If you have spent the last thirty years saving for retirement, you have likely heard the same advice over and over: “Grow your portfolio.” “Focus on accumulation.” “Ride out the market volatility.”
For decades, this advice served you well. But there is a secret that most of the financial industry doesn’t tell you until it’s too late: The rules of money change the day you retire.
At Providence Financial, we have spent over a quarter-century helping retirees navigate this transition. What we have found is that most people approach retirement planning with an “accumulation mindset” when they actually need a “distribution mindset.” They are trying to retire on assets, when the reality is that you can only truly retire on income.
In this guide, we will explore why the strategies that got you to retirement often fail you through retirement, and how to build a retirement income strategy that allows you to sleep well at night, regardless of what the stock market does.
The Accumulation Trap: Why Growth Isn’t Enough
Have you ever noticed that almost all financial advice given today is about growing your money? Turn on the financial news, open a newspaper, or talk to a standard broker, and the conversation is almost exclusively about growth. It’s about dollar-cost averaging, beating the S&P 500 benchmark, and getting that account balance as high as possible.
Why is this the case?
In my opinion, it is because the vast majority of financial advisors specialize in wealth planning vs retirement planning. They are trained to help people in their 30s, 40s, and 50s accumulate wealth. And during your working years, that advice is perfectly valid.
The Role of Money During Your Working Years
When you are still receiving a paycheck, your portfolio has one specific purpose: Growth.
During this “accumulation phase,” time is your biggest asset.
- Volatility is your friend: When the market drops, you are still contributing to your 401(k) or IRA. A market dip means you are buying shares on sale. You are dollar-cost averaging, buying more shares when prices are low.
- Time is on your side: If the market takes a 20% hit, it might be annoying to see your balance drop, but it doesn’t impact your lifestyle. You have years, perhaps decades, for the market to recover.
- You don’t need the money yet: You are living off your salary, not your investments. The mortgage, the electric bill, and the grocery bill are paid by your labor, not your capital.
If your goal is simply to grow your portfolio, being invested 100% for growth makes perfect sense. But here is the critical disconnect: When your paycheck stops, your goal changes.
The Distribution Phase: When the Rules Change
When you retire, you undergo a paradigm shift that many financial advisor retirement planning professionals fail to address. You move from the “accumulation phase” to the “distribution phase” (or de-accumulation phase).
Suddenly, time is no longer your friend; it can become your enemy.
In the distribution phase:
- You are no longer adding money: The contributions stop.
- You start taking money out: You are now withdrawing from your portfolio to pay for your life.
- Volatility becomes personal: A market drop isn’t a theoretical loss anymore; it’s a threat to your livelihood.
Despite this massive shift in objectives, I find that most people do not adjust their strategy to match their new goal. They keep doing the same thing they’ve always done—investing for growth—except now they are taking money out instead of putting money in.
This is the equivalent of driving a car forward for 30 years and then suddenly throwing it into reverse without stopping to change gears. It damages the transmission. In financial terms, it damages your portfolio.
The Hidden Danger: Cannibalizing Your Principal
When you are invested for accumulation but taking withdrawals for income, you run a severe risk known as “Sequence of Returns Risk.”
If the market drops while you are withdrawing money, you are forced to sell more shares to generate the same amount of cash. You are effectively selling low. This is called cannibalizing your principal.
When the market eventually recovers (as it historically always does), you have fewer shares left in your account to participate in that recovery. You have dug a hole that your portfolio cannot climb out of. You might not realize this is a problem during a bull market when everything is going up by double digits. But retirement plans aren’t supposed to work just when the market is “good.” They need to work when the market throws a temper tantrum.
The Flaw of Averages in Retirement Planning
One of the most common misconceptions I hear from people seeking financial planning near retirement is a reliance on average returns.
A retiree might say, “Well, the stock market averages 8% to 10% a year. I’m only taking out 4% or 5%, so I should be fine.”
The math seems sound on the surface, but in reality, averages can be incredibly misleading.
Two Silly Examples of Misleading Averages
To illustrate why you cannot trust averages in retirement, consider these two analogies:
- The Runner: If I told you that, on average, my wife and I run 10 miles a week, you might picture us both jogging 5 miles together. But what if the reality is that my wife runs 20 miles a week and I don’t run at all? The average is still 10 miles, but the experience is totally different.
- Temperature Extremes: As a friend of mine likes to say, if you have one foot in a bucket of ice water and the other foot in a bucket of boiling water, on average your temperature is comfortable. But in reality, you are in serious pain.
The stock market works the same way. If you look at a 30 or 40-year period, yes, the market averages 8-10%. But you don’t live in the “average.” You live in the year-to-year reality.
If you retire today, and the market drops 50% in the next two years, the fact that it averages 10% over the long haul doesn’t help you. You have lost half your portfolio. Even if the market roars back over the next decade, if you have been withdrawing money during that drop, your portfolio may be depleted.
This is why retirement readiness assessment is so critical. You cannot plan your financial future on a spreadsheet average; you must plan for the volatility of real life.
Income Over Assets: A Better Way to Retire
If the accumulation strategy is dangerous for retirees, what is the alternative?
At Providence Financial, we believe the answer lies in a strategy we call Income Over Assets.
The philosophy is simple: You can’t retire on assets; you can only retire on income.
Think about it. You can have a million dollars in an account (an asset), but if you can’t access it because the market is down, or if accessing it destroys your principal, does it actually provide security? Security comes from cash flow.
Investing for Income
Investing for income means structuring your portfolio so that it generates money—through interest, dividends, and other contractual sources—without requiring you to sell the underlying asset.
- In an Accumulation Plan: You sell shares to generate cash. You hope the price is high when you sell. You are dependent on the market.
