After a lifetime of saving, the time will finally come when you get to spend down some of your retirement nest egg. Given how hard you've worked to accumulate enough money to last you the rest of your life, you don't want to waste it by making mistakes tapping your retirement accounts.

Withdrawing money from IRAs, 401(k) plans, and other tax-favored retirement plans is more complicated than just writing a check. To make the most of the choices available to you, good planning is crucial.

Understanding the basics
Throughout your career, you learn the value of tax breaks. By using traditional IRAs and 401(k)s, you get a current tax deduction, and you don't pay tax on income from your investments until you take money out. With a Roth IRA, all future income from your account is tax-free.

But after you retire and start taking money from your savings to pay expenses, the IRS will get its share. If you take money out of a traditional IRA, you have to pay tax on it. You may not pay tax on money you withdraw from a Roth IRA, but you also give up any future tax-free growth on your withdrawal. In addition, if you retire early and aren't 59 1/2 years old yet, you may end up paying a 10% penalty -- unless you take the appropriate steps.

You can't put it off forever
The IRS knows that given a choice, you might well decide never to give up the tax benefits of your retirement accounts. That's why the tax law forces you to start taking money out of those accounts during the year you turn age 70 1/2. The amount of these required minimum distributions is calculated using a life expectancy table. Essentially, if your life expectancy says you'll probably live another 15 years, then you have to take out 1/15 of your retirement account balance.

Since you have to withdraw that money eventually, it may actually make more sense to make retirement account distributions faster than is required by law. Depending on how much money you've saved, spreading out withdrawals over a longer period of time can keep you in lower tax brackets throughout your retirement, saving you money in the long run. In addition, because Social Security benefits get taxed if your income is above a certain amount, withdrawing more in your early retirement years before Social Security kicks in can cut your taxes even more.

How you get paid
Your options for taking retirement distributions depend on what type of account you have. For IRAs, you're responsible for investing the lump sum in your account. If you're interested in converting that lump sum into an annuity that pays you monthly income, you have that option -- but you have to set it up on your own.

On the other hand, many 401(k) plans offer a number of different payment options, including annuity options that pay you a monthly distribution resembling a pension check. You can choose to get checks for the rest of your life, or elect to have your spouse collect payments if you die first. Some plans let you specify payments for a fixed number of years, no matter how long you and your spouse live. How much your payment will be depends on which option you choose.

Don't stop investing
No matter how you decide to take money from your retirement savings, you'll need the rest of your nest egg to keep working for you. Dividend stocks help by paying an income stream you can use to finance your living expenses. Consider this diverse set of stocks:


Dividend Yield

Bristol-Myers Squibb (NYSE:BMY)




Nucor (NYSE:NUE)


US Bancorp (NYSE:USB)


San Juan Basin (NYSE:SJT)


Average Yield


Source: Yahoo Finance.

If you follow the commonly accepted 4% withdrawal rule, these high-yielding stocks -- which cover a range of industries from health care to steel, banking to oil drilling -- will give you plenty of income without having to sell a share of stock. In fact, with nearly a 6% yield, you'll have some room for growth stocks like Apple (NASDAQ:AAPL) and Alpharma (NYSE:ALO).

When you retire, don't hesitate for a moment to start using the money you've worked so hard to save. By planning where and how to draw enough income to keep your investment strategy intact, you'll be able to focus on the things that are truly important to you without worrying about your finances.

For more on retiring smart, read about:

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Fool contributor Dan Caplinger won't be drawing from his retirement funds anytime soon, knock on wood. He doesn't own shares of the companies mentioned in this article. US Bancorp is a Motley Fool Income Investor pick. Apple is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy pays dividends.