Saving for retirement gets most of the attention. Spending the money is harder. Take too much and you may run short in your eighties. Take too little and you live on less than you could have. This guide covers the three questions almost every retiree faces: how much to take, which account to take it from, and what the IRS requires.
How much to take: the 4% rule
The best-known starting point is the 4% rule. In your first year of retirement, you withdraw 4% of your savings. Each year after that, you take the same dollar amount plus inflation. Research going back to the 1990s found that this pace lasted at least 30 years in nearly every historical market period, including the Great Depression and the 1970s.
| Savings at retirement | First-year withdrawal at 4% | Monthly |
|---|---|---|
| $200,000 | $8,000 | about $667 |
| $500,000 | $20,000 | about $1,667 |
| $1,000,000 | $40,000 | about $3,333 |
The rule is a guide, not a law. Someone retiring at 55 needs the money to last longer and may want to start closer to 3.5%. Someone retiring at 70 with a pension can often go higher. Many retirees also cut back a little after a bad market year, which makes the money last noticeably longer.
Your guaranteed income comes first
Before picking a withdrawal rate, add up the checks that arrive no matter what the market does: Social Security, any pension, and any annuity. Then compare that total with what you spend.
Take Robert, who spends $5,000 a month. His Social Security is $2,400 and his company pension is $1,100. That leaves a gap of $1,500 a month, or $18,000 a year. At 4%, he needs about $450,000 in savings to cover it. If he has $300,000, he can work longer, wait to claim Social Security for a bigger check, or trim spending.
This is why the claiming age matters so much. Every year Robert waits past full retirement age raises his Social Security by 8%, which shrinks the gap his savings must cover for the rest of his life. The when to claim calculator shows the trade-off.
Which account to tap first
Most retirees have money in three kinds of buckets:
- Taxable accounts: regular brokerage and savings accounts. Only the gains are taxed.
- Traditional accounts: 401(k), 403(b), 457(b) and traditional IRA. Every dollar out is taxed as income.
- Roth accounts: Roth IRA and Roth 401(k). Withdrawals are tax-free once you are 59½ and the account is five years old.
The traditional advice is to spend taxable money first, then traditional, then Roth. That lets the tax-free Roth money grow longest. In practice, many retirees do better by mixing. The years between retiring and starting Social Security or RMDs often have unusually low income, which makes them a good time to take traditional money at a low tax rate, or to convert some of it to Roth. That can lower the RMDs and taxes you face later.
Required minimum distributions
The government gave you a tax break on traditional accounts, and it eventually wants its share. Required minimum distributions, or RMDs, force you to start taking money out at a certain age.
| Born | RMDs start at |
|---|---|
| 1951 to 1959 | 73 |
| 1960 or later | 75 |
The amount each year is your December 31 balance divided by a number from the IRS Uniform Lifetime Table. At 73, the divisor is 26.5, so a $400,000 balance means a minimum of about $15,100. The divisor shrinks every year, so the percentage you must take rises as you age.
Your first RMD can wait until April 1 of the year after you reach the starting age, but then you take two in one year, which can push you into a higher bracket. Missing an RMD triggers a 25% penalty on the amount you should have taken, cut to 10% if you fix it quickly.
Roth IRAs have no RMDs while you are alive. Since 2024, Roth 401(k) and 403(b) accounts are exempt too. Our RMD calculator shows your minimum for this year and the next 20.
Taxes to plan for
Traditional withdrawals count as income. They can also make more of your Social Security taxable, and if your income is high enough, raise your Medicare premiums two years later. Our guide to taxes on Social Security walks through how that works.
Once you are 70½, you can send money from an IRA straight to a charity, called a qualified charitable distribution. It counts toward your RMD but is not taxed, which helps anyone who gives to charity anyway.
Common questions
Is 4% too cautious? For a 30-year retirement it has held up well, and many retirees end up with more than they started with. If you have a pension covering most of your spending, you can afford to take more from savings.
Should I take my RMD all at once? You can take it any time during the year, in one payment or monthly. Monthly withdrawals feel like a paycheck and many people prefer them.
Can I put my RMD back into savings? You cannot roll it into another retirement account, but you can spend it, save it in a regular account or invest it in a taxable account.
What about a lump sum from a pension? That is its own decision. See our guide on lump sum or monthly pension.