- In an Income Plan: You hold the asset. The asset pays you (interest/dividends). You spend the income and leave the principal alone.
This approach changes your emotional relationship with the market. When you know your bills are paid by reliable income streams, you stop worrying about the daily fluctuations of the S&P 500.
Why Does This Matter for Your Peace of Mind?
I often tell clients that my goal for them is simple: I want you to sleep well at night. I never want you to be anxious about the market.
I talk to so many people who are technically “wealthy” but are miserable because they are glued to CNBC, watching the ticker tape, terrified of a crash. They are losing sleep during periods of volatility because they know, deep down, that their strategy is fragile. They know that a crash forces them to sell low.
When you invest for income, volatility stops being a threat. If the market drops 20%, but your dividends and interest checks arrive in your mailbox on time, does the drop matter to your lifestyle? No. Your lifestyle is secured by income, not asset price.
Retirement Mistakes to Avoid: The “Do Nothing” Approach
The biggest mistake retirees make is inertia. They intuitively know that their situation has changed. They know that retirement is different from working. Yet, their financial advisors—who are often excellent at accumulation but inexperienced in distribution—tell them, “Just stay the course. Do what you’ve always done.”
So, they do nothing. They keep the same high-risk, growth-oriented portfolio they had at age 45.
This is why we see so many retirees feeling uneasy. They are trying to force a square peg (accumulation strategy) into a round hole (retirement needs).
Two different goals require two different strategies.
- Goal 1 (Working Years): Maximize growth, tolerate volatility, ignore income.
- Goal 2 (Retirement Years): Maximize income, minimize sequence of returns risk, preserve principal.
If you are currently retired or nearing retirement, and your portfolio looks exactly the same as it did ten years ago, that is a red flag. It is time to ask hard questions about whether your plan is truly built for the distribution phase.
How to Know If You Are Ready to Retire
So, how do you know if you are prepared? A true retirement readiness assessment goes beyond just checking your 401(k) balance. You need to ask yourself:
- Do I have a written income plan? Not just an investment plan, but a plan that details exactly where your monthly paycheck will come from.
- Does my plan rely on selling assets? If the market drops 30% tomorrow, do I have to sell shares to buy groceries? If the answer is yes, you are vulnerable.
- Do I understand my risk? Are you taking on stock market risk because you want to, or because you feel you have to in order to get a return?
- Have I considered inflation? Does my income plan have a mechanism to increase over time to combat the rising cost of living?
If you are unsure about any of these answers, it is time to seek out a fiduciary financial advisor retirement specialist who understands income planning.
The Providence Financial Difference
At Providence Financial, we are your retirement income source. We specialize in helping retirees transition from the accumulation phase to the distribution phase. We don’t just focus on “how much money do you have?” We focus on “how much life can your money provide?”
We believe that financial planning isn’t just about math; it’s about psychology and lifestyle. It’s about ensuring that you can enjoy the retirement you earned without the stress of market-watching.
Free Resource: Learn How to Get Income From Your Portfolio
We know that this concept of “Income Over Assets” is a major shift for many people. It contradicts 30 years of training. That is why we have created resources to help educate you.
I have written a book titled More Life Than Money, which has been an Amazon #1 Best Seller in multiple categories. In this book, I dedicate an entire chapter (Chapter 5) to explaining exactly how to generate income from your portfolio without cannibalizing your principal.
We also have a short, animated video that explains these concepts in just seven or eight minutes. It’s fun, easy to understand, and cuts through the financial jargon to show you exactly how income investing works.
Get Your Free Resources:
If you want to learn how to position your portfolio for income, we want to help.
- Get the Video: Go to providencefinancialradio.com/video to watch the animated explanation of these concepts.
- Get the Book: Go to providencefinancialradio.com/book, leave us your information, and we will ship a physical copy of More Life Than Money directly to your doorstep, absolutely free of charge.
Conclusion: Don’t Let the Market Dictate Your Retirement
You have worked too hard for your money to let a stock market correction dictate your quality of life in retirement. The advice that got you here is not the advice that will get you through.
It is time to stop chasing growth at the expense of security. It is time to stop worrying about averages and start planning for reality. It is time to focus on income.
If you are looking for a fiduciary financial advisor retirement partner who understands that you can’t retire on assets—you can only retire on income—we are here to help.
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Important Disclosure Information:
This blog is provided for informational and educational purposes only and should not be construed as personalized investment, legal, or tax advice. The views expressed are those of Providence Financial as of the date of publication and are subject to change without notice.
Any discussion of retirement planning strategies, guaranteed income concepts, market behavior, or financial planning techniques is general in nature and may not be appropriate for all individuals. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal.
Investment advisory services are offered through Providence Financial and Insurance Services Inc., an SEC-registered investment advisory firm. Registration with the SEC does not imply any level of skill or training. Advisory services are provided only to individuals who enter into a written advisory agreement with Providence Financial.
Providence Financial is a franchisee of Retirement Income Source, LLC. Providence Financial and Retirement Income Source, LLC, are not associated entities.
This content does not constitute an offer to sell or a solicitation of an offer to buy any securities, investment products, or insurance products. Any examples or hypothetical scenarios referenced are for illustrative purposes only and do not represent the experience of any specific client.
Any guarantees discussed apply only to specific insurance or annuity products and are subject to the claims-paying ability of the issuing insurance company. Guarantees do not apply to market-based investment accounts or securities.
Providence Financial is a California-licensed insurance agency, license number 0H52938. Insurance products and services are offered through Providence Financial in its capacity as an insurance agency.
Readers should consult with a qualified financial professional regarding their individual financial situation before making any decisions.
