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Planning a sustainable withdrawal strategy is one of the most overlooked areas of financial planning. Having a clear and coordinated withdrawal strategy is crucial because it will ultimately determine how an individual will create sustainable income throughout retirement.

Successfully navigating sequence risk

Sequence risk is the risk in the timing of withdrawals from a market portfolio occurring in inopportune market conditions. Incurring negative returns associated with the sequence of returns risk (also called the order of returns) is generally most damaging in the early years of retirement. This is because if negative returns occur (and money still needs to come out) then locked-in losses (like returns) compound and can significantly increase the probability of depleting a portfolio prior to mortality. This phenomenon is still evident in later years, and locked-in losses should always be avoided, but aggressively managing sequence risk in the early years of retirement is usually more important. Often the predicament this poses is that the early retirement years tend to be the time when individuals want to spend their money (i.e., buy the retirement Tesla or take the family to Africa).


Managing sequence risk is all about preparing for the storm before it comes, not when it comes. If you are unfamiliar with sequence risk, I encourage you to watch our video series on the topic. I see at least four primary ways to successfully navigate sequence risk.

Spend less. Easier said than done. If we were in a meeting and I offered this suggestion, I’d expect the client to throw me out of the virtual room. Losses hurt, and anything that can be done during a period of market downturn to mitigate losses and allow recovery will help with the plan’s long-term sustainability.

Hold cash. Bummer, yes, but I always say, “the price of liquidity is the cost to inflation.” The silver lining is that as interest rates go up, holding cash will hurt less and less.

Buy an annuity (or pension). I don’t know too many people eager to run out and buy an annuity. (If you hate the concept, please kindly make your way to the next section). However, before you go, I also don’t know many people who hate their pension or social security. But let’s be honest, a pension and a Single Premium Immediate Annuity (SPIA) are very much the same.

Here’s the deal. Not all annuities are equal. An annuity pension from a government job (or social security) utilizes a much different formula based on things such as tenure, which tend to be more favorable. Furthermore, these programs are far more likely to offer a COLA (or cost of living adjustment) by default. COLAs I find, are often a game-changer in many retirement plans offering long-term stability to offset inflation-adjusted expenses. At the same time, annuities from XYZ insurance company are primarily based on current interest rates, and adding a COLA can often result in “sticker shock”. In theory, SPIAs being based on current interest rates could be a good or bad decision; I suppose it all depends on the interest rate and, ultimately the payout versus other investable assets. Recently, interest rates have been meager, making the income lackluster. But as interest rates begin to climb (or shoot up), the strategy becomes more and more viable. That’s because the money put into an income annuity (such as SPIA) offers buoyancy to the rest of the financial plan. No longer is the individual required to rely solely on market returns to make ends meet. To boot, if you feel you have longevity, you may be able to benefit from capturing “mortality credits” – something only attributable to insurance-based annuity products.

Just hold bonds. I’m less inclined nowadays to rely on this “fire and forget” strategy for a large portion of someone’s “safe” wealth because of the recent volatility we’ve seen in the bond market. Historically, advisors and clients assumed bonds would offer insulation against losses in a downturn. However, we’ve seen several instances where the “wrong kind” of bonds have been hit hard while stocks have been hit even harder. While the strategy remains sound to hold bonds for insulation, I believe rethinking what type of bonds to hold (not just any bond) is prudent.

Additionally, I think it’s vital to understand bonds do come with risk. You may not know, but there are riskier types of bonds, such as international bonds and so-called “junk” (or high yield) bonds. It’s essential not to get too greedy with yield. At least so much that the core strategy behind the bonds in the first place becomes mitigated.


Buy Real Estate. I’m always impressed by this one, but when it’s the right personality fit. We all have a love affair with real estate. It’s almost human nature. But it’s important to understand not everyone should consider themselves the right personality to become a real estate tycoon.

Furthermore, the potential tycoon should clearly understand what I call their “after everything return.” We care about what goes into YOUR pocket after ALL expenses and costs are considered. At the end of the day, how does the property’s net net net return compare to other less time-intensive offerings?

You want a post-tax account

Not enough clients that I meet have substantial brokerage accounts. The ones that do, it’s often by happenstance.

Common ways include:

  1. A downsize where excess proceeds from the sale are deposited in a post-tax brokerage account.
  2. An accumulation of employer stock (that may or may not have been diversified)
  3. An inheritance of post-tax money

Brokerage accounts are generally not considered “retirement accounts,” but they act as excellent vehicles for retirement income. That’s because many of the most tax-beneficial financial instruments (i.e., municipal bonds and qualified dividend-paying stock) enjoy being held in post-tax brokerage accounts.

I should note that some will eventually build a post-tax account as Required Minimum Distributions (RMDs) come out. This occurs when excess money than is not needed is required to be withdrawn from deferred accounts (such as IRAs, 401(k)s, etc.) and needs a home. Enter the post-tax brokerage account. Unfortunately, these usually come far too late in the retirement timeline to accumulate to a sizable level (and be deployed as a substantial income strategy).

