Fast forward to your first year of retirement. The paycheck stops, the station rhythm changes, and the money decisions stop being theoretical. The first year is where good retirements get built, and where avoidable mistakes get expensive. This is not about hitting some perfect withdrawal rate. It is about building a simple system that gets you paid every month, keeps taxes from jumping out of the bushes, and gives you options when life lands a punch.
The first year is where the money gets real
Retirement withdrawals are not one decision. They are a sequence of decisions that collide with timing.
You might retire in the middle of a calendar year. That means you could have wages for part of the year, then pension income, then distributions from a 457 plan or IRA, maybe a DROP payout, maybe a lump sum payout of leave, and maybe even your spouse still working. All of that stacks into one tax return!
The first year is exactly when people accidentally create a bigger tax problem than they expected, because they treated each income source in isolation instead of as one combined picture.
The other problem is the emotional one. You’ve spent a career preparing for the worst case scenario. In retirement, the “worst case” often looks boring at first. A few thousand dollars withdrawn here, a new car there, a house project, a kid needs help, the market drops right after you hang it up. Most of that is manageable, but only if you built the withdrawal system before those moments show up.¹⁴
Build your retirement paycheck map
Before you decide where to pull money from, you need to see what your retirement “paycheck” is actually made of. Firefighters often have more moving parts than they realize.
Start by listing every income stream you can turn on or turn up in retirement:
Your pension is usually the anchor. Many public safety pensions pay a monthly benefit based on salary and years of service, so it behaves like a paycheck replacement, not like an investment account. (Each system is different, but that defined benefit structure is the general model.)
Then you may have a governmental 457 plan, sometimes called deferred compensation. When it is set up right, that account can be a clean bridge for early retirement spending because of how the early distribution penalty rules work after separation from service.⁴
You may also have a 401(k), 403(b), IRA, Roth IRA, and a taxable brokerage account. Each one has different tax treatment, different penalty rules, and different “knock on effects” for things like health insurance subsidies or Medicare premiums.
Finally, there is Social Security. Even if your fire job did not pay into Social Security, you might have credits from another job. Historically, firefighters with a pension from non covered employment could see Social Security benefits reduced by the Windfall Elimination Provision (WEP) or wiped out for spousal and survivor benefits by the Government Pension Offset (GPO). But the Social Security Fairness Act ended WEP and GPO, increasing benefits for certain workers, including some firefighters.³ This does not mean every firefighter gets Social Security, and it does not mean every firefighter gets an increase. It depends on your work record and coverage.³
Let’s turn that into a paycheck map:
First, separate “automatic income” from “switchable income.”
Automatic income is the money that hits your account whether you make decisions or not: pension payments once they start, maybe a spouse’s wages, maybe a fixed annuity payment if you have one. Switchable income is everything you control: 457 distributions, IRA withdrawals, Roth withdrawals, sales from a taxable account, and when you choose to claim Social Security if you are eligible.
Then do one more split: separate “needs” from “wants.”
Needs are your minimum monthly nut: housing, utilities, groceries, insurance, healthcare premiums, and the stuff you would pay even if you had to cut back hard.
Wants are vacations, toys, home upgrades, gifting, and lifestyle creep.
Your first year plan should aim to cover needs with the most stable income sources you have, and cover wants with flexible sources you can dial down quickly. That is how you build breathing room without pretending you can predict markets.¹⁴
Your first year withdrawal timeline
The timeline below is a potential way the first year often plays out for a firefighter who has a pension and at least one investment account. Your exact version will depend on how quickly your pension starts, how your health coverage works, and whether you retire before age 59 and a half.
Early weeks: stabilize the cash flow
The first move is not pulling money from investments. The first move is making sure you can pay bills without panic.
Build a gap plan between your last paycheck and your first pension check. Pensions do not always start the month after you retire, and payroll timing can leave a gap. That gap is where people make rushed decisions like selling investments at the wrong time or pulling from the wrong account. Keep it simple: pick a cash source you are comfortable using for a short runway. For many people that is a savings account, a money market fund, or a short term “cash bucket” inside a brokerage. (The specific vehicle matters less than the discipline: it is there so you do not have to improvise.)
Next, set your tax withholding strategy before the first big distribution. If you are getting pension income, you can often set withholding using IRS Form W-4P.¹¹ If you are taking IRA distributions, withholding can also be elected. The point is not perfection. The point is to avoid the classic first year surprise: “I took withdrawals all year and forgot taxes were coming.”
