinated strategy may address:

1. Income needs: How much income is needed for essential and discretionary expenses?
2. Income sources: What income will come from Social Security, pensions, investments, business interests, rental properties, or other assets?
3. Withdrawal amounts: How much must the portfolio provide each year?
4. Account selection: Which accounts will be used to fund those withdrawals?
5. Tax considerations: How could distributions affect current and future taxable income?
6. Market risk: What adjustments could potentially be made following a market decline?
7. Inflation: How might spending needs change over time?
8. Healthcare: How will premiums, out-of-pocket expenses, and potential long-term care needs be addressed?
9. Liquidity: What funds are available for immediate or unexpected expenses?
10. Legacy goals: How much, if anything, would you like to leave to family members or charities?
11. Ongoing monitoring: How often will the strategy be reviewed and updated?

The goal is not to predict every expense, tax law change, or market movement. It is to create a framework that can be reviewed and adjusted as retirement unfolds.

Turning Your Savings Into a Retirement Paycheck

Reaching a $1 million portfolio is a meaningful accomplishment, but the number itself does not guarantee that the portfolio will support a particular lifestyle or last for a specific length of time.

You still need a plan for turning those assets into income.

The timing of withdrawals, the accounts you use, taxes, market performance, Social Security, RMDs, inflation, healthcare expenses, and personal goals can all affect how your savings are used throughout retirement.

A thoughtful retirement income plan can help bring those decisions together and provide a framework for reviewing them as your life changes.

Frequently Asked Questions About Retirement Withdrawals

Is $1 million enough to retire comfortably?

It may be, but the answer depends on your spending, retirement age, other income sources, taxes, healthcare costs, investment strategy, and how long the portfolio needs to last. A retirement portfolio should be evaluated in relation to the income it must produce and the goals it is intended to support.

What is a retirement withdrawal strategy?

A retirement withdrawal strategy is a plan for determining how much money to withdraw, when to take it, and which retirement or investment accounts to use. It may also coordinate withdrawals with Social Security, pensions, taxes, RMDs, healthcare expenses, market conditions, and long-term goals.

Why can market declines have a greater impact early in retirement?

Market declines during the early years of retirement may affect a portfolio differently because retirees are often taking withdrawals at the same time. Those withdrawals reduce the assets available to participate in a possible future market recovery, making retirement income planning and periodic portfolio reviews important considerations.

Should I withdraw from my IRA or brokerage account first?

There is no universal withdrawal order. The appropriate choice depends on factors such as taxable income, capital gains, future RMDs, Medicare premiums, Social Security, Roth assets, charitable giving, estate goals, and available income from other sources.

When do Required Minimum Distributions begin?

The Internal Revenue Service states that owners of traditional IRAs, SEP IRAs, SIMPLE IRAs, and applicable retirement plans generally must begin RMDs at age 73. The applicable age increases to 75 for individuals who attain age 74 after December 31, 2032, generally those born in 1960 or later. Account type, employment, ownership, and individual circumstances can affect the required beginning date.

At what age can I begin Social Security retirement benefits?

Eligible workers can generally begin Social Security retirement benefits at age 62. Starting before full retirement age reduces the monthly benefit. Delaying benefits beyond full retirement age can increase the monthly benefit until age 70.

How often should a retirement withdrawal plan be reviewed?

A retirement withdrawal strategy should be reviewed periodically and after significant changes involving spending, health, taxes, family circumstances, markets, income, or the investment portfolio. The appropriate review schedule depends on the individual’s circumstances.

How do I create a retirement paycheck from my investments?

Retirees often create retirement income by combining Social Security benefits, pension income, cash reserves, and withdrawals from retirement and investment accounts. The withdrawal strategy should consider taxes, inflation, healthcare expenses, Required Minimum Distributions, and long-term income needs. The appropriate approach depends on individual financial circumstances.