67-Year-Old Retiree Asks 'How Should I Prioritize My Spending Buckets?' – Suze Orman Tells Her Tap Into Traditional IRA First

On Suze Orman's podcast episode titled "How Should I Prioritize My Spending Buckets?" Ellen, a 67-year-old retiree, recently contacted Suze Orman for financial advice. Ellen shared that she's been retired for two years, and thankfully, her Social Security covers most of her daily expenses. She only dips into her savings for extras like travel or unexpected costs.

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But here's the thing – Ellen has her savings spread across several accounts: regular savings, a traditional IRA, a rollover IRA and Roth IRAs. Naturally, she's wondering, “Which bucket do I draw from first?"

Being the financial whiz, Suze turned this into a quiz for her wife, KT. When KT suggested dipping into the regular savings account and the Roth IRA, Suze quickly entered with the "wrong answer" buzzer.

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Suze explained her reasoning. Since Ellen is fortunate enough to live on her Social Security alone, her other accounts, especially the Roth IRAs, should be untouched. Why? Because Roth IRAs grow tax-free and the longer they stay untouched, the more they can grow. So, it’s smart to let them sit and continue growing tax-free for as long as possible.

Given that Ellen's only income is from Social Security, which is tax-free, Suze pointed out that Ellen likely isn't in a high tax bracket – if she's in one at all. This means that taking money from her traditional IRA or rollover IRA might not result in tax payments. Suze recommended withdrawing up to around $15,000 a year in withdrawals from these taxable accounts and taking advantage of the standard deduction to avoid owing taxes.

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In simple terms, Suze advised tapping into traditional or rollover IRAs first, then Roth IRAs, and leaving regular savings as a last resort. This strategy allows Ellen to maximize her tax-free growth while keeping her finances in check.

If you're like Ellen and wondering which bucket to dip into first, Suze's advice might help you keep more money in your pocket and more peace of mind in your retirement.

But what do other experts say? Retirement isn't a one-size-fits-all situation. So, depending on who you ask, they could have an entirely different opinion on whether Ellen should withdraw her funds. 

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For instance, Kiplinger recommends:

1. Cash: The theory is cash will grow more slowly than almost anything else, so spend it first. They suggest dipping into the emergency fund before anything else. 

2. Taxable accounts: Once you have withdrawn from your emergency fund, tap into your taxable investments, including individual, joint and revocable trusts.

3. Social Security: This is the third on their list, but Ellen is already collecting it. 

4. Pretax Retirement Accounts: This includes traditional IRAs, 401(k)s, and similar tax-deferred accounts. Withdrawals are taxed as income, so it’s often best to delay taking money out to maximize growth. However, the IRS requires you to start taking Required Minimum Distributions (RMDs) by a certain age, ranging from 70½ to 75, depending on your birth year.

5. Roth Accounts: Roth IRAs grow and can be withdrawn tax-free, making them ideal to leave untouched as long as possible. They're also great for estate planning, as beneficiaries can withdraw funds tax-free and potentially defer distributions for up to 10 years.

If you're trying to figure out the best option for your situation, it's a good idea to talk to a financial advisor to see what approach makes the most sense. Since many factors go into it, you'll want to get an expert's opinion to ensure you're getting the absolute most out of your nest egg. 

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