Funding retirement needs amid turbulence

By Steve Giles

When you’re retired and the markets get volatile, managing withdrawals from your savings becomes critical. No matter how disturbing market sell-offs get, you still need to count on your retirement income.

Over three decades in the industry, I’ve seen plenty of downturns — each driven by different causes, reaching different depths, lasting different lengths. What they all have in common is the stress they can cause retirees who are trying to rely on their investments for cash flow without drawing down their savings.

The good news? While markets change, core strategies for managing withdrawals and preserving principal remain consistent. Here are four of the most effective retirement distribution strategies I’ve used with clients.

1. The Bucket Approach

One of the most popular and practical strategies divides your savings based on when you expect to need the money.

• Bucket 1 holds very stable investments — cash, money markets, certificates of deposit — designed to cover near-term expenses with little volatility.
• Bucket 2 contains slightly more aggressive but still relatively conservative investments, such as short- and intermediate-term bonds.
• Bucket 3 protects assets you won’t need to access for several years. It holds growth-oriented investments like stocks and equity mutual funds.

The bucket approach lets you draw from safer assets when the market is down, thus funding your retirement needs while giving more volatile investments time to recover. A key strategy in a sell-off is to avoid being forced to sell investments at a loss.

2. Flexible Withdrawal Strategy

Instead of sticking to withdrawals at a fixed percentage, like the classic 4% rule, you adjust your withdrawals based on market performance. If your portfolio takes a hit, you reduce your withdrawals temporarily. When your nest egg is back up again, you can resume or even increase your distribution rate.

Such flexibility helps protect your long-term portfolio from sequence-of-returns risk — the danger of withdrawing too much during a downturn. For many retirees, a traditional 60/40 stock-to-bond allocation provides a solid foundation for flexible withdrawals.

3. Guaranteed Income Floor

Establishing a base of guaranteed income to cover essential expenses can provide valuable peace of mind. The floor gets funded from such regular payments as Social Security benefits and pension distributions. By directing those steady sources of income to pay for basic needs, you’re less dependent on market-based withdrawals. You can be more selective about when and how you access your investments — again, avoiding the need to sell something at a loss.

Most retirees using this approach draw from their portfolios to fund flexible expenses — travel, home projects, vehicle upgrades — rather than for day-to-day living costs.

4. Volatility as an Opportunity

Although it may not feel so at the time, sinking markets eventually rise. Volatility goes in two directions, which can present opportunities.

Rebalancing your portfolio in turbulent periods helps you stay aligned with your long-term goals. Selling some of your winners and buying undervalued assets allows you to take advantage of temporary mispricing in the market.

This is where it pays to have a portion of your portfolio in cash, bonds or fixed-income assets. If all you own is stocks, you could be forced to sell at a loss to try to take advantage of a market dip. But with some conservative holdings, you have “dry powder” ready to put to use when opportunities arise.

Final thought

Your investment strategy in retirement isn’t just about growth — it’s about resilience. By planning ahead, staying flexible and keeping calm amid the occasional chaos, you can continue to meet your income needs while protecting your capital through market cycles.

Steve Giles is senior vice president and an investment advisor at Landaas & Company, LLC.