Paying you through retirement
By Eric Barker, MBA | Innovative Wealth Management
For years, your paycheck covered your lifestyle while your investments had time to grow. As retirement approaches, that relationship changes. Your savings may soon need to help pay the bills, support the things you enjoy, and last through years of changing markets.
That raises a practical question: How will money move from your investment accounts into your life?
At Innovative Wealth Management, we approach that question by looking first at the risks that could disrupt your plans. We want to understand what you need your money to do before deciding how to invest it.
Start with what retirement will actually cost. Separate essential expenses from spending you could adjust. Include larger purchases and the possibility of unexpected costs. Then account for Social Security, pensions, and other expected income. The remaining gap helps identify what your portfolio needs to provide, with taxes factored into the withdrawal plan.1
Two households with similar account balances can have very different income needs. A household whose essential expenses are largely covered by a pension may have more flexibility than one relying heavily on investment withdrawals. That difference should influence how much risk each household takes.2
The timing of withdrawals also matters. When markets fall, selling investments to cover expenses can leave fewer assets available to participate in a recovery. A downturn early in retirement can therefore have lasting consequences. This is often called sequence-of-returns risk.3
A retirement plan should address that possibility before it happens. Which assets would fund spending during a difficult market? How much flexibility would you have to postpone a large purchase? When would you revisit the amount you are withdrawing?
One useful way to organize the portfolio is to give different portions clear responsibilities:
Current spending. Money set aside for upcoming expenses and unexpected needs should be evaluated for accessibility and stability. The appropriate amount depends on your income sources, spending needs, and other resources.2
Ongoing cash flow. A coordinated plan can combine investment income with planned sales of assets. We consider where the cash will come from, the taxes involved, and how withdrawals affect the investments that remain.1
Future growth. Money intended for later years needs a different time horizon. Growth investments may help address rising costs over a long retirement, although they also expose you to market losses.3
Those responsibilities need to work together. Keeping a reserve creates flexibility, but holding too much in cash can leave more of your savings exposed to the erosion of purchasing power. Pursuing growth brings its own uncertainty. The balance should reflect when you expect to use the money.4
We apply the same scrutiny to investments designed to generate income. What produces the payment? Under what conditions could it change? What could happen to the amount invested? A payment schedule alone does not tell you whether an investment fits your retirement plan.
Managing risk also means accepting its limits. Diversification can help spread investment risk, but it cannot guarantee a profit or prevent every loss. The goal is to understand those risks and decide which ones your financial situation can support.2
As your life changes, the plan should change with it. Spending, family priorities, and investment values all deserve another look over time. Reviewing withdrawals alongside your tax situation can help keep the decisions connected.1
If retirement is approaching, bring your expected spending and income sources into the same conversation as your investments. At Innovative Wealth Management, we can help you evaluate how those pieces fit together and where your plan may need attention.
Sources