How Will You Spend Down Your Retirement?

We talk a lot about saving for retirement. Where to invest your money, what vehicles will help you maximize your savings, what investments will lead you to your retirement goals. While all of these discussions are extremely important, it is equally critical to plan for how your money will be spent throughout your retirement.

Withdrawing money from different types of accounts requires a strategy in order to maximize the assets that you have worked so hard to acquire. There are tax implications and unrealized growth potential that require attention and planning to both save your money and help it continue to grow long after you stop working. Here are some helpful considerations that can help you enjoy your retirement with longevity and confidence.

Which pot first?

Although it has long been assumed that you should first draw from your taxable accounts first, then tax-deferred, then non-taxable, that strategy does not always make sense. For example, if you wish to leave your heirs the largest amount possible, then you may opt to leave your Roth IRA until the end, but if paying as little income tax as possible in the first ten years is your top priority, then you would begin by taking money from your non-taxable account first.

The decision is largely dependent on your goals for your retirement savings, the activities that are important to you and how the whole picture adds up. It is all about your unique priorities. When making decisions like these it can behoove you to work with an experienced advisor who can put a spending plan in place that will help minimize what you are paying in taxes and promote the longevity of your retirement savings.

Is cash king?

Having an emergency cash fund is important at any stage of life and retirees are no exception. In fact, those who have entered retirement should have a slightly larger cash reserve than those who are still in the workforce full time. We recommend that our retired clients have between 12 and 18 months of expenses and incidentals available in cash at all times. That would be enough to cover your expected monthly budget as well as any emergencies that arise. Relying on liquidating investments or cashing out retirement insurance products in the event of a cash emergency can result in fees and unnecessary tax liabilities.

What’s in the bucket?

Utilizing the commonly referred to “bucket strategy” is a method by which you look at your retirement years in five-year increments or “buckets.” It can help you determine what you’ll need as you age and how you can leave certain accounts to continue to grow even after you’ve stopped adding money to them. Your first two buckets are short-term (ages 65-75). Typically, these buckets include Social Security and Pension income. Your medium-term buckets hold protected assets and risk investments that do not have as much growth potential. The final buckets (age 85 and beyond) are where you would want to put investments that have the highest long-term growth potential. The bucket strategy, although not cut and dry for every circumstance, can often help ensure the longevity of your retirement savings.

Your retirement, your plan

Creating your retirement spending plan will be a unique process for each person and family. What works for one does not necessarily apply to or work for another. Taking a bird’s eye view of your retirement goals and the accounts that you have to fund those goals is crucial before you begin drilling down to the details. We begin the conversation with our clients and potential clients by talking about wants and needs, goals and aspirations. Taking financial circumstances, health considerations and desired lifestyle into account is imperative to creating a retirement spending plan that will help people feel comfortable and confident for years to come.

If you have questions about your spend-down plan in retirement and you are interested in meeting with the team at Andersen Wealth Management, we encourage you to email us at