When it comes to brokerage accounts, size matters. There is not much income to be expected to be generated from a post-tax portfolio with a $100,000 balance. The post-tax retirement “engine” relies on a “preservation of principal” strategy where the primary account balance holds and income is generated annually. While there is more to it when considering taxes and “tax loss harvesting”, that’s the basic concept.


When large sums of income from the brokerage account are withdrawn at unsustainable levels, the account can be depleted quickly, and the income strategy no longer becomes viable. But as mentioned earlier, some restorative forces can help “juice up” the brokerage account (i.e., inheritance, downsize, or RMDs) 

A hybrid solution to money management

Not everyone should manage their own money, but almost everyone can manage certain aspects of their own money. Guess what? You’re already doing it. When I discuss money, I usually refer to them in timelines of short, medium, and long-term time horizons.  If you are unfamiliar, read this article. I’ve always said you want to not think of your money as one big giant chunk, but instead attribute each dollar to its anticipated usage point in time.

Short-term money is easy to self-manage. Your checking account and budget are not generally something anyone will do for you. Lots of tools and resources exist to help tighten up your technique. Check that on off, thanks to technology and automation.

Long-term money can be easy to self-manage. I’ll skip ahead and discuss why long-term money (or money that you know 100% FOR A FACT) is and must be set aside and left unfettered under all conceivable scenarios for at least 10 years or more. This is your “go for it” money and your greatest offset to long-term inflation. Interestingly, in this situation, there is not much of a compelling reason to pay anyone a 1% fee to manage this pot of money. That being for a mutual fund expense ratio or as an advisory fee. Ironically as one takes more risk and the timeline for money stretches out, management becomes not only easier but cheaper. It’s just how it is nowadays. You’re not trying to be tactical, you’re just trying to grow the balance to counteract inflation and have made the conscious commitment to “hold the line” and absorb the inevitable losses as they occur.

HOWEVER, there is a point where it’s just “worth it” to have someone do all the work. I think that amount is subjective for the individual, the family dynamic, and the stage of life. I think it goes without saying it doesn’t make much sense to Do-It-Yourself (DIY) into failure. Know who you are, what you’ll actually do, and set a price for your time and convenience.

Time is on my side.

Jerry Ragovoy (1963)

Long-term money is much easier to manage because, in most cases, it is deferred or tax-free money (401(k), traditional IRAs, Roth IRAs, etc.) It’s not unreasonable to assume that if you set that money up in a well-diversified portfolio and simply “rebalance” quarterly, in 10 years, you’ll have more money rather than less. But would you have more money if you had an active manager managing the account the whole way through? For long-term money, I genuinely do not believe there is compelling evidence of that. But I think it is much more about the minimum levels of “behavior control” and due diligence on an ongoing basis rather than some secret long-term management sauce. Like the short term, long-term money can be learned to be self-managed, perhaps ideally with ongoing guidance. And in many cases, as this article implies – it might be a mathematical necessity for some plans to meet goals and remain sustainable over the long term. It may just simply cost too much to have the convenience.

There are ample online resources for an effective self-management of long-term money, but in my opinion (and as a subset of my advisory practice), one-to-one exposure to investing techniques from a professional can be a valuable solution. Like I said, in many cases, it may ultimately be the ONLY solution. My advice is that if this is of interest, start out with some money in the long term, learn to or seek proper guidance on how to build a long-term portfolio, and get some “experience points” with self-management on that pot of money… just see how it goes. Remember, for the long-term, it’s less about tracking the return and more about whether you successfully stick to doing your due diligence tasks (i.e., rebalance and risk tolerance). However, I do not recommend that most people do that with large sums (to start) or with any medium-term money. Mistakes, like losses, hurt. It’s not supposed to be as some tout “DIY ’til I die.”

Medium-term money is not as easy to self-manage. I generally consider medium-term money to be anticipated (or conceivably) spent over the next 3-7 years. This money enjoys being held in a post-tax account and can be considered an individual’s “second line of defense” behind short-term money. However, if you do not have a post-tax brokerage account, then it’s likely your deferred money (IRAs and 401(k)s, etc.) may actually be at least partially considered medium-term. Determining the time difference can be difficult to clearly identify, so I’d recommend seeking a professional’s help to make that determination.

Medium-term money is difficult to manage because it is usually focused on a very different strategy, usually income and preservation. It’s MUCH more about being tactical and not necessarily all about growth, growth, growth. I’m not saying all managers are successful at being “tactical.” but I am a believer that having someone at the helm to make key decisions with this pot of money may very well be worth every penny in cost. Furthermore, since medium-term money generally enjoys being in a brokerage account, there are service-level features such as fund transferring and “tax loss harvesting” that are just nice to have. If you ask me it’s absolutely worth something to have that level of convenience on certain dollars.

Also, do understand this is a generalized article so some atypical situations may require an adjustment in what constitutes medium or long-term money and what type of account it’s in. But you get the idea.

Editor’s note: This blog offers informal investment and financial planning advice. We know nothing about your unique financial situation. The buying and selling of any financial product or security should only be considered in context. If appropriate, seek the counsel of experienced, ideally objective, financial, tax, or estate planning professionals. Past performance is not indicative of future performance.

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