Finances in Retirement - Investments

Five Tips for Making a Retirement Drawdown Strategy

by Alli Thomas

Jan 5, 2022

After decades of planning and putting money away, you may think it would be easy for most people to shift from a savings mindset to a spending mindset. Yet one often overlooked aspect of retirement planning is making a retirement drawdown strategy. 

When mapping out your drawdown strategy, you must consider factors that include: 

  • Your marital status 
  • Your savings 
  • Your life expectancy 
  • The kinds of retirement accounts you have 
  • What you think your expenses will be in retirement. 

Here are five tips that will help you plan a retirement drawdown strategy that accounts for these and other key variables:

1. Account for Inflation

Most people invest more conservatively as they age. Of course, you shouldn’t put your nest egg at risk by investing too aggressively. At the same time, the earnings on your investments should try to keep pace with inflation.  Otherwise, your savings will eventually lose their purchasing power – and you could run out of money.

Read more: Inflation and Retirement Withdrawal Strategies

2. Choose the Best Pension Payout

If you’re lucky enough to have a defined benefit plan, you must decide how to withdraw those assets. Should you take a lump-sum payout, or annuitize your pension? Each option has benefits and disadvantages. Pension withdrawal strategies can be complex, so it’s best to consult a financial advisor before making any decisions.

3. Make the Right Decision About Social Security Benefits

The debate about whether it’s better to take Social Security earlier or postpone it rages on. Your ideal age to start collecting those benefits depends on several factors, including your marital status, how much you need the money…and even whether your family has a history of early death or terminal disease.  

If you decide to start collecting as early as possible (at age 62), you’ll get 30% less than if you had waited until your full retirement age (which is based on your birth date). If you can manage to delay taking it until age 70, your monthly benefit may be up to 24% more. 

Read more: 3 Things Most Pre-Retirees Don’t Know About Social Security

4. Balance Guaranteed Income and Long-Term Growth

Guaranteed retirement income includes Social Security benefits and payouts from pension plans and annuities. Variable retirement income comes from earnings on your investments. You’ll need to determine how much guaranteed income you’ll need to cover non-negotiable expenses (like housing, healthcare, and food).  

Once you’ve determined those costs, then you can decide how much variable income is required to pay for your discretionary expenses (such as your hobbies, travel, and entertainment).

5. Plan for Longevity

Lifespans keep rising. Depending on your health, you could be looking at spending between 20 or 30 years in retirement. How can you avoid outliving your savings? Some options to explore are working longer, maxing out your contributions to retirement plans, and using other types of financial products such as an annuity, which can guarantee an income stream for life. 

Read more: Longevity and Financial Planning 

Need help creating a personalized retirement drawdown strategy? Click here to schedule a no-cost, no-obligation meeting with one of our advisors. 

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Annuity Disclosure

Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurer.  Any references to protection benefits or lifetime income generally refer to fixed insurance products.  They do not refer in any way to securities or investment advisory products or services.  Fixed Insurance and Annuity product guarantees are subject to the claims-paying ability of the issuing company and are not offered by Retirement Wealth Advisors.

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Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

One Response

  1. […] of the most popular rules of thumb when it comes to retirement spend-down strategies is the 4% rule – we wrote about it just a few months […]