This article is for general informational and educational purposes only and is not intended as investment advice.
Saving for retirement is only part of the retirement planning process. Once retirement begins, an equally important question may become:
How should you spend the money you have accumulated, and how long might it last?
Retirement income planning involves more than choosing a withdrawal percentage or deciding which account to access first. Market conditions, inflation, taxes, longevity, healthcare costs, account types, income sources, and estate planning goals may all influence how retirement resources are used over time.
A retirement that lasts 5, 20, 30, or even 50 years may involve circumstances that are impossible to predict today. Building flexibility across investments, account types, income sources, and available financial resources may provide additional options as circumstances change.
Longevity Risk and the 4% Rule
One of the biggest questions in retirement planning is how much you can spend each year without running out of money.
The commonly discussed 4% rule is based on historical research examining whether a retiree could begin retirement by withdrawing approximately 4% of a portfolio and then adjust withdrawals over time for inflation, subject to the assumptions and limitations of the underlying research.
The appeal of this concept is straightforward. A starting withdrawal rate can provide a framework for thinking about how much a portfolio might support over a long retirement, while recognizing that investment returns, spending needs, and market conditions will vary over time.
However, this idea relies on significant assumptions. Investment returns are not consistent, inflation changes over time, markets can decline, spending needs can change, and retirement may last for decades. Taxes, fees, investment allocation, and the timing of market returns can also affect the outcome.
It is also important not to interpret the 4% rule too literally. Taking more than 4% does not necessarily mean a retiree will run out of money, just as taking less than 4% does not guarantee that retirement income will last. Actual outcomes depend on the investments, market returns, spending needs, inflation, taxes, time horizon, and many other factors.
The 4% rule is therefore best understood as a commonly referenced retirement planning concept, not a guarantee, prediction, or universally appropriate withdrawal strategy. It does not establish that a portfolio will earn 4%, that principal will be preserved, or that an individual will not run out of money.
For any particular retiree, the appropriate withdrawal strategy depends on the individual’s circumstances, financial resources, spending needs, risk tolerance, and goals.
Inflation and Sequence of Returns
Inflation is an important consideration for retirees, particularly when a portfolio relies heavily on fixed-income investments. While fixed-income investments can provide stability and predictable income, their purchasing power may decline over time as the cost of goods and services increases.
One way to address this risk is to maintain some exposure to investments with long-term growth potential. Market-based investments may provide an opportunity for a portion of the portfolio to grow over time and potentially offset some of the effects of inflation.
That growth potential, however, comes with another consideration: sequence of returns risk.
The order in which investment returns occur can matter significantly when withdrawals are being made. A substantial market decline early in retirement can have a greater impact than the same decline later because selling investments during a downturn can leave fewer assets available to participate in a subsequent recovery.
This also means that a withdrawal strategy does not necessarily involve selling the same percentage of every investment each year.
For example, if you want to withdraw $50,000 from a $1 million portfolio, that does not necessarily mean selling 5% of every investment in the account. Which assets are sold, and when, may change based on the needs of the portfolio, the market environment, the relative performance of different investments, rebalancing considerations, and the risks discussed above.
Similarly, when new cash becomes available through income, dividends, interest, required distributions, or other sources, there may be opportunities to determine where that money should be invested rather than simply applying the same allocation to every new dollar.
Maintaining some fixed-income investments, cash, or other relatively stable assets can provide a spending runway during periods of market weakness. This may give longer-term investments more time to recover rather than requiring them to be sold immediately to fund current spending needs.
The objective is not necessarily to eliminate either risk. It is to find an appropriate balance between stability and growth based on the individual’s circumstances, spending needs, time horizon, and tolerance for investment risk.
Ultimately, retirement investing is about more than choosing investments or applying a withdrawal percentage. It is about investing and planning with purpose and direction—maintaining enough stability to weather periods of market weakness while maintaining sufficient growth potential to address the effects of inflation over a potentially long retirement.
Multiple Sources of Retirement Income
Retirement income does not necessarily have to come entirely from an investment portfolio. Other sources may include:
- Social Security
- Pension income, where applicable
- Part-time employment
- Rental property
- Freelance or consulting work
- Gig economy work
- Hobby or small-business income
Even modest amounts of additional income may reduce the amount that needs to be withdrawn from retirement savings. Over many years, these sources can add up and may make a meaningful difference in the amount or percentage withdrawn from retirement accounts.
The broader planning concept is simple: retirement resources do not have to come from a single source. Combining investment assets with other income sources may provide additional flexibility and reduce pressure on the portfolio over time.
Flexibility Through Different Accounts and Financial Resources
Retirement savings can be held across taxable accounts, traditional retirement accounts, Roth accounts, HSAs, cash, rental property, and other financial resources. These can have different tax treatment, account limitations or restrictions, withdrawal rules, liquidity, income characteristics, and potential uses. Legislation, tax policy, and government benefit rules can also affect the relative value and flexibility of different account types over time.
That means the question may not simply be how much money do you have? It may also be where the money is located, what can it be used for, and what are the consequences of using it?
Consider two hypothetical retirees. One may have accumulated a very large balance in a single traditional retirement account. Another may have a lower total balance spread among a traditional retirement account, Roth account, taxable investments, HSA, rental property, and other financial resources.
The larger account balance does not automatically mean the first retiree will have greater purchasing power, higher recurring income, or leave more wealth to heirs.
Taxes, investment performance, inflation, liquidity, account limitations or restrictions, withdrawal rules, income generation, legislation or policy, and timing can all affect the ultimate value of different financial resources.
