When you retire, you'll likely want to start taking money out of your retirement plans. But it’s not that simple. Knowing how and when to take the money out can make a big difference, helping you optimize your investments, taxes, and spending needs. That’s why you may want to think about developing a drawdown strategy—a plan for accessing your savings in retirement.

Before you can work on your drawdown strategy, there are three steps to consider taking first:

1  Calculate your retirement spending needs.

2  Figure out your savings and sources of retirement income.

3  Bridge any potential gaps between spending and savings.

Now you’re ready for step four: creating a plan to take out your money in retirement. This step can be more complicated than the others, so you may want to seek help from a tax or financial professional. This article will help you prep for that meeting or get started on your own. 

Choosing a drawdown method

There are a few methods that can help you figure out how much to withdraw every year. What they all have in common is that they work to help you withdraw your money in a way that balances your need for income with the need to make your money last for the length of your retirement. In addition to accounting for longevity, they also take inflation into consideration. 

Doing the math for your drawdown strategy is a good idea, even long before you plan to retire. It’s another way of seeing if your current savings strategy is likely to support your anticipated lifestyle, giving you time to adjust your saving strategy and sources of income if you need to.

Determining which accounts to draw from

If you have more than one account, you’ll need to plan which one to use and when. You could have a few types of retirement plans, each with its own tax treatment and withdrawal rules. The most common are: 

• 401(k) pretax and after tax (Roth)—In many 401(k) plans, you have a choice of contributing pretax or after tax, or both. If you saved pretax—with traditional 401(k) contributions—you’ll owe taxes on your savings when you take them out. If you contributed after tax in a Roth 401(k), you won’t owe taxes when you take that money and its earnings out if it’s a qualified distribution.² 
• Defined benefit or pension plan—Your plan may offer a choice of an annuity, which sends you a monthly payment, or a lump-sum withdrawal, which is paid all at once. These distributions are generally taxed when you receive them. 
• IRA—If you have IRAs, you’ll owe taxes when you take money out.
• Roth IRA—If you have Roth IRAs, you can withdraw your money tax free after age 59½, as long as it satisfies the qualified Roth distribution rules.³

You may also have savings accounts and other investments. You may want to try to take money out of your taxable accounts when your taxes are lower and out of the nontaxable accounts when your tax rate is higher. A tax professional can help you with these decisions.  

As with any long-term plan, check in on your drawdown strategy and investments regularly to be sure they’re still working for you and that they still meet your retirement objectives.

Start planning today

We’ve got a few tools to help you get started. 

• Retirement planner companion worksheet—Figure out your expenses and income in retirement with this helpful worksheet.
• Retirement planner—Model different retirement spending scenarios and adjust your inputs to see the impact your changes make.
• Personal finance organizer—Get help seeing your entire financial picture in one place by linking to all your financial accounts.

^{1 The projected retirement income estimates for your current John Hancock accounts, future contributions, employer contributions (if applicable), and other accounts set aside for retirement used in this calculator are hypothetical and for illustrative purposes only, and do not constitute investment advice. Results are not guaranteed and do not represent the current or future performance of any specific account or investment. Due to market fluctuations and other factors, it is possible that investment objectives may not be met. All investments carry a degree of risk, and past performance does not guarantee future results. 2 A qualified distribution from a designated Roth account in the plan is a payment made after the participant attains age 59½ (or after death or disability) and after the designated Roth account in the plan has been established for at least five years. In general, in applying the five-year rule, count from January 1 of the year the first contribution was made to the designated Roth account. Participants should contact their plan consultant or financial or tax professional for specific details on the five-year rule and whether any special rule may apply. 3 A participant must satisfy the five-year holding period and either attain age 59½, die, or become disabled or become a first-time home buyer ($10,000 lifetime limit) in order to be eligible to receive a tax-free, qualified Roth distribution.}