Descending the Mountain: 3 Ideas to Help the Switch From Accumulation to Decumulation

You worked hard at your job, made sacrifices, moved if you had to, changed jobs if you had to, and diligently set aside money for your eventual retirement along the way.

You had the routine down to a science.  Got up day after day and made that commute to work.  There were likely some promotions along the way, your salary steadily increased, your debts steadily decreased, and your net worth started to accumulate.

After a few decades, you were done – you had reached the top of the proverbial mountain.  You climbed your Mount Everest.  And from this new vantage point, things look pretty different.

But here’s the thing – you still have to climb down the mountain.

Many mountain climbing experts will tell you that descending the mountain is often harder than the ascent, and where many risks exist.  Climbers must use a different, less familiar set of muscles and climbing techniques.  Additionally, when you slip while going downhill, the mountain slope causes greater acceleration which can lead to dangerous falls.

So how do you best navigate this descent of the mountain? Here are 3 ideas: 

Begin to Make a Mental Shift

You probably will not have substantial “regular” income once you reach full retirement.  You’ll likely have some Social Security income, and a pension for the lucky ones, but for most retirees you’ll be living primarily off your investment portfolio – and that’s okay.

You won’t have the traditional paycheck, but you will have a new type of paycheck that’s created by your portfolio (with the help of your advisor).  Think of your portfolio as representing decades of future income held in a lump sum to be disbursed on a monthly (or longer) frequency for the rest of your life.

Get Comfortable with your Net Worth Decreasing over Time.

When we meet with our clients, we regularly review how their net worth has looked over time.  Most people’s net worth will begin to decrease at some point during retirement, which isn’t usually a concern to us.  We pay much more attention to the rate of decrease (the downward slope.)  Just like climbing back down the mountain, a slower gradual descent is much more preferable.

Monitor your Portfolio Distributions

Everyone’s portfolio and financial plan is different, so it’s not possible to give specific advice here.  There are some rules of thumb on portfolio distributions, but even those may not be the best measuring stick for you.  Part of our planning work with clients is to make sure that their portfolio distributions are sustainable and consistent with their long-range financial plan, which is unique to them.  

With a new mental approach and solid plan for spending down your assets, you’ll be able to create a reliable paycheck from your portfolio to help you do the spending you want, and achieve the most life out of your money.

Written by Joe Marques, CFP®