Having different types of accounts can also provide flexibility when spending needs do not follow a predictable schedule. An unexpected medical expense, a new roof, a child’s wedding, or even an opportunity to take the whole family on a trip to Bora Bora may require substantially more cash in a particular year than originally anticipated.
Suppose a retiree needs an additional $30,000 this year for one of these expenses. If that $30,000 is a taxable distribution from a traditional IRA, it generally increases taxable income for the year. Depending on the individual’s circumstances, that additional income could result in higher income taxes, increased Medicare premiums through IRMAA, reduced eligibility for certain income-based benefits, a greater portion of Social Security benefits becoming taxable, or other unexpected costs.
The retiree needed $30,000 to pay for the expense—but the decision about where that $30,000 came from could create additional costs beyond the expense itself. In some circumstances, those additional costs could affect several areas of the person’s financial life and make the $30,000 more expensive than it otherwise would have been.
Having rainy-day or emergency-fund money available in an account that can provide funds without increasing taxable income may help avoid some or all of these secondary effects. For example, depending on the circumstances:
- A qualified Roth distribution may generally be tax-free.
- An HSA distribution for qualified medical expenses may receive favorable tax treatment.
- A sale from a taxable brokerage account may include a return of cost basis and may result in capital gains treatment rather than ordinary income, potentially providing funds with less impact on reported income than the same-sized traditional retirement account distribution.
The specific rules and circumstances matter, but having multiple account types can provide more flexibility when unexpected expenses arise.
The goal is not simply to accumulate assets, but to create flexibility around how and when those assets can be used.
Roth Conversions and Future Flexibility
Roth conversions are another strategy that may create additional flexibility in future retirement years.
In some circumstances, lower-income years may provide an opportunity to evaluate whether converting some traditional retirement assets to a Roth account is appropriate. A conversion generally creates current tax consequences, so the potential benefits and costs need to be considered carefully.
The broader objective is not simply to minimize taxes in one particular year, but to create options for managing taxes and retirement income over time.
Preparing for Changes You Cannot Predict
Retirement may last for decades, and circumstances rarely remain unchanged for that long.
Markets can rise and fall. Spending needs can change. Tax laws may change. Health and family circumstances may change. A retiree may decide to work longer, move, purchase a property, help a family member, or leave more assets to heirs.
The goal is not to predict every future event. It is to build a financial structure that provides reasonable options when the future does not unfold as expected.
This is one reason retirement planning can involve more than simply determining an investment allocation. Decisions about where assets are held, which resources are used for spending, which accounts are preserved, and how income is generated can all affect the flexibility of the overall plan.
Having different types of financial resources may allow decisions to change as circumstances change rather than requiring the same approach every year.
Retirement, Legacy, and Intentional Planning
Retirement planning often overlaps significantly with estate planning.
The objective may not be simply to determine which investments to own. It may also involve deciding where to hold those investments, which assets to spend, which accounts to preserve, and how those decisions may affect a spouse or future heirs.
Different account and asset types can have different tax and transfer characteristics. Depending on an individual’s circumstances, one asset may be more useful for current spending while another may be more appropriate to preserve for future beneficiaries.
These decisions are often most useful when considered before a distribution or major financial transaction occurs rather than afterward.
Because tax laws, family circumstances, spending needs, markets, and personal goals can change, these decisions may also need to be revisited periodically.
Working With a Financial Advisor
When people think about working with a financial advisor, they may primarily think about investment management.
However, comprehensive retirement planning should also consider decisions about taxes, account types, withdrawal strategies, retirement income, spending, and legacy goals.
We believe the role of a financial advisor is to help clients make informed, intentional financial decisions and coordinate the many moving parts of their financial lives. In retirement, that may mean helping connect investment decisions with tax considerations, income needs, spending decisions, and long-term goals.
Some individuals may be comfortable managing these decisions independently, while others may prefer professional guidance or comprehensive financial management. The appropriate level of assistance will depend on an individual’s circumstances, knowledge, preferences, and planning needs.
The Bottom Line
Retirement planning is not simply about accumulating the largest possible account balance.
The value of retirement resources over a lifetime can also depend on taxes, inflation, account structure, income sources, liquidity, withdrawal decisions, investment performance, and legacy goals.
Diversification in a broader financial planning context can mean more than owning different investments. It can also mean having different types of accounts, income sources, and financial resources that provide different options at different times.
There is no single strategy that solves every retirement planning challenge. The objective is to make decisions intentionally, preserve flexibility where possible, and periodically adjust the plan as circumstances change.
Disclosures
This article is provided for informational and educational purposes only and should not be construed as investment, tax, legal, accounting, or personalized financial advice. The information presented is general in nature and is not intended as a recommendation or solicitation for any specific investment, security, account type, withdrawal strategy, tax strategy, or financial planning approach.
Financial circumstances vary, and readers should evaluate their individual circumstances and consider consulting qualified financial, tax, legal, or accounting professionals before making financial decisions.
Any examples provided are hypothetical and are for illustrative purposes only. Hypothetical examples do not represent actual investment results and may not reflect all factors that could affect an individual’s financial circumstances or outcomes.
Investment returns are not guaranteed. Investments involve risk, including the possible loss of principal. Diversification does not guarantee a profit or protect against losses in declining markets. Past performance is not indicative of future results.
Tax laws, retirement account rules, government benefits, and other applicable regulations may change. References to Roth accounts, Roth conversions, taxable accounts, traditional retirement accounts, HSAs, estate planning, or other planning strategies are general in nature and may not be appropriate for every individual. Readers should consult qualified professionals regarding their specific circumstances.
This material reflects information available as of September 2026 and is subject to change without notice. Although care has been taken in preparing this material, no representation or warranty is made regarding its accuracy or completeness.