A useful guardrail is the IRS safe harbor approach for avoiding underpayment penalties. In general, you may avoid the underpayment penalty if you owe less than $1,000 after withholding and credits, or if you paid at least 90 percent of the current year tax, or 100 percent of the prior year tax, with a higher 110 percent threshold in some higher income situations.¹⁰
Finally, lock in healthcare decisions because healthcare is a withdrawal driver. If you retire before Medicare, you may be paying for coverage out of pocket or through a spouse. Medicare is generally for people age 65 or older, with some earlier eligibility for disability related situations.¹³
If you are on an Affordable Care Act Marketplace plan, your withdrawals can move your household income. Marketplace savings are based on modified adjusted gross income, which starts with adjusted gross income and then adds back certain items such as non taxable Social Security and tax exempt interest.¹²
If you are on an Affordable Care Act Marketplace plan, your withdrawals can move your household income. Marketplace savings are based on modified adjusted gross income, which starts with adjusted gross income and then adds back certain items such as non taxable Social Security and tax exempt interest.¹¹
This is where retirees accidentally light money on fire. They take a big IRA distribution for a project, it spikes income, and later they learn it affects their health insurance costs. You do not need to fear withdrawals. You just need to coordinate them.
Once the cash flow is stable, the job becomes tuning.
The first tuning point is the “tax picture” checkpoint.
Use the tax brackets and standard deduction numbers for the current tax year when you run projections. For tax year 2026, the IRS announced updated standard deduction amounts and bracket thresholds.⁹ This matters because even small changes in annual withdrawals can push you into a higher bracket, or change how other items phase in.⁹
The second tuning point is deciding when to use pretax versus Roth versus taxable funds.
A practical approach is to treat pretax funds as “taxable fuel.” Every dollar coming out generally adds to taxable income. Roth funds, when qualified, can be a valve: you can sometimes fund spending without increasing taxable income in the same way. Taxable brokerage sales may create capital gains, which often behave differently than ordinary income, depending on your situation. The right mix is personal, but the first year is the time to build the habit of choosing on purpose instead of choosing by default.
The third tuning point is watching for public safety specific tax breaks that many retirees miss.
One example is the HELPS provision for eligible retired public safety officers. Under IRS guidance, eligible retirees may be able to exclude from income up to $3,000 of qualifying insurance premiums paid from an eligible governmental plan.⁵ This is not free money. It is a targeted exclusion with eligibility and reporting details. But if it applies to you, it directly reduces taxable income.⁵
The fourth tuning point is making your investment withdrawals less fragile.
Sequence of returns risk is the risk that poor returns early in retirement, while you are withdrawing, can permanently reduce how long your money lasts.¹⁴ It is not a theoretical academic issue. It is why retirees who pull a rigid inflation adjusted amount every year may get hurt if a major downturn hits right after retirement.¹⁴
This is where flexibility matters. Research on safe withdrawal rates, starting with William Bengen’s work, helped popularize the idea of a starting withdrawal rate that historically survived long retirements under certain assumptions.¹⁵ Later work, including the research often called the Trinity study, tested various stock and bond mixes and withdrawal rates over different historical periods.¹⁶ These studies are useful, but they are not a permission slip to ignore what is happening in your real world during your first year.¹⁵ ¹⁶
Modern retirement research often emphasizes strategies that adapt spending, not just fixed rules. Vanguard has published analysis showing how dynamic spending approaches can mitigate the downside impact of sequence risk compared with fixed spending strategies.¹⁴
So in the first year, build one clear adjustment rule you can live with. For example: if your invested portfolio ends a quarter down by a certain percentage, you reduce discretionary spending for the next quarter.
with fixed withdrawals
with flexible spending
Firefighter specific landmines
A firefighter retirement withdrawal plan has a few tripwires that show up again and again. The first is rolling over a 457 plan without understanding what you might be giving up. Governmental 457 plans have unique early distribution penalty treatment. Distributions from a governmental 457 plan are generally not subject to the 10 percent additional tax, except for distributions attributable to rollovers from another plan or IRA.⁴
That means if you retire early and you need that account as your bridge, you should think carefully before rolling it into an IRA. An IRA can be a great tool, but if you move money from a 457 into an IRA and then try to take it out before age 59 and a half, the 10 percent additional tax rules can apply unless you qualify for an exception.⁴
This is one of those “slow down and check the rules” moments. A rollover is not automatically good just because it is common.
The second landmine is misunderstanding Social Security in the post WEP world. Some firefighters will now see an increase in Social Security benefits because WEP and GPO are ended.³ Some will not, because they do not have enough covered earnings, or because their situation was not affected by WEP or GPO in the first place.
But do not skip the check. The Social Security Administration makes it clear you can start retirement benefits as early as age 62, with reduced benefits if you start early, and higher benefits if you delay up to age 70.
If you have any covered earnings, get your estimate and verify your earnings record. That is an actionable first year task, because it changes how much you need to pull from your own accounts later.
Finally, the third landmine is assuming everyone in the fire service has the same Social Security setup.
Social Security and Medicare coverage rules for police officers and firefighters depend on whether you are covered by a qualifying public retirement system and whether your employment is covered under a Section 218 agreement. The Social Security Administration notes that coverage became mandatory for police officers and firefighters not covered by a qualifying public retirement system starting July 2, 1991, with additional details and exceptions.²
Your buddy’s setup might be completely different than yours. The only safe move is to verify, not assume.
Pressure test the plan before life does
You do not need a hundred scenarios. You need a few stress tests that match how firefighters actually live.
