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How to Plan Spending in Retirement

But there are limits: Traditional IRAs and workplace plans mandate that you begin taking required minimum distributions by age 70 1/2. Your taxable investment portfolio, with its 15% long-term capital gains, has no such distribution requirements. These funds can keep growing until you call on them -- or pass them along to your heirs. The same is true for a Roth IRA.

In retirement, you could dip into your taxable accounts first in order to allow your tax-deferred savings to grow as much as possible. This is a good idea if you believe that your income tax bracket will be lower later in retirement, or if you feel taxes may rise after the presidential election this fall.

Alternatively, you may think your tax rate will stay steady -- or even increase --throughout your retirement. In that case, you could let the money subject to the lowest tax rate (your Roth IRA and your taxable investments) keep growing while you take distributions from your tax-deferred accounts.

You also have choices with regard to your Social Security retirement benefits. The benefits you receive from Social Security count as regular income, but only 85%, at most, of your benefits is taxable. For every year you delay taking benefits after your full retirement age (66 years old for those born between 1943 and 1954), your monthly Social Security checks increase by 8%. The 8% increases stop at age 70.

But when you should take Social Security depends mostly on your health and expected longevity. The Social Security Administration can help you make this calculation by determining your break-even age. If you expect to live beyond the break-even age, it would likely be to your financial advantage to delay taking Social Security distributions.

Ultimately, the appropriate order of withdrawals depends on your specific financial situation. Your best bet is to sit down with a certified financial planner who can analyze your situation and determine what makes the most sense for you.

Peter McDougall is a freelance writer who lives in Freeport, Maine, with his wife and their dog.
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