Tips on drawing down your retirement funds

Tips on drawing down your retirement fundsThe best combination for retirement(Photo: Thinkstock)Your financial life, like climbing a mountain, does not end when you reach the summit, your retirement. Getting down safely, or making your retirement income last, requires a set of different strategies. How can you withdraw your money without depleting it?For years, you work, live below your means, save and invest. Your savings and investments grow at first moderately but faster over time. Your balances and net worth climb upward at a sharper angle now, just as mountain slopes steepen above the surrounding foothills.Now you can see the summit. This is your retirement. You reach the point where you feel secure about funding your preferred lifestyle after your working years.But this summit, alpine or financial, is no finish line. Your ascent is complete but now your goal changes quite a bit. Getting down the mountain safely is just as challenging. You face new risks different from those on the way up.Your definition of risk changes in retirement. While building savings, volatility of markets is your risk. Once you retire, risk is the potential shortfall of funding your needs – usually due to longevity, spending or lower-than-expected investment returns.Since going back to work is harder, you likely have limited options to react to shortfalls. If you have to sell investments during a significant market decline, those assets can no longer recover.When you save, the order of returns doesn’t matter. Whether poor returns happen this year or the next, you get to the same place. But when you retire, the sequence of returns can change the trajectory of your income substantially.Withdrawing assets to fund your retirement spending also reduces the power of compounding. In an ideal world – one that many investors think exists – you live off of dividends and returns without touching your principal. However, even if you shift to a portfolio heavy on income-producing assets, this strategy is not likely to work persistently over a multi-decade retirement.Here are a few tips that help you come down from the summit with improved likelihood that your money will last as long as you do.

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