How Do I Receive My Money In Retirement?

It’s common for our team to work with clients for many years leading up to their retirement. We work together to plan for the appropriate savings rate, maximize employer benefits, educating children, anticipating long-term care needs, and much more. However, I’ve observed a mental shift as the idea of retirement becomes less abstract and more tangible. A question asked of us consistently is this:

“I’ve planned, and I’m confident we’re on track to spend as we want throughout our full life expectancies. But when I retire, how do I receive my money? I mean, what are the mechanics of replacing my paycheck?”

It’s a great question and is one example of how moving from the comfort of accumulation mode into distribution mode can feel unnerving. Additional questions arise concerning which accounts would be best to pull from and when, how electronic fund transfers work, optimizing taxes, etc. I have a great deal of empathy and recognize all these factors can be intimidating.

The short answer: We send it to you on whatever schedule you prefer.

The long answer: We take time to be intentional with distributions to balance your cash flow needs with portfolio management. This process takes several forms:

• For clients taking distributions in retirement, we maintain six months’ worth of spending needs in cash. However, some clients prefer a larger cushion. So if markets are down on the day you are scheduled to receive funds, we aren’t selling anything to send it.
• Distributions may be scheduled every two weeks, monthly, quarterly, or any other cadence you prefer. Monthly is our most frequent client preference, but it’s customizable to you. Like a paycheck, if the first of the month lands on a weekend or holiday, that distribution goes out the business day prior so you don’t miss a beat.
• Investment income, like interest and dividends, pays toward cash in the portfolio. When this happens, it helps replenish the cash reserves and reduces the number of trades necessary to continue distributions as scheduled.
• If portfolio income exceeds the needed amount, we can rebalance and buy investments with cash rather than place trades that could create taxes.
• Many clients have a combination of accounts that may be taxable, tax-deferred, or tax-free. During yearly meetings, several decisions are made: which accounts are best to prioritize distributions and the best strategies to mitigate taxes.
  • Early in retirement, it may be appropriate to live on after-tax money in a joint investment account. At age 72, when required minimum distributions begin, we may first satisfy the RMD, then go back to the joint account to maintain consistent spending while navigating retirement rules and legislation changes.

Our clients have worked hard to be in a position where work becomes optional. It’s a rewarding part of our role to help them make that transition with confidence and peace of mind. Being intentional with cash flow is important while working, but even more vital during retirement. We take this off our clients’ plate so they can live the life they truly enjoy.

Jay Slagle, CFP® is a Senior Advisor at Rather & Kittrell. Jay is available at [email protected].