- Home
- Retirement
- Retirement Planning
Retirees often overpay their taxes because they mix up their cash flow, income and actual spending. Understanding the differences can help you stay in control of your financial plan and tax bill.
By
Mike Decker, NSSA®
Reviewed by
Joyce Lamb
Published
16 August 2026
In
Features
When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works.
(Image credit: Getty Images)
- Copy link
- X
Ask a retiree how much income they need, and they'll give you a number. Ask how much cash flow their portfolio generates, and many will give you the same number. Ask what they actually spend, and you'll often get a third answer — or a shrug.
That's the problem. These are three different things, and mixing them up can quietly cost money. Here's a breakdown.
Cash flow is the movement of money, regardless of tax implications.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
CLICK FOR FREE ISSUE
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Sign upMove money from savings to checking? Cash flow, but no tax.
Take a qualified withdrawal from your IRA? Cash flow with a tax implication.
Sell $50,000 of stock you bought for $40,000? That's $50,000 of cash flow, but only the $10,000 gain is taxed.
About Adviser Intel
The author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.
Harvest a loss on a position that's down? That's cash flow, too, and it can actually lower your tax bill.
Much of what moves through your accounts is simply your own money changing seats.
Income is what gets taxed (and it comes with a decision). Income shows up on your tax return:
- Dividends paid
- Interest earned
- Rent collected
- Capital gains realized
- IRA withdrawals taken
Here's the part many people miss: Income comes with a decision. You can spend the money or reinvest it.
Depending on the account, your decisions are taxed differently. For example, in a brokerage account, the dividend (income) is taxed whether you spend it or not. If the dividend comes into your qualified account (IRA or Roth), it's not taxed.
It's important to pay attention to these little differences.
Spending is what's gone. This is the money that leaves your accounts to support you and your lifestyle (groceries, travel, property taxes). Once it's spent, it's gone. It isn't coming back as shares, basis or anything else.
Spending is the number your plan actually has to cover. Not your cash flow. Not your income. Your spending.
The drag many miss
Once the terms are straight and the plan is in place, the leaks start to become visible. Many retirees generate more taxable income than they spend.
A $1 million portfolio in your brokerage account, yielding 3% in dividends, puts about $30,000 of income on your tax return each year, whether you spend it or reinvest it.
Let's say you spend only $10,000 of it — you still pay tax on all $30,000. You wrote the IRS a check for the privilege of reinvesting money you'd already had invested. Do that for a decade, and the drag compounds quietly, every April.
Even withdrawal coordination can make a big difference. A retiree younger than 65 who funds an entire year from long-term capital gains might pay mostly 0% in capital gains tax. That's because only the realized gains count as income.
If they keep their gains/income low enough, they may also be able to lower their ACA health insurance premiums. That's a very different situation than taking a little from an IRA, a little from a brokerage account, collecting dividends along the way and layering on Roth conversions.
Same spending, very different tax bill.
Total return still wins
This is why I push retirees toward "total return" thinking. There's little difference between a stock that grows by 7% and a stock that grows by 4% while paying a 3% dividend.
The grower lets you decide when to realize income. The dividend payer decides for you, every quarter, whether you need the money or not.
Sometimes growth may be better than dividends, and vice versa.
The same is true in real estate: Rent plus appreciation is the whole picture, and the rent is taxed as it arrives.
Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel, our free, twice-weekly newsletter.
Control what you can control
Dividend investing is a great way to grow a portfolio or generate income you can spend in retirement. The main problem is that you can't control what a company pays out.
When a dividend stops paying out, the stock may also go down in value, which can feel similar to a stock you have purchased for growth that stopped growing. The market (stocks, bonds, real estate) carries risk, no matter how you look at it.
What you can control is how much you spend from your accounts. In other words, grow your money however you see best, whether it's through growth, dividends or real estate. That's up to you.
Next, separate the growth or payout rate from how much you want to spend.
Lastly, make sure you have a backup plan so you can maintain your lifestyle and spending, regardless of market conditions.
In my book, How to Retire on Time, I call that your Reserves. Other advisers have other names for it.
The bottom line: Don't let someone else's decision (dividend payout, etc.) control your retirement, and make sure you are watching your cash flow, your income and your spending so they all work together efficiently.
Related Content
- 3 Common Cash Flow Mistakes and How to Fix Them
- The Boy Who Cried 'Bubble': What if He's Right This Time? What Investors Need to Consider
- I (Used to) Hate Annuities: Then I Looked at the Math
- The Bear Market Protocol: 3 Strategies for a Down Market
- Retirees' Anti-Bucket List: 10 Experiences You Don't Want
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
TOPICS Adviser Intel Get Kiplinger Today newsletter — freeContact me with news and offers from other Future brandsReceive email from us on behalf of our trusted partners or sponsorsBy submitting your information you agree to the Terms & Conditions and Privacy Policy and are aged 16 or over.Mike Decker, NSSA®Social Links NavigationAuthor, Wealth Planner and Money Manager, Kedrec LLCMike Decker, NSSA®, is the founder of Kedrec Wealth, a flat-fee financial planning firm that offers one-time services or ongoing management for a fixed monthly fee. He is also the creator of Cash Flow and Capital, an app designed to help people develop a healthier relationship with money by improving awareness around spending and decision-making. Mike is the author of How to Retire on Time, How to Prepare to Retire on Time (coming soon) and The Bear Market Protocol (also coming soon). He shares practical retirement and wealth-building strategies through his podcast, weekly newsletter and two YouTube channels.