8 Steps to Helping Clients Spend Their Retirement Assets

What You Need to Know

How much money should your client withdraw from different retirement accounts and in what order? Here’s how to figure it out.
Factors such as changes in the rules and in your client’s situation play a major role.
Your client’s tax situation is also a major factor to be considered.

As your clients enter retirement, one of the key things they will need your advice on is formulating a retirement withdrawal strategy: How much money should they withdraw from different types of accounts, when, and in what order? 

This is not a one-time task, but rather something to review with them on a regular basis. Here are some steps to get you started.

1. Look at the Whole Picture

As with most aspects of financial planning for your clients, developing a retirement withdrawal strategy should start with a look at their overall situation. This will include things like: 

Age
Marital status
Income and tax considerations
All potential sources of retirement income
Income needed to support their retirement lifestyle 

These and other issues will be primary drivers of your recommendations for a withdrawal strategy throughout their retirement years. 

2. What Are Their Income Needs?

These income needs will likely evolve over the course of their retirement years. Ideally they have a retirement spending budget. 

In their earlier retirement years, your client may be more active with travel and hobbies. As they get older this may slow down, but other expenses such as medical costs might increase. At some point, they may relocate and perhaps downsize from the family home, which will affect their spending as well. 

Your client’s income needs are not static and their spending in retirement should be reviewed on a regular basis. 

3. Review All Sources of Retirement Income

It’s important to review all sources of retirement income at your client’s disposal. These could include: 

Social Security
A pension
Retirement accounts such as an IRA or 401(k)
Stock based compensation from an employer
Taxable investment accounts
An interest in a business
Income from continued employment or self-employment
An annuity
A life insurance payout or an inheritance 

Looking at the various types of potential income streams and accounts that can be tapped will help you determine how much retirement income your client can potentially generate. 

4. Compare Expenses to Non-Portfolio Sources of Income

As a starting point, compare non-portfolio sources of income your client’s anticipated monthly expenses, both now and how they might evolve over time. For most clients, the most common non-portfolio source of income will generally be Social Security. For some clients, this might also include a pension from an employer or perhaps a payout over time from selling their business.  

You will also want to work with your clients to divide their expenses into fixed and variable expenses. Ideally the client’s monthly payments from Social Security and a pension, if they have one, will cover all or most of their fixed expenses. 

From there you can determine how much your client will need from their retirement accounts and any taxable investments to cover the rest of their expenses to support their desired retirement lifestyle. 

5. Keep Cash on Hand

Many experts suggest that clients have a portion of their retirement savings in a bucket of low-risk, highly liquid accounts that covers one to three years of their retirement spending needs. This reduces the chance that they will have to tap into equities during a market downturn to fund their retirement spending needs. This will generally be their first source of retirement cash flow after income streams like Social Security.

As various accounts are tapped each year, the money should be used to replenish this cash bucket.