Retirement changes your relationship with your investments.
During your working years, much of the conversation centers on accumulation. You earn income, contribute to retirement accounts, invest for the future, and give those assets time to grow. As retirement approaches, the questions become different. What level of spending can your financial plan support? Where will your income come from? Which assets should you draw from first? How much should remain invested for the years ahead?
For affluent individuals and families, these questions can become particularly layered. Multiple investment accounts, taxable assets, real estate, business interests, Social Security, pensions, and estate goals may all be part of the picture.
Thoughtful retirement planning brings these pieces together. Rather than focusing solely on how much you have accumulated, the conversation shifts toward how your wealth can support the life you want throughout retirement.
Retirement Readiness Is About More Than a Savings Number
For individuals and families who have spent decades building substantial wealth, the question approaching retirement may not be simply, “Have I saved enough?” A sizable portfolio is important, but the amount you have accumulated is only one part of preparing for retirement.
You also need to consider how much you expect to spend, where your income will come from, how taxes may affect your distributions, how much liquidity you may need, and how your investments align with both near-term needs and longer-term goals. Social Security, pensions, real estate, business interests, charitable giving, and estate goals may add additional layers to those decisions.
Retirement readiness involves understanding how these pieces work together. As you move from earning a paycheck and regularly adding to your investments to relying more heavily on the assets you have accumulated, investment planning takes on a different role. The focus expands beyond accumulation to include liquidity, retirement income, taxes, market risk, and assets intended for later years or future generations.
Start With the Life Your Investments Need to Support
It can be tempting to begin retirement conversations with portfolio returns, withdrawal rates, or asset allocation. But another question is worth answering first: What do you actually want retirement to look like?
One person may envision extensive travel and a second home. Another may want to provide significant financial support to children and grandchildren. Someone else may plan to continue consulting, start a business, pursue charitable interests, or leave a substantial legacy.
Those goals influence how your investment strategy should be structured.
Consider questions such as:
- What level of annual spending do you anticipate?
- Which major purchases or lifestyle changes are likely during retirement?
- How much liquidity would you like readily available?
- Do you plan to financially support children, grandchildren, or charitable organizations?
- How important is leaving an inheritance or other legacy?
- What income sources will exist outside your investment portfolio?
Answering these questions provides context for the investment decisions that follow.
Think About Retirement Money in Three Buckets
One way TandemGrowth approaches the transition into retirement is through its Retirement Distribution System and three-bucket investment strategy. The framework separates assets according to when and why they may be needed rather than treating an entire portfolio as one pool of money.
Bucket 1: Emergency Reserve Capital
The first bucket is designed for emergencies and immediate liquidity needs.
Having money specifically designated for the unexpected can become especially valuable after retirement. When an unplanned expense arises, you may not want to sell long-term investments simply to generate cash, particularly during a market decline.
This bucket provides a readily available source for those needs.
Maintaining assets for near-term needs can reduce the need to sell longer-term investments to fund planned distributions during a market decline. However, more liquid and conservative investments may also have lower expected returns than investments intended for longer-term growth.
Bucket 2: Short-Term Portfolio
TandemGrowth’s second bucket includes a minimum of two years of anticipated distributions held in liquid investments. The firm typically replenishes this portfolio annually based on each client’s cash flow and tax circumstances.
This creates a bridge between immediate cash reserves and investments intended for longer-term growth.
Setting aside assets for anticipated near-term distributions can provide context for investment decisions when markets become volatile. Instead of viewing every market decline through the lens of “Will I have enough money for next year?” you have a portion of the portfolio specifically intended for nearer-term needs.
Bucket 3: Long-Term Portfolio
The third bucket looks farther ahead. TandemGrowth allocates these investments based on a client’s financial plan, risk tolerance, financial strength, and retirement objectives.
Retirement can last decades, which means a portfolio may still need opportunities for growth long after someone leaves the workforce. Moving everything into highly conservative investments at retirement could raise another concern: whether assets will maintain purchasing power over a long retirement.
This long-term bucket is intended to keep a portion of the investment strategy focused on longer-term goals while the first two buckets address more immediate needs.
Don’t Let Retirement Turn Into an Arbitrary Investment Deadline
There is a common temptation to view retirement as the moment when an investment strategy should suddenly become conservative. The reality can be more nuanced.
Someone retiring at 65 may need their portfolio to support them for 25 or 30 years or longer. Assets that may be needed next year can warrant different investment considerations than assets that may not be needed for another 15 years.
This is one reason long-range thinking matters so much in investment planning. Your retirement date is certainly meaningful, but it does not mean every dollar in your portfolio suddenly has the same time horizon. Instead, investments can be structured around when those dollars may be needed.
If you’re approaching retirement and wondering whether your current investment mix still fits your needs, our guide, Is My Portfolio Too Risky for Retirement?, explores several considerations that can help you evaluate your portfolio as retirement gets closer.
Download Is My Portfolio Too Risky for Retirement?
Consider Taxes Alongside Investment Decisions
Taxes can also play a larger role once retirement distributions begin.
Affluent retirees may have money spread across traditional retirement accounts, Roth accounts, taxable brokerage accounts, cash, business interests, and other assets. Deciding where retirement income comes from can have tax consequences today and potentially years into the future.
TandemGrowth incorporates tax planning into its investment philosophy, including considering where investments are held and how short-term income needs interact with longer-term assets.
Rather than treating tax planning and investing as separate conversations, consider how one decision may affect the other.
Prepare for Market Volatility Before It Arrives
Market declines can feel very different when you are retired.
During your working years, a market downturn may mean watching your account balance fall while you continue receiving a paycheck and contributing to investments. During retirement, you may simultaneously be withdrawing from those investments.
That can make emotional decision-making particularly tempting.
Developing an investment strategy before periods of market volatility can help establish in advance which assets are intended for current spending, which are positioned for nearer-term distributions, and which have a longer time horizon.
The goal is not to predict what the market will do next or eliminate the risks associated with investing. It is to build a strategy that accounts for the possibility of market fluctuations while remaining connected to your financial plan.
The goal is not to predict what the market will do next. It is to have a plan that recognizes market fluctuations as part of investing.
Retirement Planning Should Continue After You Retire
Your financial life will continue to change after your final day of work.
Spending may change. Tax laws may change. Markets will rise and fall. You may decide to move, travel more, give additional money to family, increase charitable contributions, or rethink your estate plans.
That is why retirement planning should be an ongoing process rather than a one-time event.
Your portfolio should be reviewed in relation to your life, cash flow, tax circumstances, risk tolerance, and longer-term goals. TandemGrowth reviews the three-bucket framework as a client’s circumstances, cash flow needs, and financial plan change over time.
Build a Retirement Strategy Around Your Life
Approaching retirement can be exciting, but it also brings a new set of financial decisions. After spending decades accumulating wealth, you now have to determine how that wealth can support the years ahead.
A thoughtful strategy can help you understand where your income will come from, how much liquidity you want available, how your longer-term investments should be positioned, and how taxes fit into the larger picture.
At TandemGrowth, retirement investing begins with your goals and the life you want your wealth to support. If retirement is approaching and you have questions about how your investments fit into your retirement plan, schedule a conversation with TandemGrowth to discuss how a personalized investment strategy may fit your circumstances and goals.
About the Author: Jeff Bernier
