What Money to Withdraw First In Retirement?


Many retirees aren’t sure what money to withdraw first in retirement to cover routine living expenses. I’ll cover your choice of accounts including; taxable, Roth or your IRA/401K.  The idea is that in retirement you will need to supplement your income from Social Security, pensions and maybe an annuity (which I don’t necessarily like) with money you’ve saved in various accounts. I call this filling the GAP. If you want to know more about determining your GAP just click here and read my article. Much of your consideration on withdrawals is based on tax planning.

Here are some helpful tips:

1.       First off if you are over 70 ½ years old you MUST meet your RMD (Required Minimum Distribution) from your IRA accounts. This is a requirement and the IRS tax penalty is quite high.

2.       Secondly, take money from a taxable account, for example your brokerage account.

3.       Lastly, spend money from your Roth account, IF your current tax rate is HIGHER than what you expect it to be in the future. If not do not spend from your Roth, but instead spend from your IRA account.

Now, some of #3 needs a further explanation and you may need to consultant a tax adviser. By the time you get to option #3, each dollar withdrawn makes a tax difference.

Another strategy to consider. If you have done a good job of tax planning and you don’t need money from your Roth, save the Roth for larger unexpected expenses. This way if you need to say cover an unexpected $20,000 expense in retirement, withdrawing this amount from either a taxable or IRA account could be a substantial tax hit, but there will be no extra taxes if you use your Roth.


Understanding Equal vs. Price vs. Market Weighted ETF’s – It Makes a Difference


Many investors don’t understand exactly what they are buying when they look at Index ETF’s or funds. Investors should know the differences in “weighting” of stocks in an index or ETF. Weighting is the method that an index or ETF uses to determine what % of the index goes to buy each stock. Investors may think they are buying a highly diversified fund or ETF and not realize how “top heavy” they are in a few larger or higher priced stocks. Buying an Equal Weight ETF might provide an investor with more diversification.

Furthermore, many investors may be looking for diversification across multi-sectors yet don’t know for example that a NASDAQ index, like QQQ has no financial stocks. Or if you buy both the SPY and QQQ ETF’s you’ll end up with a big investment in Apple (APPL).

Sector Allocations

QQQ – Non-financial stocks 57% technology, 21% Consumer Cyclicals (78% total)

SPY – Well balanced Technology 21%, Financials 15%, Healthcare 14%, Consumer Discretionary 12% Industrials 10% (72% total)


Dow Jones: Price-weighted (DIA)

NASDAQ: Market capitalization-weighted (QQQ)

S&P 500:  Market capitalization-weighted (SPY)

Russell 2000: Market capitalization-weighted (IWM)

Guggenheim S&P 500:  Equal-weight (RSP)


A price-weighted index (Dow) uses the price per share for each stock included and divides the sum by a common divisor, usually the total number of stocks in the index. Example, Goldman Sachs is a high price stock about $240/share, Cisco, a much larger company has a $31 share price. If you buy $1,000 of DIA, you get $80 worth of Goldman and only $1 worth of Cisco.


 The market capitalization weighting is a stock market index weighted by the market capitalization of each stock in the index. A larger company account for a greater portion of the index. Most indexes are constructed in this manner, like the S&P 500, NASDAQ 100 and Russell.

Apple for example, makes up 11% of the NASDAQ top 100 (QQQ), and 3.5% of the S&P 500 (SPY). In the case of QQQ, the top 5 stocks make up over 1/3 of the value of the 100 total stocks, very top heavy.

Here is a list of the top 5 holdings in the NASDAQ 100

Investment Option – Equal Weighted  Index

Guggenheim S&P 500,  Equal-weight (RSP), this ETF is an equal weighted index. Each stock gets the same weight. Over a period of time the RSP has provided a better return than the SPY. In addition the RSP provides a larger exposure to small-mid cap equites and more diversification.