How to set up your withdrawals

You'll still have bills to pay in retirement, but you probably don't want to move money directly from your investments to your bank account every time you need to pay one.

For one thing, frequent transactions mean market swings could have a bigger impact on you—if you're forced to sell shares whenever you need cash, even if the value of your investments has dropped.

Instead, think about opening an account in a money market fund. You can move a year's worth of withdrawals to your money market account at one time, to lessen the impact of market swings.

You can also direct any other income streams (like Social Security) into your money market fund. Then transfer one month's worth of expenses at a time to your bank account, and pay your bills from there.

As you were building your savings, you probably used your earnings to buy more shares of your investments—that's how you benefit from compounding.

But now that you're spending money from your accounts, consider having your earnings sent to your money market fund rather than reinvested, at least in your taxable accounts.

Here's why: You'll incur taxes on these gains when they're paid out. If you reinvest them and then turn around and withdraw them in a few months, you'll likely have to pay taxes on them again.

If your taxable distributions and RMDs (if any) aren't enough to cover your spending, withdraw additional money from your savings in a way that will allow you to pay the majority of your taxes while you're in a lower tax bracket.

That's sometimes easier said than done, but for many people, the order below will make the most sense.

1. Withdraw from your taxable accounts first. This will allow your accounts with tax benefits to keep growing as long as possible. Remember that as you sell assets in these accounts, offsetting your capital gains with losses will help keep your taxes down.
2. When you've spent all the money in your taxable accounts, begin withdrawing from your tax-deferred accounts, like traditional 401(k)s and IRAs.
3. Finally, withdraw from your tax-free accounts like Roth 401(k)s and Roth IRAs. If you don't use all your Roth money, you can include it in your estate plan, since Roth accounts keep many of their tax advantages even after being passed down.