How to Take Portfolio Withdrawals in a Down Market

When markets go down, it’s also hard to watch the value in our accounts go down. It can even cause some to second guess if they’re doing the right thing. But if we spend just a few minutes preparing our portfolio for scenarios like this, we’ll have a much smoother ride and more confidence with our retirement plan.

But if we keep managing our portfolios the same way we did the last 30 or 40 years, and we don’t start designing the income withdrawal strategy, that could open us up to a lot more retirement risks that could and should be avoided. 

So in this video, I’ll go over a simple way to prepare to take withdrawals in a market downturn. My name’s Dave Zoller, and I’m a co-owner of Streamline Financial with Tim, Luke, and Sean, and we get to help a lot of people design their ideal retirement. If you’ve been working with an advisor for some time and you’re starting to realize that retirement has a whole new set of planning strategies but maybe it’s not their specialty, you’re welcome to reach out to us or schedule a free call with me. 

Segment your Investments into a Conservative and Growth Bucket

To keep it simple, think about using the “bucket approach” by segmenting your different investments into a conservative and growth bucket. Take the pre-tax accounts like your IRA’s and 401k’s, then separate all the individual holdings into two categories – conservative and growth. If you’re not sure if they’re conservative or growth, here’s a free tool to help you do this pretty quickly. 

Historically, assets that could fit into the conservative bucket have been cash or money markets or certain types of fixed income. The main purpose is for times when the stock market is down, it’s great to have investments in asset classes that are not down as much (like stocks). It’s much easier to use those conservative assets that aren’t down as much for income.

What we don’t want to do is be forced to sell an investment or fund that’s down the most. Instead, let those investments in the growth bucket stay invested and give it a chance to grow to where it once was. 

Determine Your Income Plan

You’ll also want to consider how many years of income you need (or want) in that conservative bucket…

  • Do you like having a year’s worth of cash available for expenses coming up?
  • Or maybe three to four years’ worth of income?

Another way we help clients figure out what the right amount to have in the conservative bucket is by first figuring out their income plan. This is really their entire financial life and retirement plan in one visual so that we know what rate of return we need for the plan to be successful. 

It allows us to model out many different scenarios, like higher than expected inflation, changes in expenses, or Roth conversion strategies. It shows us the result before we actually make the decision or before it happens. This really guides us to what we need in conservative assets, in that conservative bucket. 

One mistake that we see people make quite often is putting in more than what’s needed into the conservative bucket – they end up losing more to inflation than they really should be.

How to Identify Your Conservative and Growth Investments 

Using Portfolio Visualizer, and following along in the video above, you can start plugging in your asset percentages you can model different scenarios for your portfolio. This isn’t recommended allocations, it’s just to get an idea of what are the conservative assets vs. growth assets at a high level.

There’s a lot that goes into designing these allocations that are the right fit for your retirement plan, but this can give you an idea and help in deciding how to take withdrawals during market corrections or down markets. 
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