Cracking the Nest Egg: When Accumulation Becomes Distribution

It’s a big transition when you leave the workforce to live off your savings. Moving from an accumulation to a distribution strategy requires an attitude adjustment in both you and your advisor. Here are the issues to consider when time, compounding, and other conventional investment principles no longer work in your favor.

Retirement planning is easy during the accumulation phase. Just stash as much savings as possible into retirement and investment accounts, and maximize total returns. All that really matters is what you end up with at retirement. If investment returns vary from year to year, or if returns are made up of interest, dividends, or capital gains, none of it much matters. It’s all a race to grow the nest egg as large as possible. Success is measured by account values, pure and simple.

Then comes the day when you can finally crack the nest egg and start withdrawing funds. Now the goal is no longer simply to grow the account balance, but rather to provide enough current income to meet your spending needs and to allow the nest egg to diminish, as it naturally must, without letting it disappear. Success is measured by your happiness and the careful monitoring of withdrawal rates and account values to ensure that your money is not in danger of running out.

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