The Two “Dynamics” That May Just Save Your Retirement

By Andi McNamara, CFP®
Vice President, Director of Financial Planning
Washington Trust Wealth Management

No matter how carefully you’ve planned, market fluctuations and unexpected expenses can be a serious threat to your retirement. The two “dynamics” of retirement—dynamic expenses and dynamic withdrawals—can help your portfolio weather any storm. 

Dynamic Expenses and Spending

Retirement expenses aren't static; they evolve over time. Consider your retirement a journey with distinct stages. 

• In the early “go-go” phase, you’ll likely be more active, traveling, pursuing hobbies, and enjoying life to the fullest. This is when your expenses might be higher, and you'll need a portfolio that can generate the income to support your spending. 
• As you enter the “slow-go” phase, you might scale back on activities, staying closer to home and spending more time on less physically demanding pursuits, so your expenses may decrease slightly but healthcare costs might start to rise.
• Finally, in the “no-go” phase, you'll likely spend more time at home due to health limitations, requiring more funds for medical care and possibly long-term care. 

It's essential to plan for these phases, taking into account the potential length of your retirement, increasing and decreasing expenses, inflation, and taxes. And it’s important to regularly review and update your financial plan with a wealth advisor to adapt to changes in your lifestyle. 

Dynamic Withdrawals

Your withdrawal strategy should reflect what is happening in your life, both the things you can and cannot control. It can be worrisome to watch your portfolio value decline during retirement, when you are no longer working and saving. Here’s how a dynamic withdrawal strategy can help. 

• Create a plan with your advisor where you set a predetermined portfolio balance that will trigger a change in spending.      This works for both increasing and decreasing spending. If you’ve withdrawn less than planned, or your portfolio has grown more than expected, you may be able to spend more. If you’ve spent more than planned, or your portfolio balance is lower than expected, you may need to reduce spending until the portfolio grows back to the targeted level. 
• It helps you enjoy today with the confidence that you are prepared for tomorrow. Having clear target portfolio balances and understanding what amount of spending adjustment may be required can help you enjoy the most active part of your retirement. 
• Dynamic withdrawals happen naturally for most people in times of economic uncertainty or market turbulence. It’s comforting to know when you should reduce spending if the stock market is volatile and, by how much.  
• A dynamic strategy determines how you should react to changes in your income, like Social Security benefit increases for inflation, changes in interest rates and portfolio income, along with changes in your portfolio assets. 

Review your portfolio, income, cash flow and your financial goals annually or as needed with your wealth advisor and adjust your withdrawal strategy accordingly.

Approaching retirement? Contact your Washington Trust Wealth Management advisor today to discuss how to adjust your portfolio, spending, and withdrawals to meet your goals for retirement and life.