There is a downside to tapping into your retirement right now

In retirement, if you keep your account invested the same way it has been over the last eight years, you could be in for a shock.

By Mike Brady, Michael Brady & Co. Wealth Management

If you are looking at your retirement plan balance and thinking that now would be a good time to retire since you have more money than you have ever had in your life, be very careful. In retirement, if you keep your account invested the same way it has been over the last eight years, you could be in for a shock.

Over the last eight years, the stock market has climbed to an all-time high and the portion of retirement portfolios invested in stocks has grown out of proportion to the rest of the portfolio. If you begin to take distributions from your account for living expenses, and the market declines, you could end up depleting the account in the early years of your retirement and significantly increase the likelihood of running out of money.

With the stock market at all-time-highs, the chances of making outsized returns in the future are reduced. You also run the risk of a market correction in the early years of your retirement, which we call “sequence of return risk.” This simply means that a bad sequence of returns early in your retirement is much more damaging than if the bad returns occur after you have had a chance to build up a cushion from years of good returns.

To avoid a bad outcome from an early sequence of bad return years, new retirees should plan to take several years of distributions from cash reserves. This necessitates making your overall portfolio more conservative from the allocation you maintained while in the contribution and growth stage that resulted in the pile of money you are now contemplating funding your retirement with.

In a counter-intuitive strategy, retiree portfolios should be more conservative in the early years of retirement and then may become more aggressive in later years, when a cushion of profits has grown to protect the principle from future market declines. 

Distributions of cash reserves should be used to supplement Social Security distributions or immediate fixed annuity or pension payments to provide the necessary monthly income to cover both essential and discretionary living expenses.

This is a critical and emotional time to be contemplating retirement. You should understand the dynamics of the market and the potential results of your retirement decisions. Let us know if we can help you to understand your options and provide you with the information you need to make the best choices.

Michael Brady is a fee-only, full-time fiduciary and certified financial planner. To set up an appointment, call 440-235-2100, email, or visit