As you approach or enter retirement, one of the most important financial decisions you’ll make is how to manage your investment strategy. Many individuals face the challenge of balancing growth and income in retirement—a task that requires a thoughtful blend of risk management, cash flow planning, and long-term vision.
This balance is crucial. On the one hand, your retirement savings need to continue growing to help combat inflation and extend the longevity of your funds. On the other hand, you need those savings to produce income that supports your lifestyle without taking on unnecessary market exposure. Finding the right equilibrium between growth and income can help you maintain your desired standard of living while preserving your nest egg for the future.
Why the Balance Matters
Retirement is not a single phase—it’s a journey that may span 20 to 30 years or more. During that time, your expenses, goals, and financial needs will likely evolve. A common mistake is shifting too heavily into conservative, income-generating investments and missing out on potential growth that could help sustain your assets in the long run.
Alternatively, an overly aggressive strategy may expose your portfolio to short-term market losses at a time when you’re relying on that money to live. This is why balancing growth and income in retirement is not just about choosing between stocks or bonds—it’s about designing a strategy that adapts to your goals and timeline.
Structuring a Balanced Retirement Portfolio
When building a retirement portfolio that balances growth and income, asset allocation is key. Generally, this includes a combination of:
- Growth Assets: Investments like equities that offer the potential for appreciation. While they come with market risk, they also provide opportunities for portfolio growth over time.
- Income Assets: These include fixed-income investments, dividend-paying stocks, annuities, or interest-bearing accounts that generate regular payouts.
- Cash Reserves: A portion of your portfolio may be held in cash or equivalents for short-term expenses or emergencies.
The appropriate mix depends on factors such as your age, life expectancy, spending needs, and risk tolerance. At Fredericks Wealth Management, we take these variables into account when helping clients build a retirement strategy that’s designed to evolve alongside their financial lives.
Segmenting for Different Time Horizons
A time-based segmentation strategy can help in balancing growth and income in retirement. Often referred to as a “bucket strategy,” this approach divides your retirement savings into segments based on when you plan to use the money:
- Short-Term Bucket (0–3 years): Funds for immediate expenses, typically held in cash or other liquid, low-risk vehicles.
- Mid-Term Bucket (3–7 years): Funds designated for the near future, possibly placed in conservative investments such as short-term bonds or annuities.
- Long-Term Bucket (7+ years): Money allocated for later in retirement, invested in growth-oriented assets that can benefit from a longer time horizon.
This strategy allows for growth potential in later buckets while providing immediate income from the more conservative portions of the portfolio.
Managing Withdrawals Strategically
Creating a sustainable withdrawal plan is just as important as building the portfolio itself. A structured approach helps avoid depleting your assets too quickly. Many retirees use a systematic withdrawal strategy, often starting with a conservative percentage—such as 4% per year—and adjusting as needed for market performance and inflation.
At Fredericks Wealth Management, we explore options such as combining systematic withdrawals with income from annuities or other products to potentially enhance the stability of your income stream. These tools are carefully chosen to align with a client’s goals and to reflect a plan that is personalized, not one-size-fits-all.
Tax Considerations in Retirement
Balancing growth and income also requires attention to tax efficiency. Different account types—taxable, tax-deferred, and tax-free—can have varying impacts on your income and tax liabilities. For example, withdrawing from a Roth IRA may not trigger taxable income, while drawing from a traditional IRA likely will.
We help clients understand how to strategically withdraw from different accounts to potentially reduce their tax exposure. This can be especially valuable when combined with Roth conversions or charitable giving strategies as part of a broader retirement income plan.
Rebalancing as Life Changes
Even the most carefully designed retirement portfolio needs regular attention. Over time, market performance can shift your asset mix, and life events can impact your needs. Regular rebalancing helps keep your portfolio aligned with your intended balance between growth and income.
Whether you’re planning to travel, support a loved one, or adjust to rising healthcare expenses, we believe your retirement strategy should be dynamic. At Fredericks Wealth Management, we help clients evaluate their plans annually—or more often if necessary—to help ensure their portfolios continue to serve them well.
Balancing Growth and Income in Retirement: A Personalized Approach
Every retiree’s situation is unique, and that’s why there’s no universal formula for success. At Fredericks Wealth Management, we focus on balancing growth and income in retirement by helping you develop a strategy that reflects your goals, risk preferences, and future needs. If you’re ready to explore a retirement plan that offers both resilience and flexibility, we’re here to assist you throughout the process. Please contact us at your convenience to start the conversation. We look forward to speaking with you!
