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How to Plan Spending in Retirement

Planning for your retirement often involves determining how you are going to save enough money to afford the lifestyle you want to maintain. But some forethought about when you'll withdraw money from your retirement accounts, and which accounts you'll tap first, can help you maximize your hard-earned savings.

Many Americans have more than one source of money in retirement -- income from Social Security retirement benefits, distributions from work-related accounts such as pension or a 401(k) and money saved in an individual retirement account. You may also have put a little extra aside in a high interest savings or taxable investment account.

After working for decades to save money in all these different pots, it can be a challenge to determine in what order you should take withdrawals.

One hint: Follow the taxes.

Withdrawals from each source of money are taxed differently. Distributions from your tax-deferred accounts -- such as your traditional IRA or 401(k) -- are taxed as regular income, up to a maximum of 35% in 2008. (Money withdrawn from a Roth IRA in retirement isn't subject to income taxes as long as you have held the account for at least five years.)

Meanwhile, income from your taxable investments -- dividends and long-term capital gains -- is taxed at 15%, which for most taxpayers is less than the tax you'll pay on regular income.

In general, the longer you wait to call on your retirement money, the more money you'll have in the end.
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