"I need $200,000 this year. Now what?"
September 2026, Retirement
- Key Insights
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- A single retirement spending goal requires three distinct calculations: (1) the amount a client wants to spend, (2) the cash that must come from the portfolio, and (3) the taxable income generated (accounting for the tax liability that will be created).
- Don’t let a lower tax bill today create a more expensive problem later. A decision made in isolation can increase future required distributions, narrow Roth-conversion opportunities, and limit tax-efficient withdrawal choices later in retirement.
- Withdrawal guidance requires far more than choosing an account. An actionable recommendation coordinates Social Security claiming, withdrawals, specific investment trades, taxes, and portfolio allocation.
- The plan must also work for a surviving spouse. The strategy should account for how Social Security, taxes, income needs, and decision-making changes after one spouse dies.
A simple request can hide several tax decisions
Clients rarely ask for a withdrawal strategy for their retirement income needs. They ask for cash: “We need $200,000 this year. Where should it come from?” The spending need may be clear. The tax-efficient answer is not. And tax efficiency matters.
Consider Mike and Linda. Both are 65, married, and living in Texas where there is no state income tax. They have approximately $4 million across taxable, tax-deferred, and tax-exempt accounts; no other income sources; and a $200,000 annual spending need. Their Social Security benefits are modeled to begin at age 70—the age at which you receive the maximum Social Security worker benefit.
Mike and Linda may know how much they want to spend this year. What they do not yet know is how much their portfolio must provide, how much tax liability the withdrawal may generate, or whether choosing the lowest-tax answer today could create a more expensive problem later.
The challenge for Mike and Linda’s financial professional is not any one calculation. It is coordinating withdrawals, taxes, Roth conversions, Social Security, Medicare, and investment decisions across accounts and across their lifetimes—then turning that analysis into guidance Mike and Linda can understand.
Why tax efficiency matters
A hypothetical analysis of Mike and Linda projected that, over the course of their retirement, a coordinated tax-efficient retirement income strategy would create approximately $483,000 more in total after-tax value than the modeled conventional approach of withdrawing from taxable accounts first, tax-deferred accounts next, and Roth accounts last. The $200,000 spending goal was funded in both scenarios. But the tax-efficient strategy coordinated three differentiating actions:
- Delaying Social Security benefits to age 70 rather than claiming earlier
- Using Roth conversions in the early years to target available tax bracket capacity
- Adjusting where the money was withdrawn from as the household’s income and tax picture changed
The projected difference came from how those decisions worked together over time—not from one isolated move.
The spending need is only the first number
Mike and Linda’s $200,000 request is the amount they want available to spend. Their financial professional must first determine where the cash should come from—including one or several accounts—and then calculate how much the portfolio must distribute to cover the spending need and any resulting taxes. Tax-efficient planning starts by keeping these calculations distinct.
Furthermore, there’s important nuance to consider in the calculations. A sale in a taxable account may provide cash while only the gain is taxable. A distribution from a tax-deferred account generally creates ordinary income. A Roth conversion can increase taxable income without putting another dollar in the client’s pocket. These interconnected variables must be accounted for.
What Mike and Linda may be thinking
“We know what we need. Why can’t we just take it from the largest account?”
The financial professional can reframe the question:
“We could. But first, let’s see what that decision could do to your taxes—and not just this year. There may be an opportunity to improve your long-term outcomes and reduce future tax pressure.”
Finding the money may be simple. Choosing the most tax-efficient source is not.
A lower tax bill today could create a more expensive problem later
The conventional approach of “taxable first, tax-deferred next, Roth last” can be a reasonable starting point. But a simple withdrawal rule can become a costly default when it is repeated year after year without detailed consideration.
The lowest-tax option today may leave more money concentrated in tax-deferred accounts, increase future required distributions, miss Roth-conversion opportunities, or expose a surviving spouse to higher taxes later.
Some clients may also treat Roth assets as a protected “last bucket.” But preserving Roth assets at all costs can create its own problems. The better approach is to consider how each account can be used strategically based on today’s need and expected future spending.
The lesson is that every client should not follow the same path. Rather, a decision that looks efficient in isolation now may create tax pressure later that could have been avoided.
The tax-efficient route can change across retirement
For Mike and Linda, the strategy changes as their circumstances change. Before Social Security begins, taxable withdrawals help fund spending while Roth conversions use available capacity within the targeted tax bracket to pay at lower expected rates today and avoid potentially higher rates later on. At age 70, Social Security begins and significantly lowers how much needs to be withdrawn from their savings. Later, required distributions, account balances, and household changes can reshape both the tax calculation and the available choices.
Conventional wisdom to challenge: Spending rises in a straight line
One request. Three different calculations.
Tax-efficient planning starts by keeping these numbers distinct.
Retirement spending rarely moves in a smooth, inflation-adjusted path. Travel, home projects, health care, and family needs can create spikes and dips—and the most tax-efficient funding source may change with them.
The client needs clear, actionable guidance
The real work is generating the “how.” The financial professional needs to determine when Social Security should begin and, each year, how much to withdraw from which account or accounts, which holdings to sell or reposition, what taxable gains or income those transactions may generate, and whether the remaining portfolio needs to be rebalanced.
For Mike and Linda, the tax-efficient analysis coordinated Social Security with withdrawals across taxable, tax-deferred, and Roth accounts to show how the income could be generated while keeping the portfolio aligned with the advisor’s investment strategy throughout retirement.
