Turning Savings Into a Paycheck: A Retirement Drawdown Plan

For most of your working life, retirement planning had one job: accumulate. Contribute, invest, grow, repeat. It was hard work, but it was at least straightforward. Then retirement arrives, and suddenly the whole game changes.

Now you have to decumulate, a word that sounds academic but really just means figuring out how to turn a pile of savings into a reliable stream of income that lasts as long as you do. For many new retirees, this shift is genuinely disorienting. There is no employer cutting a check every two weeks. There is no simple formula posted on the break room wall. There is just you, a collection of accounts, and a lot of questions.

This guide is designed to answer those questions in plain language. We will walk through a year-by-year drawdown framework, introduce a sample retiree named Margaret to make it concrete, and show how fidser's retirement calculator can help you map your own version of this plan. Nothing here is personalised financial advice, and a qualified financial adviser can help tailor any of these concepts to your specific situation. But by the end of this article, the mechanics of building a retirement paycheck will feel a lot less mysterious.

To keep things grounded, consider this hypothetical scenario. Margaret is 63 years old and just retired. Her savings picture looks like this:

• 401(k) (traditional, pre-tax): $620,000
• Roth IRA: $110,000
• Taxable brokerage account: $85,000
• Social Security: Eligible for $1,850/month at 63, or $2,650/month if she waits until her full retirement age of 67
• Annual spending goal: $52,000

Margaret's numbers are illustrative only, not a benchmark. Your own mix of accounts, income needs, and Social Security situation will look different. But following Margaret year by year helps show how abstract concepts like 'drawdown order' and 'Roth conversion windows' actually play out in real life. It is also worth noting that retirement expenses rarely stay flat over time, something any good plan should account for.

Before building a withdrawal schedule, it helps to understand what kind of accounts you are working with. Most retirees have assets spread across three tax categories, and each one behaves differently when you withdraw money.

Taxable accounts (brokerage accounts, savings): Withdrawals are generally subject to capital gains tax, not ordinary income tax. If assets have been held more than a year, long-term capital gains rates apply, which are often lower than income tax rates.

Tax-deferred accounts (traditional 401(k), traditional IRA): Every dollar withdrawn is taxed as ordinary income. These accounts also carry Required Minimum Distributions (RMDs) starting at age 73, under current IRS rules.

Tax-free accounts (Roth IRA, Roth 401(k)): Qualified withdrawals are completely tax-free, and Roth IRAs have no RMDs during the owner's lifetime under current law.

A commonly discussed approach among financial planners is to draw from taxable accounts first, then tax-deferred, then Roth last. The reasoning is that Roth money grows tax-free, so allowing it more time to compound is generally considered advantageous. However, this sequence is not universal. Tax bracket management, Social Security timing, and RMD planning can all create good reasons to deviate. A qualified financial adviser can help evaluate what order makes sense for a specific situation.

One of the most practical things retirees can do is recreate the psychological structure of a paycheck. Without a regular deposit hitting your checking account, it is easy to either overspend in good months or underspend out of anxiety, a pattern explored in depth in why disciplined savers often struggle to spend in retirement.

A simple retirement paycheck system typically works like this:

• Calculate your monthly income gap. Start with your known income sources (Social Security if already claimed, pension if applicable, part-time work) and subtract that from your monthly spending goal. The remainder is what your portfolio needs to cover.
• Set up a monthly transfer. Many retirees keep a 'distribution account', often a high-yield savings or money market account, that holds one to three months of living expenses. Automatic monthly transfers from this account to a regular checking account replicate the feel of a paycheck.
• Refill the distribution account quarterly or annually. Once or twice a year, review which account to draw from to refill the buffer, applying the drawdown order discussed above.

In Margaret's case, she is not yet claiming Social Security at 63, so her portfolio needs to cover the full $52,000 annual need, roughly $4,333 per month. She sets up an automatic transfer from her distribution account on the first of each month. She refills that account semi-annually by selling appreciated positions in her taxable brokerage account. This keeps her spending feeling predictable even though her portfolio fluctuates daily.

fidser's retirement income calculator can help you estimate your own monthly income gap and model how different withdrawal amounts affect your portfolio over time. Running a few scenarios, including a conservative market assumption, is a useful way to pressure-test a drawdown plan before committing to a number.

The years between retirement and age 73 represent one of the most strategically important periods in a retiree's financial life. This is often called the 'Roth conversion window', and here is why it matters.

Before Social Security starts (or before it reaches full value) and before RMDs begin at 73, many retirees find themselves in a temporarily lower income tax bracket. That is a window that some financial planners use to consider partial Roth conversions, moving money from a traditional IRA or 401(k) into a Roth account and paying tax on it now, at potentially lower rates, rather than later when RMDs could push income higher.

