Turning on the Spigot in Retirement – Strategies for Drawing One’s Funds

I advise clients to consider their expenditures in three buckets: 

  1. “Must haves”-- the things you need to maintain your lifestyle

  2. “Wants” – the items under your control that determine that lifestyle, such as vacations, social entertainment, hobbies, etc.

  3. “Future spending” – Even though you’re retired, there may be expenses down the road that you want to plan for, things such as a child’s or grandchild’s college expenses or other lump sum payments.

One sound approach is to rely on a guaranteed income stream for your must-have expenses, and to rely on more flexible or “less guaranteed” income resources for your discretionary spending.  For example, your guaranteed social security payment may possibly be sufficient to cover the must-haves.  (This isn’t common, however, since social security was designed to equal about one-third, or less, of one’s working salary.)

Richard Bolles’ book “What Color is Your Parachute?” cites these five pillars of one’s financial security in retirement: 

  1. Personal savings

  2. Employer plan (401k)

  3. Real estate

  4. Keep working (a need or a want?)

  5. Social security

Each pillar should be considered as part of the strategy for drawing on funds.  Social security is a prime example.  At one time, the popular notion was to retire from a job and immediately begin taking social security payments.  However, there are many options for when and how to take these payments, and a good financial planner will seek strategies to maximize these resources, especially for married couples.

It’s also true that one’s last day of employment may not be of one’s own choosing.  But it’s important to note that there are ways for one to access one’s retirement account or portfolio without tax penalties before reaching age 59 ½, and an advisor can make clients aware of options available in this scenario.

The next blog will look at ten common mistakes in retirement planning.