As my business partner and I work with a number of retirees, one of the most common services is assisting retirees with the transition from retirement saving to careful retirement spending. This takes some effort as over many decades prospective retirees have been programmed to save continually for retirement.

Once retirement occurs the paradigm shifts to how to spend using a flexibility approach.

First, the cash flow situation needs to be addressed and for each client family, this is often different. Social Security decisions and amounts vary, pensions may or may not be part of the equation, and savings rates for retirement vary widely. But, expenses need to be known along with other goals.

Expenses and cash flow projections are only realized when the family budget is understood. That retirement cash flows exceed budget needs is a green light for retirement in many cases.

If cash flows only meet or fall short of budget needs, other options need to be discussed. Perhaps downsizing makes sense as may working a few years longer either full-time or part-time.

In retirement, there is no “set and forget” withdraw strategy. With IRA accounts (non-Roth IRA accounts), there is a required minimum distribution that must be taken each year after age 70.5. This is mandatory for retirees. Using a static rule of thumb like 4 percent won’t work too well in many situations – if a portfolio suffers a tough few years, withdrawals will heavily impact principal. Conversely, with a few good years under the belt, it might be reasonable to withdraw a bit more.

Reassessing portfolio risk should be addressed with retirement. Many people during their working years have likely been relatively aggressive, maybe nearly all stock, in a 401k since each person was dollar cost averaging out of each paycheck into the retirement portfolio. With a long-term horizon and no need for the funds while working, time is on the right side for investors to remain aggressive in many situations. But for many, this dynamic shifts at or during retirement.

The reason for this shift is to prevent a 40 percent or worse decline, like in 2008, from impacting a retiree’s portfolio. Such a decline is truly financially difficult and could also be emotionally and mentally catastrophic.

What might be a strategy to help avoid such a downturn? Consider an IRA account for a retiree who needs cash flow each month from the IRA. In this example, it might make sense to have 1 or 2 years of cash flow funds in a money market inside the IRA. Then, for a portion, invest with a 3-5 year time horizon. Another portion could be invested for a 5-10-time frame and then the remainder for longer term – over 10 years in strategy. This might simply be an appropriately designed, balanced strategy. But for each investor, this might vary based on current needs, spousal survivorship planning and overall estate planning.

One area to be wary of during the excitement of retirement is anything that sounds too good to be true. There are a number of high commission products that are sold off headlines like “Stock markets are at an all-time high, protect your money from the next down turn” or “Recession is coming, buy a guaranteed product now.”

Before you buy any sort of index annuity product, take the time to read the dozens of pages of disclosures and explanations. Then, if you are comfortable locking your money up for many years, and you fully understand exactly how the product works, and that the product is the absolute best for you, go ahead and consider purchasing it. Remember, we always want the ability to change portfolio strategies as part of a flexible approach to retirement.

Transitioning from retirement savings to smart retirement spending takes effort, planning, and flexibility. Consider contacting a fee-only firm that operates full-time as a fiduciary to ensure your best interests are represented.

If you are approaching retirement, congratulations on this achievement. If you are thinking about a second opinion, feel free to reach out.

Ryan Fox, Huston-Fox Financial Advisory in Gettysburg, can be reached at 717-398-2040 or

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