For decades, employers managed the routine mechanics of saving, withholding taxes, and depositing funds on a fixed schedule with little action required from workers.
Retirement replaces that system with a collection of accounts, tax rules, and withdrawal decisions that most people have never practiced making.
A framework from Fidelity, published in the firm’s guide “How to recreate your paycheck in retirement,” outlines six steps for turning retirement savings into a reliable income stream.
The guide covers familiar territory, from expense inventories to withdrawal sequencing. But it places unusual emphasis on one often-skipped operational step: automating recurring transfers from retirement accounts directly into a checking account.
That single move addresses two problems at once: unpredictable cash flow and the risk of failing to meet required minimum distributions.
Most retirees skip the step that Fidelity’s framework singles out
A 2025 survey from the TIAA Institute and Nuveen found that just 22% of 401(k) participants had thought “a lot” about how they would actually draw down their retirement accounts.
Even among late-career participants who expect their 401(k) to serve as their primary retirement income source, just 26% reported meaningful withdrawal planning.
Fidelity recommends scheduling automatic transfers from retirement accounts to a checking account, timed to align with bill due dates so income arrives predictably.
Nancy Anderson, director of wealth planning programs and initiatives at Key Private Bank, told Kiplinger that routing money to a checking account on a recurring schedule helps retirees resist the urge to sell during downturns.
Having that liquidity bucket and then transferring money on a monthly basis to a checkbook is very helpful and can help people stay invested in the long term,
Many custodians, including Schwab and Vanguard, now offer automated required minimum distribution services that calculate the annual amount and distribute it in installments.
How the IRS penalizes missed required minimum distributions
The compliance stakes behind that automation are steep. Starting at age 73, the IRS requires annual distributions from tax-deferred accounts, including traditional 401(k)s and traditional individual retirement accounts.
The penalty for falling short is 25% of the amount not withdrawn. That rate drops to 10% if the retiree corrects the error within two years by filing Form 5329 and withdrawing the missed sum.
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A Vanguard analysis of its client base found that 6.7% of traditional IRA holders at required distribution age made no withdrawal in 2024. Their average required distribution was $11,600, exposing them to potential penalties of $1,160 to $2,900.
A 73-year-old uses a distribution period of 26.5, but that figure drops to 16.0 by age 85, forcing a larger share of the account into taxable income annually, Schwab’s required minimum distribution reference guide shows.
Missed required minimum distributions can trigger IRS penalties of up to 25%, creating costly tax consequences for retirees.PIKSEL / Getty Images
The setup needs annual revisiting: tax brackets and withdrawal order
The automated transfer schedule addresses cash flow and RMD compliance, but the amounts and account sources behind it shift every year alongside tax law, balances, and spending needs.
Bob Peterson, senior wealth advisor at Crescent Grove Advisors, told Kiplinger that the moment a retiree’s paycheck disappears is often the best time to act, because the tax bracket typically drops significantly during that transition.
Hayden Adams, director of tax and wealth management at the Schwab Center for Financial Research, wrote in Schwab’s retirement guide that smoothing out income spikes from required distributions can reduce total taxes paid across retirement.
Adams and Peterson both point to the window between retirement and the start of required distributions at age 73 as the most flexible period for a retiree to manage taxable income.
That initial bracket drop is only the first shift, as tax brackets change with inflation and account balances fluctuate with markets. Spending needs also evolve as retirees age into Medicare or face changing housing, healthcare, and other costs.
A withdrawal that stayed within the 22% bracket one year could reach the 24% bracket the next. That makes Adams’s smoothing strategy effective only when annual brackets and account balances are regularly reassessed.
How retirees sequence those withdrawals also changes the math. Fidelity’s traditional approach draws from taxable brokerage accounts first, then tax-deferred accounts, and reserves Roth accounts for last.
The proportional approach draws from all three account types each year, helping stabilize annual tax bills and potentially lower lifetime taxes. It can also reduce the impact of required distributions on Social Security taxation and Medicare premiums.
Both sequences affect how much enters adjusted gross income annually, which is why the automation settings that looked right at 65 may need recalibrating at 73 and again at 80.
What Fidelity’s retirement paycheck framework means for your withdrawal setup
Anderson emphasized that maintaining one to three years of spending in liquid reserves before setting up monthly transfers gives retirees a buffer to stay invested through a volatile period.
Automation cannot determine which accounts to tap or in what proportions; that decision is shaped by guaranteed income and monthly expenses. It also depends on how much is held in pre-tax versus after-tax accounts and how close the IRS-mandated withdrawal floor is.
Those ratios change year to year, which is why Fidelity’s final step tells retirees to revisit the plan annually rather than treat the initial setup as permanent.
The automation step anchors Fidelity’s framework: recurring transfers timed to bill cycles convert retirement accounts into predictable monthly income while preventing missed RMDs and their 25% penalty.
Related: Schwab warns of a retirement risk easy to overlook