Ask an Advisor: With a Shorter Timeline, How Do I Manage My Money Once I’m Retired?

I would love to see some ideas on managing finances once in retirement. The timeline to invest is much shorter. You have talked about RMDs but how to manage the balance would be helpful. –Karen

Retirement marks a fundamental shift in how your savings serve your objectives. During your working years, the focus is largely on accumulation—saving consistently, taking advantage of compounding returns and letting time smooth out shorter-term market volatility—so that you can enjoy the fruits of your labor decades down the road. Once that day comes, your timeline often condenses, the focus shifts to decumulation, or withdrawals, and the margin for error narrows.

That doesn’t mean growth is no longer important; it remains critical. However, it does mean your strategy must change to account for new realities. In particular, what you’re solving is how to structure your savings to support spending, manage risk and sustain your lifestyle over what may be a 10, 20 or even 30-plus-year retirement.

From selecting investments to managing income streams in retirement, a financial advisor can help you prepare for your golden years. Connect with an advisor for free.

Start with the Plan, Not the Portfolio

One of the most common mistakes retirees make is focusing too quickly on investments without first establishing a plan. The portfolio is not the plan; it is an outcome of the planning process.

Before deciding how to invest, it’s critical to map out your goals, objectives and parameters so that you understand what you’re trying to accomplish.

What does an ideal retirement look like?
How long do you expect retirement to last?
How much do you plan to spend each year, and how flexible is that spending?
What other income sources will help support you? Social Security? A pension or 401(k)? Rental properties?
Do you have meaningful liabilities that will continue into retirement?
What insurance do you have in place to insulate your portfolio in retirement?
Do you have legacy or philanthropic desires that should be incorporated into the plan?

These questions shape everything that follows. Until they’re answered, it’s impossible to know how much your portfolio needs to return or how much risk it can responsibly take. A portfolio that is appropriate for someone with substantial guaranteed income and modest spending needs will likely look very different from one designed to fully fund a retiree’s lifestyle. Without this context, investment decisions are guesses rather than strategies.

(And if you need help evaluating your investment needs in retirement, work with a financial advisor.)

How a Shorter Timeline Impacts Portfolio Construction

An alarm clock with a clockwise countdown from work to retirement.

In retirement, risk shows up differently. You are no longer just managing market volatility: You are managing the risk of withdrawing money during down markets, especially early in retirement. This “sequence of returns” risk is one of the defining challenges of the retirement phase.

As a quick example, say you have $1 million set aside for retirement. You plan to spend $50,000 per year, but in the first year the market is down 10%. You’re really down 15% and need an 18% return to get back to where you started. This unfortunate sequencing can cause your hard-earned savings to erode much quicker than you might have modeled for, and you can’t bank on 18% returns all the time.

To protect against these scenarios (both technically and behaviorally) it is often helpful to break down your retirement timeline into sub-horizons. Funds needed in the near-term, such as annual spending and emergency savings, should prioritize stability and liquidity. This bucket doesn’t need to generate any meaningful return besides the interest rate on cash-type investments. It’s designed to fund your lifestyle and mitigate the need to sell longer-term investments amid a downturn.

Intermediate-term assets can work toward your goals three to seven years down the road. They can tolerate stock market exposure, but the emphasis should probably be on income generation and risk management.

The third bucket is long-term assets intended to fund later-stage retirement or legacy goals. These can remain growth-oriented since, even with a shorter overall time horizon in retirement, you hopefully will not have to touch these funds for many years.

This “bucket” strategy allows retirees to continue investing for growth while managing regular withdrawals. This approach also helps reduce the pressure to sell investments at inopportune times, easing the mental strain that can come with meeting ongoing spending needs.

(A financial advisor can help you set up your investment bucket or explore another retirement income strategy.)

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Planning for Withdrawals and Managing Risk

Sustainable retirement planning requires more than choosing the right investments. It also requires coordinating withdrawals in the context of the risks you face. Healthcare costs, unexpected family needs or market downturns can all disrupt even the most carefully constructed portfolio. So, it’s better to insulate yourself from these risks to the extent possible before they arrive.

Long-term care is a clear example. A plan built around withdrawing $5,000 per month can unravel quickly if a healthcare event doubles or even triples monthly your spending needs. Without long-term care insurance or a clear funding strategy, the portfolio design you thought would fund your ideal retirement becomes irrelevant because the assumptions behind it no longer hold.

Insurance planning, liability coverage and estate planning documents all play essential roles here. These elements protect the retirement plan from risks that markets alone cannot address. (And if you need a professional to create a comprehensive plan that accounts for these factors, speak with a financial advisor.)

Putting It All Together

A retired couple using a laptop in their living room to manage their retirement investments.

Managing savings with a shorter timeline isn’t about shifting overnight from aggressive to conservative; it’s about being intentional. A well-designed retirement strategy is grounded in your personal goals, aligns investments with spending needs, incorporates flexibility and anticipates risks that could materially change outcomes.

When retirement planning is done holistically, the portfolio becomes what it is meant to be: not the plan itself, but a powerful tool that supports the lifestyle, security and peace of mind you’re seeking in retirement.

Retirement Planning Tips

Consider working with a financial advisor as you plan for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Retirement planning isn’t just about reaching a dollar amount. It’s about understanding how you want to live. Some retirees want to travel extensively, while others prefer a quieter lifestyle closer to home. Your expected expenses, including housing costs, healthcare, hobbies and travel plans, should influence how much you save and how aggressively you invest.

Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Jeremy Suschak, CFP®, is a SmartAsset financial planning columnist who answers reader questions on personal finance topics. Jeremy is a financial advisor and head of business development at DBR & Co. He has been compensated for this article. Additional resources from the author can be found at dbroot.com. Please note that Jeremy is not a participant in SmartAsset AMP and is not an employee of SmartAsset.