Four Threats to the Distribution Phase of Retirement
Keep challenges such as inflation, market volatility and more in mind when it’s time for you to shift from saving for retirement to spending.


When discussing the difference between the accumulation and distribution phases of retirement, the classic metaphor used by financial professionals is an ascent up a mountain, with the climb being arduous and the descent being an easy, measured slide down a steep slope. While this metaphor does provide a useful mental image for retirees, it also implies (wrongly) that the trip down the mountain is effortless.
In reality, the distribution phase of retirement can be the most challenging, especially if the retiree hasn't taken into account how they will spend their money. In this article, we'll explore how to make the distribution phase of retirement work for you and discuss points to consider with your financial planner to ensure a high-quality retirement.
Managing risks in the distribution phase
The distribution phase begins when you start drawing from your accumulated income to support yourself. As financial professionals, it is our responsibility to help you make a plan to not only transition from saving to spending, but also to enter and execute the distribution phase without depleting your nest egg too quickly.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The greatest threats to retirees at this point are failing to consider market volatility and inflation, yearly tax bills and unexpected long-term care and medical costs that may arise from living longer than anticipated.
Planning for market volatility
If you know anyone who retired in 2020, they may have told you stories about how their retirement investments were stable one day and in dire straits the next. This is because they didn't take the economic downturn seriously and didn't have a plan for that eventuality.
Essentially, they were withdrawing money from accounts with shrinking values and no chance to replenish. To avoid this, make sure that you don't have too much invested in high-risk investments and diversify your investments to give your funds a better chance of recovering their value when a crisis impacts the markets (and your money).
Take note of inflation
Overlooking inflation is another danger in the distribution phase. Just because you could hypothetically retire today doesn’t mean the same will be true in 10, 20 or 30 years. Last year, the inflation rate hit an all-time high of 9.1% (the highest since 1981). While it’s since lowered to a more average yearly number of 3.2% (as of July 2023), you can expect plenty of surges and dips like this throughout your lifetime, especially over the next decade.
You can use an inflation calculator to give you a better idea of how far your money will take you when you retire, but the best action is to make sure your retirement fund is protected from tax liability.
Shift from tax-deferred vehicles
The secret to mitigating taxes? