Which Account Should You Draw from First in Retirement?

You’ve spent years building your savings. You may have a U.S. IRA, a brokerage account, Israeli savings, a pension, or several of these at once.

Then retirement gets closer and a surprisingly difficult question appears:

Which account should you actually use first?

For an American living in Israel, this question can be especially complicated. Retirement money may sit in different countries, under different tax systems, and in accounts designed for very different purposes.

It can be tempting to look for one simple rule. Use cash first. Delay the pension. Leave the IRA alone. Take the pension as early as possible.

But retirement income planning rarely fits neatly into one rule.

A more useful question is: How can your different income sources work together to help fund retirement while preserving flexibility and managing taxes and investment risk?

Retirement changes the way you look at your money

While you’re working, your financial life usually has a familiar rhythm. Income comes in. Bills get paid. Some money gets saved or invested.

Retirement changes that rhythm.

Instead of regularly adding money to savings and investment accounts, you may begin taking money out.

That can feel uncomfortable even when you have prepared carefully.

You might reach retirement with substantial assets and still feel uneasy when the first withdrawal leaves your account. For decades, a rising balance may have represented progress. Now the same account may be expected to help pay for groceries, utilities, travel, and other expenses.

That is one reason retirement withdrawal planning involves more than mathematics.

The question is not simply, “Where can I get the money?”

It is also:

• What tax consequences could this withdrawal create?
• How much accessible money might I want to keep available?
• Would selling investments now expose me to unnecessary market risk?
• Am I making a pension decision that may be difficult to reverse?
• Could this strategy still work if markets behave differently than expected?
• Will I be comfortable following this approach for several years?

Those questions become particularly important when your financial life crosses the U.S.-Israel border.

Should you start your pension early?

One of the first decisions a retiree may face is when to begin taking pension income.

Waiting may result in a larger monthly payment, depending on the pension. That can make delaying look attractive. Why accept a smaller benefit if waiting could produce more income later?

The missing part of the equation is what happens while you wait.

If you delay pension income for several years, living expenses do not pause. Food, housing, insurance, utilities, travel, and everyday spending still need to be funded.

That money has to come from somewhere else.

You might use savings. You might sell investments. You might take distributions from an IRA.

Each option could affect your financial picture differently.

Starting a pension earlier may mean accepting a lower monthly benefit. Waiting may mean drawing from other assets for several years.

The better choice depends on factors such as your cash flow, pension terms, taxes, life expectancy assumptions, available savings, investment mix, and personal preferences.

That is why pension timing is usually better considered as one part of a broader retirement income plan rather than as a stand-alone decision.

Be careful about maximizing one number

Retirement planning can easily turn into a search for the “best” number.

The highest pension.

The lowest tax bill.

The largest investment balance.

The smallest withdrawal.

But optimizing one number may create an unintended trade-off somewhere else.

For example, delaying a pension might increase future monthly income. But if you need to sell investments during the waiting period, your outcome could depend heavily on what markets are doing at the time.

If markets are strong, that may not create much concern.

If markets fall sharply early in retirement, regularly selling investments to cover expenses could be more damaging. You may have to sell more shares to raise the same amount of cash, leaving fewer assets invested for a possible recovery.

This is sometimes called sequence-of-returns risk. The order in which good and bad market years occur can matter when you are withdrawing money from a portfolio.

That does not mean selling investments during retirement is always a mistake. Withdrawals are one of the reasons retirement portfolios exist in the first place.

It does mean that the timing and source of withdrawals deserve thought.

A retirement plan may be stronger when it considers how different accounts can help absorb different kinds of risk rather than asking one account to do everything.

Flexibility has value

Retirement contains plenty of uncertainty.

Work may continue longer than expected.

Consulting opportunities may appear.

Expenses may rise or fall.

Markets may surprise you.

Exchange rates may move.

Family circumstances may change.

Tax rules can change too.

A retirement strategy that leaves room to adjust may be better positioned to deal with those surprises.

Some decisions are relatively easy to modify. Others may be difficult or impossible to reverse.

A savings withdrawal, for instance, can often be adjusted the following month. If you need less money, you may be able to withdraw less.

A pension election can be different. Depending on the plan, starting benefits may permanently affect future payments.

That does not make flexibility more important than every other consideration. Sometimes an irreversible decision may still be appropriate.

But flexibility has economic value that does not always show up in a spreadsheet.

When two approaches appear reasonably close financially, it can be worth asking which one gives you more room to respond if life changes.

Match your money to your time horizon

Not every account needs to serve the same purpose.

Money you expect to spend in the next year or two plays a very different role from money you hope to keep invested for another decade.

That distinction can help organize your retirement assets.

You might think of retirement money in broad time periods.

Some funds may be intended for near-term spending.

Other assets may be invested with the expectation that they will not be needed for several years.

Still others may be earmarked for later retirement, emergencies, family goals, or estate planning.

The exact structure will vary from one household to another.

The purpose is not to build a rigid system. It is to avoid treating every dollar as if it has the same job.

If near-term expenses can be covered by liquid resources, you may have more ability to leave long-term investments invested during a market decline.

But holding too much money in cash also has a cost. Cash may lose purchasing power to inflation, and money sitting outside long-term investments may miss potential growth.

So the answer is not simply “keep more cash.”

The question is how much liquidity may be appropriate for your needs, comfort level, spending plans, and investment strategy.

Taxes can change the withdrawal order

For Americans living in Israel, taxes add another layer of complexity.

A U.S. IRA may be treated differently from an Israeli savings account. A pension may create different tax consequences from a taxable brokerage account.

An account that receives favorable treatment in Israel may not necessarily receive the same treatment in the United States.

That makes cross-border retirement planning especially sensitive to withdrawal order.

Your income can also change significantly during the transition into retirement.

You may have years when employment income falls but pension income has not yet started. Depending on your circumstances, those lower-income years could create planning opportunities.

For instance, taking some money from a tax-deferred account during a lower-income year might result in a different tax outcome than waiting until other income sources begin.

But that is not automatically beneficial.

A withdrawal could affect tax brackets, credits, Medicare-related costs in the United States, taxation in Israel, or other parts of your financial picture.

Cross-border taxation can become complicated quickly, which is why investment, retirement, and tax planning should be coordinated rather than handled as separate decisions.

This article is for educational purposes only and is not individualized financial, legal, or tax advice. Consult qualified professionals who understand your specific U.S. and Israeli circumstances before making investment, withdrawal, pension, or tax decisions.

Do not ignore currency risk

Living in Israel while owning substantial U.S. assets introduces another issue that is easy to overlook: your spending and your investments may be denominated in different currencies.

Your IRA or brokerage account may be largely dollar-based, while many of your day-to-day expenses are in shekels.

That can matter.

If the dollar strengthens against the shekel, your U.S. assets may provide more shekels when converted.

If the dollar weakens, the opposite may happen.

Currency movements are unpredictable, so trying to guess the next exchange-rate move is usually not a reliable retirement strategy.

But recognizing that currency risk exists can help when deciding how much money to keep accessible in each currency and where future expenses are likely to occur.

For a cross-border retiree, liquidity is not only about how much cash is available. It can also be about which currency that cash is in.

The mathematically perfect plan may not be the best fit

There is another factor that financial software cannot measure very well: how you react when your savings decline.

A strategy may look efficient on paper and still be difficult to follow.

Imagine regularly withdrawing money from an account that took decades to build.

Even if those withdrawals fall within a carefully constructed plan, seeing the balance fall can cause anxiety.

That reaction matters because investing is partly behavioral.

A plan that creates constant discomfort may tempt you to make abrupt changes during a market decline, hold more cash than necessary, or cut spending far more than your situation requires.

Personal comfort should not replace careful analysis.

But it belongs in the analysis.

The goal is not to find a strategy that eliminates every uncomfortable feeling. Retirement involves uncertainty.

The goal is to create an approach that you understand well enough to continue following when markets, currencies, or headlines become unsettling.

Think about what you are protecting against

A useful way to approach retirement withdrawals is to stop asking only, “Which account gives me the best return?”

Instead ask:

What risk am I trying to manage?

If your concern is a market decline, you may value having some liquid assets available.

If your concern is inflation, leaving too much money in low-growth assets may create a different risk.

If your concern is taxes, the timing of IRA withdrawals may deserve more attention.

If your concern is dependable monthly income, pension timing may become more important.

If your concern is currency fluctuations, the balance between dollar and shekel resources may matter.

There is no strategy that eliminates every risk.

Often, reducing one risk increases exposure to another.

Good planning is therefore less about finding a risk-free answer and more about deciding which risks you are willing and able to accept.

Look at your entire retirement picture

Before deciding which account to draw from first, make a list of your potential retirement income sources.

Include U.S. retirement accounts, brokerage accounts, Israeli savings, pensions, rental income, and employment or consulting income you expect to receive.

Then look at several dimensions of the plan.

Liquidity: How much money can you access without having to sell long-term investments at an inconvenient time?

Taxes: What tax consequences might arise when money comes out of each account?

Timeline: Which assets may be needed soon, and which could potentially remain invested longer?

Investment risk: What happens to the plan if markets fall during the first few years of retirement?

Currency: Will future expenses be primarily in dollars, shekels, or both?

Flexibility: Which decisions can be changed later, and which cannot?

Comfort: Can you realistically stick with the strategy during a difficult market?

You may discover that the account you originally expected to use first is not the obvious choice.

You may also find that there is no single account that should always come first.

A coordinated strategy may involve drawing from different sources at different stages of retirement.

Your retirement accounts should work as a team

If you have financial assets in both Israel and the United States, retirement planning involves more than calculating how much you have saved.

You also need to decide how those assets may support you over time.

A U.S. IRA, Israeli savings account, pension, and brokerage account each have different characteristics. One may offer liquidity. Another may provide potential long-term growth. Another may provide recurring income.

The useful question is not which account is “best.”

It is which account may be best suited to the job you need it to do at a particular point in your retirement.

There will always be uncertainty. Markets can fall. Tax laws can change. Exchange rates can move. Personal plans can shift.

A thoughtful retirement withdrawal strategy cannot remove those risks.

But it can help you prepare for more than one possible future.

Do you have U.S. brokerage or IRA accounts while living in Israel? Profile Investment Services helps people in Israel manage U.S. investment accounts and think through the cross-border issues that can affect their financial plans.

Schedule a free introductory call at profile-financial.com/call to discuss your situation, learn how we work, and see whether we may be able to help.