From the date you started your career to the final day on the job, you probably were working on an important goal: saving for retirement. You may have set up retirement accounts through your company, invested in the markets or sold a business to fund your retirement years. Whatever methods you used, once you hit retirement, it’s time to plan your income differently.

The good news is you probably aren’t saving for retirement any longer, freeing up income that used to be budgeted for that purpose. But how are you going to access your income, while at the same time, not overpay on taxes? Here are some factors to consider.

Types of Retirement Income Accounts

First, understand where your retirement income assets are held. Are they in accounts that were taxable, tax-deferred or tax free when you set them up?

• Taxable (tax-preferred): These types of accounts include savings accounts, mutual funds, stocks, taxable bonds, real estate investments and trust assets. When you make withdrawals on these assets, the money is taxable or tax-preferred.
• Tax-deferred: Many retirement accounts fall into this category, including IRAs, 401(k)s, 401(b)s, pensions, deferred compensation and annuities. When you make withdrawals on these accounts, the money is taxed.
• Tax-free: Some special retirement accounts like tax-exempt municipal bonds, Roth IRAs, life insurance cash values and health savings accounts are tax-free when you set them up and contribute money to them. They’re also tax free when you make withdrawals, as long as you meet the requirements for each account.

After identifying where your retirement income assets are located, you can establish a strategy to best maximize savings and investments, while at the same time minimizing taxes. One thought is to consolidate your assets into one source, because taking withdrawals from a single source is much easier to monitor and manage.

Reallocation Factors

When considering the reallocation of your retirement portfolio, keep these factors in mind:

• Risk: Because you’re not generating new income through a paycheck, you may want to decrease the risk levels of your assets to help minimize the chance of significant income losses if the market makes a downturn swing. However, being too conservative with your investment portfolio is a common retirement planning mistake.
• Timing: Many investments are centered on markets, and markets fluctuate greatly. In an ideal world, you want to buy low and sell high. However, if you’re using your investments as income, it’s not always easy to time the buying and selling based on your income needs.
• Taxes: Retirement fund withdrawals can result in minimal to significant income taxes. Tax brackets for retirees vary based on income, ranging from 10 to 37 percent, and retirees will often pay estimated quarterly taxes to the federal government, as well as to the state government in many states. Some retirees may drop into a lower tax bracket when they retire because their expenses are reduced with less travel and expenses occurred from working. However, some retirees use the retirement time to travel more, visiting grandchildren or seeing the world, and those costs may put them into a higher tax bracket.
• Longevity: How long are you going to live and need to make withdrawals from your retirement income? If you had a crystal ball, it’d be the perfect opportunity to look ahead to the date you’ll pass away so you can perfectly plan your investments to run out at the same time. Many people will plan their retirement to last until a certain age, and then restructure their investments as they approach that age.

Creating your Retirement Paycheck

Remember the more diverse your income sources, the more opportunity to strategically plan how to minimize taxes, optimize your retirement paycheck and leave an inheritance behind if that is one of your goals. When developing a retirement strategy, consider these four broad categories of income sources. They are:

• Retirement Resources: Social Security, pensions, annuities and Required Minimum Distributions on 401ks are included in this category, as they’re the types of resources most Americans use. Consider including these in your income plan first because they have age and distribution requirements built in.
• Earnings and Income: The second source of income that should be utilized includes earnings you gain from bonds, dividends from stocks, or capital gain distributions from mutual funds. If you’ve taken part-time work in retirement, or have income coming in from something like rental properties, also include those sources of income in this category.
• Asset and Investment Drawdown: The next income to access if additional money is needed following using the traditional retirement resources and earnings gleaned from investments and other sources of income are your assets. Look to asset liquidation to meet income needs and keep the drawdown as tax-efficient as possible. Note, tax-free accounts like Roth IRAs, HSA’s and some withdrawals from cash-value life insurance fall into this category. Because they are tax-free, we recommend making these the last assets you access, instead using them for a time of need. By doing so, you avoid crossing into a higher tax bracket.
• Legacy Assets: A final item to consider when planning your retirement income strategy is leaving money to loved ones and any charities that you support. If you are financially responsible for someone, have minor children, or would like someone to benefit from your assets, an estate plan is a good idea. For some people, it may be a good idea to pass some of those assets to heirs and charitable organizations while you’re still alive to decrease the size of the estate and help mitigate estate taxes.

It’s important to work closely with your financial, tax and legal advisors prior to and during your retirement years to discover the best financial plan that will help you enjoy your retirement while also achieving any other financial goals.