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Never Enough

With the emerging population of baby boomers entering the retirement phase of their lives, one of the most common topics of discussion is how to manage an effective income stream through retirement.

Baby boomers are those born between the years of 1946 and 1964.  There are approximately 76 million boomers in the US representing about 29% of the population. By 2030, all baby boomers will be older than age 65.  This expansion is projected to result in an older population to the point that 1 in every 5 residents will be retirement age.  The first baby boomers reached the standard retirement age of 65 in 2011 and given the tremendous swath of the population entering the retirement phase, it is not surprising that retirement income is a pressing subject.

At some point every investor will navigate the path from the accumulation of assets to the distribution phase of assets.  The accumulation phase is the period that an investor is actively working, and saving diligently, toward amassing an investment portfolio in anticipation of funding his or her retirement in the future. The distribution phase is the time in your life when you start collecting on the various investments and retirement savings accounts that have been setup to fund your lifestyle for the rest of your life. Distributions may not be limited to living expenses. Withdrawals that need to be funded from assets could also be a consideration with active charitable interests, tax payments, family support, legacy planning, a business venture, second home, or other goals. Given all the variables that investors are faced with, there is an overarching fear that there is never enough.

One client referred to this transition from accumulation to distribution simply as a game of checkers versus a game of chess.

Oh, to be young again. While investors are accumulating assets, the formula can seem very straight forward, and time is abundant.  Set up automatic savings contributions, save as much as you can, and often. Globally diversify in low-cost investments primarily consisting of stocks.  Then, let the time value of your investments work in your favor.  Simple enough, right?  This is very much like a game of checkers.  However, as we start to enter the retirement phase we find the decision of how to draw down the funds to be much more complicated.  After all, the stakes are now higher than ever with most investors near the peak of their life in asset values.  The time that seemed so limitless in our younger years is now becoming less each year resulting in more risk that a mistake is not easily replaced.  There are multiple considerations from a tax perspective to think about in terms of where to draw the funds.  In addition to these concerns there are added risks of health care costs, inflation, longevity risks, the timing of when to receive social security benefits, and, most of all, the uncertainty as to what type of returns we can expect when we start to look to replace a paycheck.  Lastly, to top it off, you are a rookie with no experience in this type of structure, and you have one chance to get this right.  There is no dress rehearsal for retirement, and according to the 2017 Retirement Confidence Survey just 24% of workers sought out professional guidance before making the leap. Yes, the checkers game quickly becomes very much like chess.

This year 75% of baby boomers surveyed by the Insured Retirement Institute believe that they will not have enough money in retirement, and only 28% believe they are doing (or did) a good job financially preparing for retirement.  In addition, the new generation of retirees will live longer than any other generation in human history.  As many will face this reality, in my years of practice I have heard the questions come in various forms during pre-retirement planning conversations such as “What return are your planning projections assuming?”, “At what age are you planning I live to?”, “Does this account for rising costs?”, “How do you plan for taxes?”, “What about healthcare costs”?, and “What if we increased our spending, how would that look?” to name a few.  The comments are also varied and never disappoint such as “Oh, I will never live that long.”, “If you can tell me when I die this would be a lot easier.”, “People usually don’t spend as much when they are older, right?”, and “Show me the scenario where the last check bounces to the undertaker.” These combined thoughts, questions, and comments all center around a consistent theme with investors that they intuitively know.  That is the notion that a shift from the investment strategy they have used in the past will need to take place to ensure a high likelihood of success in the future, but they are not certain how to make that adjustment.  In many cases, this is the “why” behind the questions, and it all relates to a risk called the Sequence of Returns Risk.

Sequence of Returns Risk is referring to the realization that we do not know year over year what type of actual returns we will receive in the future years as we spend down our assets.  We have a relatively good idea of how markets behave over long periods of time, but year over year it is a fool’s game to forecast.  We also do not know how long the assets will be needed to fund our goals. Therefore, an adverse set of negative returns early in retirement could create a dire scenario. Since most portfolios that investors utilize to save for retirement have been generally model based (allocated by age or risk groups), and geared toward accumulation goals, the very strategy that worked effectively for them to save money over the years while accumulating their nest egg will now work precisely against them if they do not change the method by which they distribute the funds. An errored approach to the withdrawals can cripple a portfolio if the right management approach is not put into place.  To illustrate this effect, the chart below shows two identical portfolios, but very different outcomes due to the sequence of when the returns occur:


As referenced, the sample portfolios have identical average annual returns, identical annual compounded growth rates, and identical risk attributes (standard deviation).  The illustration also assumes that $5,000 is withdrawn per year from each of the portfolios.  Portfolio A, due to a bad early sequence of returns, is depleted by year 20, and portfolio B has more than doubled the initial investment balance through 25 years while withdrawing the same amount.  How can this be?  Just by flipping the order of when the returns received led to very different results.  Much like during your working years when you saved each month or quarter, you were not as concerned if your assets were headed through declines, corrections, or bear markets because the same dollars invested purchased more shares of the investment when it was depressed at lower prices. Over time the broad-based markets have an upward bias, and you have time on your side. This is called dollar cost averaging.  When the temporary decline was eventually resolved, and as the asset prices moved higher over time, you were rewarded for the additional share balance purchased.  In the distribution phase, if markets decline and you continue the same approach in reverse consistently selling to create an income stream across the holdings, more shares are sold of that asset when prices are down creating a permanent loss.  Because those shares have been sold, there are less shares in place to capitalize on the recovery to higher values in the future.  With a bad “sequence” you have the risk of running out of capital at a faster pace.

The Sequence of Returns risk creates the same uncertainty that, without a good plan, could lend some that have adequately saved toward retirement to work longer and push out their retirement date.  Or it makes others feel less confident to take the extra trip, support charitable causes, purchase a new car, or provide timely gifts to family members for the fear they may over spend during their early retirement years.  Often, it is also the culprit of the anxiety investors experience during corrections, bear markets, and recessions as we age.  The emotional toll of that uncertainty is a real factor for investor behavior and decisions, just as the financial ability to assume risk is of concern.  It is enough to spark the urge to queue the famous song “Never Enough” performed by Loren Allred from the The Greatest Showman movie soundtrack (always best played with the volume on high), and wallow in the sorrows.   Delay retirement, delay spending, and keep working.  “NEVER.  NEVER.  Never Enouuuuuuuugh!  NEVER. NEVER.  Never Enouuuuuuuugh! For me!”

So, if we cannot control what returns we have, and we do not know how long we will live, how do we effectively plan for this inevitable evolution of savings to spending?  The answer is simple:  work longer, spend less, and pick up a bad habit (just kidding!).

While this is a seemingly monumental hurdle for many, the Sequence of Returns Risk can be managed with prudent planning and active oversight.  First, it is important to put in place an end-to-end comprehensive financial plan that incorporates all investable assets, and income sources such as business assets, real estate, and other non-marketable income sources such as social security and pensions if applicable.  Create a detailed budget to realistically document what you will need to fully fund your lifestyle.  While this seems like an obvious step, according to the Insured Retirement Institute, only 38% of baby boomers have calculated the amount they will need to retire.  Next, determine the types of assets that are available to produce the retirement income needed.  Some assets require that withdrawals are made at a certain age like required minimum distributions and are taxed at higher rates, while others create more tax efficient income sources such as taxable accounts. While other assets are earmarked for legacy planning with very tax efficient growth such as Roth IRAs.  Once the income sources are identified, it is critical to setup a retirement friendly portfolio that is constructed, and customized, to meet the specific goals and liabilities for income needs.  This includes owning a portion of the portfolio holdings in bonds, or other predictable assets that are not correlated to the stock market.  By allocating a dedicated portion to these assets, it creates an avenue for the portfolio to weather longer periods of market downturns, pay a much higher ongoing income than cash, and create a pool of money that can also be used to opportunistically buy stocks at lower prices during declines. Yes, with a properly diverse portfolio you can still buy investments at good values even while taking distributions from the portfolio.

It is important to formulate the right withdrawal strategy from the retirement portfolio to sustain periods of up and down markets.  By tailoring a globally diversified portfolio to meet the specific goals of each unique situation, a well thought out distribution plan can be setup to help weather inevitable corrections and bear markets that occur during the retirement years.  Strategically sourcing the ongoing retirement income from an appropriately constructed portfolio may reduce volatility and help optimize how to effectively spend down assets over time.  Once a structured and repeatable plan is in place, it will allow for confidence and clarity to plan around other goals of care such as travel, helping family, gifting, or charitable aspirations.  This way, you can think more about maximizing each day, and less about if there is never enough.


  1. 2017 Retirement Confidence Survey – Employee Benefit Research Institute:  https://www.ebri.org/docs/default-source/ebri-issue-brief/ebri_ib_431_rcs.pdf?sfvrsn=1e8a292f_0
  2. Insured Retirement Institute – Boomer Expectations for Retirement 2018:  https://www.irionline.org/research/article/boomer-expectations-for-retirement-2018/
  3. Fidelity: https://www.fidelity.com/bin-public/060_www_fidelity_com/images/Viewpoints/PF/safeguard_retirement_chart2.jpg
  4. United States Census Bureau – Older People Projected to Outnumber Children for First Time in U.S. History: https://www.census.gov/newsroom/press-releases/2018/cb18-41-population-projections.html

This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.


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