The plan must also work for the surviving spouse
Mike and Linda’s plan also considers what happens when one of them passes away. If Linda survives Mike, for example, she will receive the higher of the two Social Security benefits that were coming into the household, but will lose the lower one. And she will file as a single taxpayer—factors that can quickly change both her tax picture and withdrawal strategy. Linda will also be left to manage the household’s assets without Mike.
These potential changes underscore the importance of their financial professional having an established, trusted relationship with both spouses.
The relationship work starts now
“Mike usually handles the financial decisions.”
While this approach may work when both spouses are living, it can become a vulnerability after a loss.
Bringing both spouses into the strategy now helps each person understand the decisions, build confidence in the financial professional, and know who to call when guidance is needed most.
A strong household plan supports both clients in the household while also preserving continuity, confidence, and the client relationship.
As life and income evolve, the right account mix and tax strategy should change, too.
A whole-retirement analysis considers key milestones ahead to help inform today's withdrawal and tax decisions.
The long-term results reflect decisions made along the way
For Mike and Linda, the tax-efficient strategy did more than select an account for this year’s spending. It accounted for the reality of a changing picture over time—coordinating Social Security claiming; withdrawals across taxable, tax-deferred, and Roth accounts; Roth conversions; and investment actions across retirement.
The spending plan squiggles. The funding strategy should be flexible enough to move with it.
By contrast, the conventional approach followed a simple fixed sequence: Withdraw taxable assets first, tax-deferred assets next, and Roth assets last.
That difference matters. The tax-efficient strategy suggests Mike and Linda use Roth conversions to pay more taxes in the early years at lower expected rates and avoid potentially higher rates later on. So its projected portfolio value initially trails the conventional approach. However, over time, those earlier decisions reduce future tax pressure, preserve more flexibility, and allow the projected result to pull ahead.
Portfolio value over time
The chart shows after-tax portfolio value, which is only one component of the projected $483,000 of additional total after-tax value highlighted at the beginning of the paper.
The analysis may be complex. The client conversation should not be.
Turning a spending request into a retirement income strategy
A $200,000 retirement spending request begins with one number. But addressing the need in a way that puts clients in the best position for long-term success requires several calculations and coordination across Social Security, tax, and investment considerations. Plus, clients need a plan that can flex to changing needs and account for a surviving spouse.
Income Solver® simplifies this complex task and provides financial professionals a clearer foundation for both the recommendation and the client conversation. Armed with this powerful tool, financial professionals can set themselves apart as trusted retirement income partners.
Because the real challenge is not finding $200,000. It is funding it in a tax-efficient way that can optimize long-term retirement outcomes.
Stuart Ritter, CFP®
Insights Director
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The data used in this white paper
The analysis presented in this white paper was completed using Income Solver and is based on a hypothetical household designed to illustrate how different retirement income strategies may affect long-term outcomes. The analysis compares a conventional withdrawal approach with a coordinated, tax-efficient strategy designed to meet the same retirement spending goal. The conventional approach generally uses taxable assets first, tax-deferred assets next, and Roth assets last. Income Solver modeled a coordinated strategy that considers withdrawal sources, Social Security timing, tax-bracket and modified adjusted gross income (MAGI) thresholds, required minimum distributions, Roth conversions, and investment decisions as household circumstances change over time.
For purposes of this analysis, the hypothetical household consists of Mike and Linda, a married couple who are both age 65 and reside in Texas, where no state income tax is assumed. They begin retirement with approximately $4.06 million in assets: approximately $1.24 million in taxable assets, $2.51 million in tax-deferred assets, and $302,000 in Roth assets. Their annual spending need is assumed to be $200,000, increasing by 3% annually. Under the coordinated strategy, Social Security benefits are modeled to begin at age 70. The analysis assumes life expectancies of ages 85 and 95 and a portfolio allocation beginning at 70% equity and 30% fixed income and gradually moving to 60% equity and 40% fixed income.
The Income Solver analysis incorporates assumptions for investment returns and volatility, inflation, federal income taxes, Medicare-related thresholds and premiums, Social Security, required minimum distributions, and beneficiary taxation. The analysis uses T. Rowe Price capital market assumptions and the modeled tax rules and other assumptions applicable to the hypothetical case. The 25% heir tax rate used in the analysis is a simplifying assumption. While individual results will vary depending on household circumstances, assets, spending needs, longevity, and other inputs, the example is intended to illustrate how coordinated retirement income decisions can affect projected outcomes over time.
Under the assumptions used in the analysis, the coordinated strategy produced approximately $483,000 more in projected total value than the conventional strategy and lower cumulative taxes over the modeled retirement period. Projected total value represents the net present value of lifetime household spending plus the present value of the household’s after-tax ending balance. After-tax portfolio value, including the values shown in the paper’s portfolio chart, is only one component of projected total value.
The retirement income projections and other information regarding the likelihood of various outcomes used in this study are hypothetical in nature, do not reflect actual results, and are not guarantees of future results. The study is based on certain assumptions, and there can be no assurance that the projected results will be achieved or sustained. Actual results will vary over time depending on changes to inputs or updates to the underlying assumptions and may be better or worse than the results shown. The potential for retirement income shortfalls may be greater than demonstrated in the study.
Income Solver is offered by Retiree Inc., a wholly owned subsidiary of T. Rowe Price Group, Inc.
© 2026 T. Rowe Price. All Rights Reserved. T. ROWE PRICE, RETIRE WITH CONFIDENCE, the Bighorn Sheep design, and related indicators (see troweprice.com/ip) are trademarks of T. Rowe Price Group, Inc. All other trademarks are the property of their respective owners.
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