How to Strategically Spend Down Assets in Retirement

Planning for retirement often focuses on how much to save—but what happens once you retire and start spending those savings? That’s where the concept of "strategically spending down assets" comes into play.

Spending down assets is the process of withdrawing money from your retirement accounts and other investments to support your lifestyle after you stop working. It sounds simple enough, but without a strategy, it’s easy to overspend, outlive your savings, or trigger unnecessary taxes.

Whether you’re approaching retirement or already there, knowing how to draw down your assets wisely is just as important as how you built them. Let's dive into why it matters and how to approach it effectively.

Why Is Strategic Asset Spend-Down So Important?

Retirement can last 20 to 30 years—or even longer. That’s a long time to make your nest egg last. Without a thoughtful strategy, you could:

• Run out of money too soon

• Pay more taxes than necessary

• Miss opportunities for investment growth

• Reduce your ability to handle unexpected expenses or health issues

  
  

The goal is to use your assets in a way that supports your current lifestyle, protects your future, and minimizes the risk of financial surprises.

Benefits of a Strategic Spend-Down Plan

There are several advantages to taking a structured approach to drawing down your assets:

✅ Improved Cash Flow Management

You can ensure that your monthly income is steady and predictable, helping to avoid periods of financial stress.

✅ Lower Tax Burden

With a smart withdrawal strategy, you can minimize the taxes you owe each year—and over your lifetime.

✅ Preserved Wealth for Heirs

If leaving a legacy is part of your plan, strategic withdrawals can help preserve more wealth for your loved ones.

✅ Better Investment Decisions

A solid plan helps you decide which accounts to tap into first, when to adjust your risk level, and how to handle market volatility.

Risks of Not Having a Strategy

On the flip side, failing to plan your withdrawals can lead to:

• Premature depletion of retirement funds

• Large tax bills due to poorly timed withdrawals

• Penalties from required minimum distributions (RMDs) if you don’t follow IRS rules

• Uncoordinated income, which may affect your Medicare premiums or Social Security taxation

  
  

It’s not just about running out of money—it’s about avoiding costly mistakes that could reduce your quality of life.

Key Strategies for Spending Down Assets

There’s no one-size-fits-all strategy, but these common approaches can help guide your decision-making:

1. The 4% Rule (and Variations)

This rule of thumb suggests you withdraw 4% of your retirement portfolio in the first year of retirement and adjust for inflation each year. While it offers a rough guideline, it may not suit everyone—especially in today’s economic climate.

2. Tax-Efficient Withdrawal Sequencing

The order in which you withdraw funds from different accounts (e.g., taxable, tax-deferred, Roth) can significantly impact your tax liability. A general rule:

• Withdraw from taxable accounts first

• Then from tax-deferred accounts (like traditional IRAs or 401(k)s)

• Leave Roth IRAs for last (they grow tax-free and don’t have RMDs)

  
  

3. Required Minimum Distributions (RMDs)

Starting at age 73 (as of 2025), you’re required to begin withdrawing a minimum amount from most tax-deferred retirement accounts. Failing to do so can result in hefty penalties—so it's essential to plan accordingly.

4. Bucket Strategy

Divide your savings into "buckets" based on time horizon:

• Short-term (0-2 years): Cash or money market accounts

• Medium-term (3-10 years): Bonds or conservative investments

• Long-term (10+ years): Growth-oriented investments like stocks

  
  

This helps you manage risk while keeping enough liquidity on hand.

5. Delay Social Security (When Possible)

Delaying Social Security benefits past full retirement age can significantly boost your monthly income. For every year you delay (up to age 70), your benefit increases by about 8%.

Financial Impact: Short Term vs. Long Term

Short-Term Impact: A strategic spend-down plan ensures your day-to-day expenses are covered, your bills are paid on time, and you have funds available for travel, hobbies, or health care.

Long-Term Impact: The way you draw down your assets affects how long your money lasts, how much tax you pay, and whether you can support yourself well into your 80s or 90s. It also determines what—if anything—you’ll leave behind for family or charity.

Strategic planning helps balance the short-term enjoyment of retirement with long-term financial security.

The Value of Working with a Financial Advisor

While online calculators and DIY strategies can offer basic guidance, nothing replaces the value of a trusted financial advisor. Here's why:

• They understand tax laws, RMD rules, and investment options

• They can model different spend-down scenarios for you

• They help you adjust your plan when life changes

• They keep your goals, lifestyle, and values front and center

  
  

Everyone's financial situation is unique, and working with an advisor ensures your spend-down plan aligns with your retirement vision, not someone else’s.

If you’re considering developing a retirement withdrawal strategy—or just want to make sure you’re on the right track—you can schedule a complimentary phone call with an experienced advisor through this link:👉 https://www.openairadvisers.com/requestameeting

Final Tips for Strategic Asset Spend-Down

Here are some actionable takeaways to help you get started:

✔ Know your numbers

Understand how much you need to withdraw each year to cover your expenses. Factor in inflation, healthcare, and lifestyle choices.

✔ Organize your accounts

Group your assets into taxable, tax-deferred, and tax-free buckets so you can build a tax-smart withdrawal plan.

✔ Plan for RMDs early

Don't wait until you're 73 to think about required distributions. Preparing early can reduce the tax impact.

✔ Reevaluate regularly

Life changes, markets change, and tax laws change. Revisit your plan at least annually—or after major life events.

✔ Don’t go it alone

Even the most confident retirees benefit from professional guidance. A financial advisor can help you protect what you’ve worked so hard to build.

Retirement isn’t just the end of a career—it’s the start of a new chapter. With a smart spend-down strategy, you can make the most of it, enjoying your time while staying financially secure.

If you have questions or want help building your own retirement withdrawal plan, don’t hesitate to schedule a complimentary phone call with one of our knowledgeable advisors today.

Your retirement deserves a plan as unique as your life.