When it comes to retirement planning, we spend decades focused on one number: our savings goal. We chase the magic $1 million, $2 million, or more.

But what happens when you get there?

Many retirees make a costly assumption: that the hard work is over. They believe that as long as they follow a “safe” withdrawal rate, they’ll be fine. But this ignores the single biggest variable in retirement: Taxes.

How you withdraw your money can be just as important as how much you saved. Let’s look at a case study of two couples, the Johnsons and the Smiths, to see this in action.

Meet Our Retirees: The Johnson & Smith Families

• Retirement Age: Both couples retire at 65.
• Total Portfolio: Both have a $2,000,000 nest egg, identically diversified across three account types:
  • $800,000 in Traditional IRA (Pre-Tax)
  • $700,000 in a Taxable Brokerage Account
  • $500,000 in a Roth IRA
• Annual Need: Both need $100,000 per year after taxes to support their lifestyle.
• Other Income: Both receive $30,000 per year from Social Security.

The only difference? Their withdrawal strategy.

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Case Study: Two Withdrawal Strategies

The Smiths: The “Simple” Approach

The Smiths want to keep things easy. They decide to take a proportional 5% withdrawal from each account every year. It seems fair and straightforward.

• Annual Withdrawal:
  • From Traditional IRA: 5% of $800,000 = $40,000
  • From Brokerage Account: 5% of $700,000 = $35,000 (of which ~$25,000 is long-term capital gains)
  • From Roth IRA: 5% of $500,000 = $25,000
  • Total Withdrawn: $100,000

The Smiths’ Tax Bill:

• Social Security Income: $30,000
• Traditional IRA Withdrawal: $40,000 (fully taxable as ordinary income)
• Taxable Account Gains: $25,000 (taxable at capital gains rates)
• Approximate Annual Federal Tax Bill: ~$9,500
• Their After-Tax Income: ~$90,500 (They are short of their $100,000 goal and must withdraw more to cover the tax, creating a negative feedback loop.)

The Johnsons: The “Tax-Smart” Approach

The Johnsons followed the advice of a financial planner and implemented a strategic, two-step withdrawal process.

Step 1: They looked at their tax brackets first. In 2024, the married filing jointly 12% tax bracket goes up to about $94,000 of taxable income. Their goal was to fill this bracket with pre-tax money, but not exceed it.

• They started with their $30,000 of Social Security.
• They then withdrew $64,000 from their Traditional IRA. This brought their total ordinary income into the top of the 12% bracket.
• This $64,000 was more than enough to cover their living expenses for the year, but they had a plan for the extra.

Step 2: They executed a Roth Conversion. They converted a portion of that $64,000—let’s say $24,000—directly into their Roth IRA. They paid a low 12% tax on that money now, so it would never be taxed again.

Step 3: To get to their $100,000 spending goal, they needed an additional $36,000. They turned to their Taxable Brokerage Account. Because their ordinary income was still low, they could realize $36,000 in long-term capital gains and pay 0% in federal taxes on those gains.

The Johnsons’ Tax Bill:

• Tax on $64,000 of Ordinary Income (at 12% marginal rate): ~$4,800
• Tax on $36,000 of Long-Term Capital Gains (at 0% rate): $0
• Total Annual Federal Tax Bill: ~$4,800
• Their After-Tax Income: $95,200 (They are much closer to their goal and have efficiently moved money into a tax-free Roth account.)

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The Stunning Long-Term Impact

Let’s fast-forward 10 years. The difference is no longer just annual; it’s monumental.

Factor	The Smiths (“Simple” Approach)	The Johnsons (“Tax-Smart” Approach)
Annual Tax Bill	~$9,500	~$4,800
Total Taxes Paid (10 yrs)	~$95,000	~$48,000
Roth IRA Balance	Has been depleted each year.	Has grown significantly due to annual conversions.
Traditional IRA	Depleting slowly, but future RMDs are still a threat.	Strategically reduced, leading to much lower RMDs.
Financial Flexibility	Low. Forced to withdraw more to cover taxes.	High. More tax-free money and control over future taxes.

The Bottom Line: The Johnsons have saved nearly $50,000 in taxes over a decade, money that stayed invested and compounded in their portfolio. Furthermore, by building up their Roth IRA, they have created a tax-free bucket for future healthcare costs or to pass on to heirs. The Smiths, meanwhile, have overpaid the IRS by the same amount and have less flexibility for the future.

Key Takeaways for Your Retirement

The Johnsons followed the two-step process we advocate:

1. Pick the Right Tax Pool: They used their Traditional IRA to fill a low tax bracket and their brokerage account to benefit from the 0% capital gains rate.
2. Pick the Right Asset: Within those accounts, they sold assets that helped rebalance their portfolio.

Your retirement savings represent a lifetime of hard work. Don’t let a simplistic withdrawal strategy hand a disproportionate share to the IRS. A strategic, tax-efficient distribution plan isn’t just a detail—it’s the key to keeping more of what you’ve earned.

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