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I was trying to figure out whether it made much difference to take retirement withdrawals from income-earning investments or from cashing in cap gains type investments, given that one can structure either way.

For most people who are retired and (at least partly) living off their investments, I think the answer is effectively "both". The common advice is to keep something like 2 to 3, or perhaps 5 years' living expenses in a fixed-income vehicle, possibly a money-market fund, and take your monthly or annual withdrawals from that account/fund. Use the portion of your nest-egg that's in stocks and bonds to protect you from inflation, and to take advantage of the long-term strength of the market, and pull money out when you need to (and, hopefully, when the market is smiling on you) to re-fund that fixed-income portion.

At least that's I way I understand the advice here, on the Retire Early Home Page, the Retired Fools board, etc. You should set up your plan in a way you're comfortable with.

Just my 2¢,
Phooley in Phoenix
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