Start with the market drop test. Ask: if my investment accounts drop and stay down for a while, can my needs still be covered by pension and conservative withdrawals? If not, what gets cut first? This is exactly where dynamic spending concepts can help, because they create a predefined response that reduces the damage of withdrawing into a down market.¹⁴
Then run the healthcare spike test. If you are not on Medicare yet, estimate what happens if premiums rise or if you have a major medical expense. Medicare is a big transition point, and enrollment timing matters.¹² If you are using Marketplace coverage, remember that withdrawals can affect modified adjusted gross income, which is used for premium tax credit eligibility.¹¹
Then run the tax spike test. The first year is a common year for lump sums: leave payouts, DROP, moving costs, and big purchases. Use the IRS information on brackets and the standard deduction for the year you are in, and use them early, not after the fact.⁹
A practical way to avoid tax chaos is to schedule two checkpoints:
One checkpoint around the middle of the year, so you can adjust withholding or estimated tax. One checkpoint late in the year, so you can correct course before the year closes. The IRS provides guidance on withholding from pensions and annuities and points to using Form W-4P for withholding setup.¹¹ The IRS also outlines safe harbor rules for avoiding estimated tax underpayment penalties.¹⁰
Last, run the “life happens” test. Your first year plan should assume something breaks. A truck. A roof. A family situation. The purpose of the plan is to keep those events from forcing you into bad withdrawals, like tapping the wrong account with penalties, or selling investments at the worst time.
If you want a simple north star to steer by, the classic safe withdrawal research can be a useful reference point, but it is not the steering wheel.¹⁵ ¹⁶ And modern research continues to debate what “safe” looks like depending on market conditions, valuation, and method.¹⁷
Your steering wheel in the first year is your process: stable monthly cash flow, tax coordination, and a plan for what you do when conditions change.
| Scenario | What Happens | What I Do | Who I Call |
|---|---|---|---|
| Market Drop | Portfolio falls 20%+ right after retirement. Fixed withdrawals accelerate the damage through sequence-of-returns risk. | Cut discretionary spending for the quarter. Pull from cash bucket or Roth instead of selling equities at a loss. | Financial advisor to review dynamic withdrawal rule |
| Healthcare Spike | Premiums jump, or a major medical expense hits before Medicare. Coverage gap drains savings faster than planned. | Review Marketplace plan options. Coordinate withdrawals to keep MAGI below subsidy cliff thresholds. | Benefits coordinator & tax professional |
| Tax Spike | Lump sums from DROP, leave payouts, or large distributions stack with pension income and push you into a higher bracket. | Run a mid-year tax projection. Adjust withholding. Spread distributions across tax years if possible. | CPA or tax advisor for estimated payment review |
| Big Purchase | Truck breaks down, roof needs replacing, or family member needs help. Unplanned expense forces an account withdrawal. | Use taxable account or emergency cash first. Avoid tapping IRA before 59½ and triggering the 10% penalty. | Financial advisor to identify least costly source |
In Conclusion
Your first 12 months of retirement withdrawals are not just about pulling money from accounts. They are about building a system.
A system that:
- Turns your pension and savings into a predictable monthly paycheck
- Keeps taxes from blindsiding you in April
- Protects you from sequence risk in a down market
- Accounts for healthcare costs and inflation
- Gives you room to adjust without panic
The firefighters who thrive in retirement are not the ones who guess right about the market. They are the ones who have a written income plan before the first withdrawal ever hits their checking account.
At Protection Red, we specialize in helping firefighters build retirement income systems that are flexible, tax-aware, and built specifically around public safety pensions and 457 plans. We walk through your pension options, map out your first year withdrawal strategy, and pressure test your plan against market swings and real-world expenses.
If you’re within a few years of retirement, or already in your first year and want a second set of eyes, click the button below to schedule a meeting. Let’s make sure your first 12 months of withdrawals are structured, intentional, and built to last.
Appendix
- https://www.nasra.org/socialsecurity
- https://www.ssa.gov/slge/pol_fire.htm
- https://www.ssa.gov/benefits/retirement/social-security-fairness-act.html
- https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions
- https://www.irs.gov/pub/irs-pdf/p575.pdf
- https://www.iaff.org/pay-benefits/retirement-security/helps/
- https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500
- https://www.irs.gov/pub/irs-drop/n-25-67.pdf
- https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill
- https://www.irs.gov/payments/underpayment-of-estimated-tax-by-individuals-penalty
- https://www.irs.gov/pub/irs-pdf/fw4p.pdf
- https://www.healthcare.gov/glossary/modified-adjusted-gross-income-magi/
- https://www.medicare.gov/basics/get-started-with-medicare
- https://www.vanguard.co.uk/content/dam/intl/europe/documents/en/whitepapers/safeguarding-retirement-bear-market.pdf
- https://www.financialplanningassociation.org/sites/default/files/2021-04/MAR04%20Determining%20Withdrawal%20Rates%20Using%20Historical%20Data.pdf
- https://www.aaii.com/journal/199802/feature.pdf
- https://www.morningstar.com/retirement/whats-safe-retirement-spending-rate-2025
