You’ve been accumulating your savings your entire life, but when the time comes to draw down your investments, there are new risks. In this episode, we’ll discuss four risks that come with the decumulation phase of retirement.

Press play to learn how to avoid these risks in retirement.

Are you looking for a new advisor? One of our listeners is looking for a checklist to help him hire a retirement advisor. While answering that question I went ahead and made my advisor checklist available to all of you to download here.

Outline of This Episode

  • [1:47] Understand effective strategies for the decumulation phase
  • [11:20] Do I have a checklist to use to hire a retirement advisor?

The differences between the accumulation and decumulation phases of investing

When accumulating assets, you put money into your retirement savings and other savings vehicles each month. Whereas, the decumulation phase means you’ll have a negative cash flow since you’ll be withdrawing from your savings to cover your life expenses.

There is another major difference between the accumulation and decumulation phases. During the accumulation phase, you are working towards a specific endpoint. You have a target age when you would like to stop working and retire. Since life is so uncertain, the endpoint of your decumulation phase is unknown.

4 unique financial risks of decumulation

Retirees face several risks unique during the decumulation phase that aren’t significant during the accumulation phase. While investment and inflation risks are common in both phases, decumulation introduces additional complexities.

  1. Sequence of returns risk – This risk emerges from the need to withdraw funds from a potentially volatile investment landscape. Poor market performance early in retirement can significantly reduce the lifespan of your savings. This is why it’s vital to keep plenty of bonds and cash on hand to soften the blow of poor markets and have a plan to reduce your income from your portfolio during tough times.
  2. Longevity risk – The risk of outliving your assets becomes more pronounced as people live longer. Targeted, cost-effective solutions are needed to address the increasing probability of outliving your resources. Portfolio growth and deferring your Social Security benefits are both great ways to hedge against longevity risk.
  3. Tax risk – During decumulation you’ll face complex tax scenarios as you draw income from various sources which is why effective tax planning becomes crucial to managing the financial impact of these withdrawals. In-depth tax planning is crucial to modern-day retirement planning. If you’re not interested in learning about taxes, find an advisor that does. The tax planning alone will pay for the advisor’s fees in many cases.
  4. Spiking expense risk – Unexpected large expenses, such as healthcare costs or family emergencies can drastically alter your financial landscape. Planning for these potential spikes is challenging but essential to prevent significant disruptions in income flow. Guardrails work well for planning for unplanned expenses. You’ll learn where in the portfolio to reduce your monthly portfolio income. The plan works the same way if the portfolio goes down whether from a bad market or a large unexpected withdrawal.

Make sure to download this PDF with questions to ask potential financial advisors.

Resources & People Mentioned

Connect with Benjamin Brandt

Subscribe to Retirement Starts Today on

Apple Podcasts,Stitcher,TuneIn,Podbean,Player FM,iHeart, orSpotify