You’ve Been Saving for Decades, Now What?
The Simple Part: Accumulation
For years, we’ve all heard how important it is to save and invest. Like many people, you’ve probably been setting aside a portion of every paycheck into your retirement plan. Maybe you’ve added to a brokerage account along the way too. These are smart moves that help grow your future retirement nest egg. If you started early in your career, you’ve repeated these steps over and over, kind of like “wash, rinse, repeat.” It’s not all that complicated.
But what happens when you retire? That’s when things change.
The Complicated Part: Decumulation
While saving and accumulating assets tends to follow a simple pattern, the process of decumulation, or spending down those assets, is much more complex. There are more decisions to make, more moving parts, and, for many people, more anxiety. One of the biggest worries retirees face is wondering whether they’ve saved enough to support their lifestyle. And now, instead of saving, you have to start withdrawing money. That shift in mindset can be unsettling.
Step One: Know What You Need
Start by asking:
What does my desired lifestyle cost each year?
What income sources do I have: pension, Social Security, etc.?
Is there a shortfall?
If there’s a gap between income and expenses, that difference will need to come from your retirement accounts: 401(k)s, IRAs, brokerage accounts.
That brings up the next key question...
Step Two: Which Account Do You Tap First?
This is where things get complex. Withdrawing from the wrong account, or in the wrong order, can trigger unnecessary taxes or reduce the longevity of your portfolio. You need a thoughtful strategy, tailored to your situation.
Step Three: Re-Visit Your Investment Strategy
Should your strategy change now that you’re taking money out instead of putting it in?
One risk to watch out for is called “sequence of return” risk. This refers to the danger of poor market performance early in retirement, which can significantly impact how long your money lasts. A big market drop in those early years can be more damaging than one later.
To manage this risk:
Diversify across different asset classes
Set aside at least 3 years’ worth of expenses in cash or bonds
Avoid selling stocks in a downturn by drawing on stable reserves
I’ve helped many American Express professionals navigate through this process. If you’d like to see what your personalized retirement income strategy could look like, Schedule a complimentary consultation here!
