Ask the CFP®: How Do You Shift from Wealth Accumulation to Retirement Spending?


Jan. 2024

Welcome to this month’s Ask the CFP® segment. Today, we’ll talk about making the shift from saving to spending when you retire.

Can you remember your first paid job? Maybe it was mowing lawns for your neighbors or bussing tables at a local diner. That first job is often memorable because it’s the first chance we have to prove our value in dollars. We eventually turn those jobs into careers and earn enough to build a nest egg. If you start working at the age of 20 and retire at 65, you will have spent more than four decades of your life working for income.  Regardless of how much you were paid or what you did for a living, that’s a significant amount of time to work. As you approach retirement, you may be concerned with the reality of that income no longer coming in each month. The idea of creating your own income can seem daunting, but here are a few tips to help you prepare for the transition.

First, going from wealth accumulation to retirement spending can feel like a 180-degree turn. They’re completely different strategies. Wealth accumulation largely means saving enough each year, managing risk, and following disciplined portfolio management. Once it’s time to begin spending those dollars, risk management and portfolio management are important, but they often change. For example, the composition of a portfolio may call for more income-producing investments versus growth-focused investments. Holding additional cash or money markets may also be necessary. Growth may still be needed, especially if you plan on living for decades more, but this is often balanced with the need to preserve some of those dollars and provide income.

Second, it’s important to match your portfolio with your cash flow needs. If you need $50,000 for an expense coming up in 12 months and you have a bond that matures in 11 months, you may then have enough cash for your expense without the risk of selling other investments during a market downturn. However, if your large expenses don’t match up with expected cash events, it’s important to plan ahead and consider which assets could be used when cash is needed.

Lastly, drawing income from your portfolio involves deciding which accounts you want to use for tax reasons. If you have a Roth IRA, a traditional IRA, an inherited IRA, and a trust account, each have different tax nuances. This is where a skilled team of financial planners can help determine what to use and when to help manage risk and reduce taxes. This may also change year-to-year as tax rules change or your needs change.

Overall, once an income strategy has been set, most retirees feel like they’re receiving a regular paycheck again. Funds are deposited right into your bank account each month to meet your needs and obligations. All the other details on the backend can be complex, but that’s where we come in to simplify it – while you concentrate on enjoying what matters most!

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© 2024 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.


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