Many retirees want more than portfolio growth projections in retirement. They want dependable income — cash flow they can count on regardless of what markets are doing. 

In fact, research shows that roughly 2 in 3 retirees prefer some level of protected income to cover essential expenses.1 That preference should be reflected in the design of their retirement income plans.

Complicating matters, however, is the fact that retirement savings are often concentrated in tax-deferred accounts. Without a coordinated strategy, withdrawals from these accounts can create uneven tax outcomes. Over time, these unintended consequences can have a significant impact on how much of their savings the retirees keep.

That’s why the most effective retirement income strategies recognize that tax efficiency and protected lifetime income don’t compete with each other. When structured thoughtfully, they can actually reinforce each other.

Tax efficiency and the Effective Marginal Rate

Let’s first consider the potential impact of withdrawals on tax efficiency — keeping in mind that retirees commonly hold assets across 3 tax categories: 

  • Taxable accounts
  • Tax-deferred accounts such as traditional IRAs and 401(k)s
  • Tax-free accounts such as Roth IRAs and health savings accounts (HSAs)

The order in which income is drawn from these accounts can shape lifetime tax liability. Rather than simply “filling up” a tax bracket each year, a more refined approach evaluates the Effective Marginal Rate (EMR) — the true tax cost of the next dollar withdrawn after considering interactions with Social Security taxation, capital gains and other provisions. 

Structuring the process

Evaluate Social Security timing.

Map tax-efficient withdrawal and conversion opportunities.

Identify income gaps.

Introduce protected income solutions funded from the most appropriate accounts.

Case study: A simple shift adds tax savings while integrating protected lifetime income

Managing withdrawals within acceptable EMR ranges can lower lifetime taxes while maintaining flexibility. Once that tax-aware framework is in place, protected income decisions can be layered in deliberately.

Consider this example from my white paper, "Rethinking tax planning in retirement". James and Rosa, both age 65, enter retirement with $1.2 million in IRAs and $500,000 in a brokerage account. They need $108,000 per year after taxes, adjusted for inflation.

Under a common withdrawal approach — claiming Social Security immediately and relying on taxable assets until RMDs begin — their projected after-tax estate value is approximately $2.27 million.

A more tax-efficient strategy blends withdrawals across account types, includes targeted Roth conversions and delays Social Security. This approach meaningfully improves projected outcomes; however, it also creates a spending need of roughly $24,000 per year. To address this gap, they allocate approximately $350,000 from their IRA to purchase a joint-life single-premium immediate annuity (SPIA) that generates about $2,000 per month.

In addition to providing predictable income, this move:

  • Draws from the IRA earlier to reduce the size of future RMDs
  • Executes Roth conversions within defined EMR thresholds

In this scenario, the projected after-tax estate value rises to approximately $3.49 million — higher than the common method — while also lowering the projected lifetime tax burden.

After-tax estate value (future value) Lifetime tax (present value)
Common method $2,273,950 $251,602
Tax-efficient with SPIA $3,486,030 $143,519

Aligning efficiency with confidence

Tax efficiency improves long-term financial outcomes. Protected lifetime income supports day-to-day confidence and may help retirees spend more confidently in retirement. When these elements are integrated thoughtfully — using a coordinated mix of taxable, tax-deferred and tax-free assets — retirees may achieve both stronger financial projections and greater peace of mind.
To explore the modeling and additional scenarios in greater detail,
read the full white paper on tax-efficient retirement income planning.

[1] "Evaluating retirement income strategies for defined contribution plans," Bonnie Treichel and Shawn O’Brien for Broadridge (2025).

Nationwide and its representatives do not give legal or tax advice; you should consult your legal or tax advisor for answers to specific tax questions.