For Margaret, between ages 63 and 67 she has relatively low taxable income since she is living primarily off her taxable brokerage account. Some advisers in her situation might explore whether converting a portion of her traditional 401(k) to a Roth each year makes sense, filling up lower tax brackets without crossing into higher ones. This is not the right move for everyone, and it requires careful modeling of current versus future tax rates, Medicare premium implications (known as IRMAA), and estate goals. But it illustrates how proactive this window can be.

It is also worth exploring the Social Security tax torpedo, a situation where claiming Social Security causes a larger portion of benefits to become taxable, which can create an unexpectedly high effective tax rate in certain income ranges.

Social Security timing is one of the biggest levers in a retirement income plan. Under current Social Security Administration rules, benefits grow by roughly 6-8% for each year you delay claiming beyond age 62, up until age 70. That is a significant guaranteed increase for each year of delay, though the right claiming age depends on health, longevity expectations, marital status, and portfolio size.

For Margaret, waiting from 63 to 67 (her full retirement age) increases her benefit from $1,850 to $2,650 per month, an increase of $800 per month for life. Over a 20-year retirement, that difference is substantial. Waiting four years means her portfolio carries the full spending load during that period, but once Social Security starts, her required portfolio withdrawals drop significantly, which helps preserve her savings.

The practical year-by-year picture for Margaret might look like this:

• Ages 63-67: Draw from taxable brokerage account. Explore partial Roth conversions in lower-income years. Social Security not yet claimed.
• Age 67: Social Security begins at $2,650/month (indexed for inflation). Portfolio withdrawal need drops to roughly $1,650/month. Begin drawing from traditional 401(k) to supplement.
• Ages 68-72: Blend of Social Security plus modest 401(k) withdrawals. Continue evaluating Roth conversion opportunities.
• Age 73: RMDs begin on traditional 401(k). RMD amounts are calculated by the IRS using account balance and life expectancy factors. Roth IRA remains untouched.
• Ages 73+: RMDs cover much of the income need. Roth IRA available as a tax-free buffer for large expenses, healthcare costs, or legacy goals.

No drawdown plan survives first contact with a bear market unchanged. This is the challenge known as sequence of returns risk: a significant market decline in the early years of retirement can permanently impair a portfolio, even if markets eventually recover, because you are selling shares at low prices to fund living expenses.

Having a plan for down years is not optional. Some approaches retirees and their advisers consider include:

• Guardrail strategies: Reducing withdrawals by a set percentage (often 10%) when portfolio value drops below a predetermined threshold, then restoring them when markets recover.
• Drawing from cash reserves first: Keeping one to two years of expenses in cash or short-term bonds means you may not need to sell equities at depressed prices during a downturn.
• Flexible spending: Identifying which expenses in a budget are discretionary (travel, dining, gifts) and which are fixed (housing, healthcare), and temporarily reducing discretionary spending during poor market years.

For Margaret, holding twelve to eighteen months of living expenses in a money market or high-yield savings account provides a buffer. In a bad market year, she can live off that cash reserve rather than selling her 401(k) or brokerage holdings at a loss. She refills the buffer when markets recover. This kind of cash buffer approach overlaps with what many planners call the bucket strategy, a framework worth understanding as you design your own drawdown plan.

Required Minimum Distributions are not optional. Once you reach age 73 (under current IRS rules following the SECURE 2.0 Act), the IRS requires that you withdraw a minimum amount from traditional IRAs and 401(k)s each year. The amount is calculated by dividing the prior year-end account balance by a life expectancy factor from the IRS Uniform Lifetime Table.

For many retirees, RMDs arrive at exactly the same time as Social Security, creating a situation where income is higher than expected. Depending on your total income, up to 85% of Social Security benefits can become taxable, and RMDs are taxed as ordinary income. Planning for this in advance, potentially through Roth conversions during the earlier window, is a reason many financial planners encourage retirees to think about RMDs well before age 73.

One option available to retirees who are charitably inclined is the Qualified Charitable Distribution (QCD), which allows individuals aged 70.5 and older to transfer up to $105,000 per year (in 2024, indexed for inflation) directly from an IRA to a qualified charity. This transfer counts toward the RMD but is not included in taxable income, which can be a meaningful benefit for those who would otherwise face a higher tax bill.

fidser's calculator includes RMD projections as part of its retirement income modeling, so you can see how mandatory withdrawals interact with Social Security and other income sources across different ages.

A reminder: This article is general educational information only and is not personalised financial or investment advice. Every retiree's tax situation, account mix, health, and goals are different. Before making decisions about withdrawal sequencing, Roth conversions, Social Security timing, or RMD planning, speaking with a qualified financial adviser or tax professional is strongly encouraged. fidser is not a registered investment adviser or financial planner.