Retirement Spending in Scary Markets

When the markets are down or particularly volatile, how do I safely withdraw retirement money out of my portfolio?

This is a common question and a very good one. It is very scary when the market is volatile and the TV is telling you the world is coming to an end. It can be even scarier when you are in or near retirement. While one blog post won’t replace a fee-only wealth planner who is committed to serving your highest financial interests in an ongoing relationship, the following are three ideas to get you started.

1.  Take a Reality Check

The first step to knowing how you’re doing is to determine where you stand. For this, we suggest taking a very analytical approach to withdrawing money from your portfolio.

At our firm, the first thing we look at for clients who are taking money out of their portfolio is their withdrawal rate. In other words, what percentage of the portfolio’s total worth are they taking out? If the withdrawal rate is reasonable according to their financial plan, then everything should be fine. If the withdrawal rate seems too high (again, according to their particulars), we let them know.

How do we assess what is “fine” and what may be “too much”? When we do a financial plan, we use software that runs 10,000 simulations under all kinds of market conditions to come up with a confidence factor for a financial plan’s probable success. What is the best possible outcome for a given spending plan? What’s the worst that could happen? What seems most likely to occur?

Running these analytics can generate tough choices if the numbers are uncomfortably short. But by assigning hard numbers to otherwise abstract questions, you are in a better position to decide where your personal comfort level falls along the spectrum of possibilities.  That seems better – and we would argue ultimately less stressful – than taking an “ignorance is not so blissful” approach.

2.  Depend on Disciplined Diversification

When scanning scary headlines while withdrawing money during a down market, it may seem as if your entire portfolio is as low as it could go. If your portfolio has been well diversified, that’s usually not the case. If stocks are down due to market volatility, then bonds are usually up. When international stocks are taking a beating, it’s not uncommon for domestic stocks to shine … and vice-versa.

By having – and sticking with – a diversified mix that reflects your return goals and risk tolerances, you can help your portfolio remain more stable and a bit more dependable through varied market climates.

3.  Rely on Periodic Rebalancing

Better yet, if you periodically rebalance your portfolio to its intended target allocations (such as half stocks, half bonds), you’re creating a strategy for buying low and selling high – every investor’s goal – while keeping your portfolio diversified as planned.

Rebalancing during your earning years is usually done in two ways: (1) By selling holdings when they have become popular (high-priced) and using the proceeds to reinvest in low-cost, out-of-favor holdings; or (2) by investing new money, and using it to replenish underweighted portions of your portfolio. 

In retirement, the principles remain the same but the strategy can change a bit. When it’s time to withdraw assets, we try to sell holdings in asset classes that have recently outperformed (selling high). This not only serves to bring your portfolio back into balance according to your original intent, it can often be used to generate the desired retirement cash flow.

That said, while this big-picture strategy seems logical, it can be tricky to implement. Tax ramifications must be carefully considered, which may warrant additional planning and synchronized action across your multiple taxable and tax-favored accounts. Plus, emotionally, it’s not in our nature to sell recent winners and bulk up on recent losers. That’s why we have spent the last 13 years developing a structured rebalancing program to help optimize the logistics and remove the emotion from reallocating your portfolio even as you are withdrawing money from it.

Achieving a Well-Reasoned Retirement

Assessing where you stand through carefully analysis and employing evidence-based investment principles such as global diversification and periodic rebalancing can go a long way toward helping you minimize your emotional reactions to fleeting market news. It also helps you replace those emotions with smart, fact-based decisions on selling high, buying low and spending responsibly – in retirement or, really, throughout your life. 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail

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