My Paycheck Stopped — Now What Should I Do?
You worked hard, saved well, and now you are stepping into retirement. The paychecks have stopped and the portfolio you built is now counted on to last for maybe 30 years or more. This transition from accumulation to the distribution phase of life can be stressful: it can be difficult to see your accounts stop growing and maybe even decline over time. Therefore, it is important we maximize the amount of money available for us to spend and one of the most important ways we do that is through making efficient decisions on which investment account type we take withdrawals from and when.
To be clear, there is no universal formula that is right for everyone. The right withdrawal strategy depends on your tax bracket, your income sources, your expenses, your account balances, and where you are in retirement. What works well for one person could be exactly the wrong move for another.
There are 3 stages of retirement that are helpful to consider when making your withdrawal decisions. They are:
Post retirement but before social security benefits begin.
Post retirement, social security benefits have begun but Required Minimum Distributions (RMDs) have not started.
Post retirement, social security benefits and RMDs are in effect.
Think about where you fall today — your planning priorities will look quite different depending on the answer.
Pre-Social Security and RMD Window:
This can be a golden planning opportunity. If you have recently retired but have not yet started Social Security or RMDs, your taxable income may be lower right now than it will be at any other point in retirement. That gap is a planning opportunity that, once passed, cannot be recaptured.
This is the window where strategies like Roth conversions, intentional account withdrawals, and careful management of capital gains can make a meaningful difference — accepting some taxable income today in exchange for greater flexibility and lower taxes later.
Post Social Security but Pre RMD Window:
This could be considered a transition window: social security income has begun but RMD income has not. In addition, this time period can look very different for everyone. Some of the strategies above may still be relevant based on your circumstances. However, we must also balance this with the increased income from social security. As we cover in the next section, managing income can become more and more important as we proceed through retirement.
Post Social Security and RMD Window:
For the vast majority of people, the IRS requires you to take taxable withdrawals, called Required Minimum Distributions (RMDs), from your traditional retirement accounts each year beginning at age 73 (or 75 if you were born in 1960 or later). If you are subject to RMDs, this is not optional and penalties can apply so please be mindful of this requirement.
For many retirees, RMDs can be a significant amount and, as stated above, are required whether you need the income or not. That forced income can potentially:
Push you into a higher tax bracket
Increase your capital gains tax rates
Subject you to the Net Investment Income Tax (NIIT)
Increase your Medicare premiums
Make up to 85% of your Social Security taxable
For a retiree with a $1,000,000 IRA, the first RMD alone is roughly $38,000 and the required percentage grows each year. Add a pension, Social Security, and other income sources to the mix, and your tax burden in retirement can rival what you paid during your working years.
As you can see, once RMDs start, managing your income can be quite important. As part of income management, don’t forget any potential charitable giving can be planned and strategized as well to maximize your giving. It is important to remember, no two retirements look alike, and no two years in retirement will automatically look alike either.
This Is a Year-by-Year Conversation, Not a One-Time Decision
None of these decisions exist in isolation. A change in one area can ripple across your entire tax picture. With thoughtful planning, much of this can be managed well in advance. The right withdrawal strategy at 65 may look very different at 75. Income levels, tax laws, account balances, and personal goals all evolve.
At Beacon Financial Strategies, retirement income planning is something we revisit with clients every year, not a one-time conversation. If you are approaching retirement, already there, or simply wondering whether your current strategy still makes sense, we would love to connect.