As a retiree you've probably accumulated savings in both
government-regulated retirement accounts - such as a 401(k)
or an IRA - and regular taxable accounts. You'll withdraw
from them for your annual living expense.

But the different tax treatments that apply to the
investment earnings and withdrawals of each type of account
makes it confusing about which type you should withdraw
from first. Below I'll show that withdrawing from your
taxable accounts first allows you to preserve your wealth
longer.

Investment earnings of government-regulated retirement
accounts grow tax-deferred, so these accounts compound at
their annual return rates. But you pay income tax on what
you withdraw from them since your contributions were
tax-deductable. The character of the investment within
such plans doesn't usually influence this tax treatment.

By taxable accounts, I mean those that you contributed to
with after-tax money. There's no particular tax advantage
associated with the account. The character of the
investments and their returns determine their tax
treatment. So interest and dividends in such accounts are
typically taxed annually as income. Only long term capital
gains get a lower tax treatment usually. Withdrawing more
than the earnings of such investments bring no additional
tax since it represents your basis - i.e. contributions
previously taxed.

With that said, it is better to withdraw from your regular
taxable accounts before your IRA-type accounts to pay for
annual living expenses during retirement since this
approach preserves your wealth longer. To show this, I'll
assume comparable investments in each account type; and,
for simplicity, I'll assume whatever earnings those
investments produce will be taxable each year.

This implies the investments produce dividends and interest
as earnings. In fact, a highly reliable dividend and
interest paying investment mixture is ideal for IRA-type
accounts since it produces a solid return that'll compound
annually under a tax-deferred account.

First Observation:

If you don't withdraw from either type of account for
living expenses, the IRA-type account will grow faster -
for equal yearly returns in investments.

That's because the IRA-type account return is the yearly
compounding rate. The taxable account's earning are taxed
so some of the return is lost. If you're in the 25% tax
bracket, you must withdraw 25% of the earnings to pay the
tax. That leaves only 75% of the return to compound. You
lose part of the return - which helps the magic of
compounding.

Second Observation:

Withdrawing for your annual living expense from your
taxable account will deplete itself slower than withdrawing
from your IRA-type account if investment returns can't
offset the withdrawals.

That's because you must pay the annual taxes on your
taxable account. Pulling more out for living expenses comes
out tax free as a return of basis. If there was no return,
you'd be withdrawing only your living expense tax-free.

When withdrawing for your IRA-type account, you must always
withdraw more than your living expense since you have to
pay income tax on whatever you withdraw. So the taxable
account depletes slower than the IRA account.

If returns are high enough to prevent investments from
shrinking, your taxable account will grow slower than the
IRA account. That's because the same percent of the taxable
account's earning are necessarily lost, but the excess
withdrawal to pay those 'withdrawal' income tax for the IRA
account remains constant (shrinking percentage-wise) . But
of course, it's best to not to not touch the IRA-type
account at all - so it can compound as fast as possible
under the first observation.

If you must make minimum required distributions from your
IRA-type accounts, just take the minimum while taking the
balance you need for living expenses from your taxable
account.

Investments whose character is heavily tax-advantaged -
such as capital gain-based investments, real estate
renting, and the like - are usually best handled outside of
government-regulated retirement accounts.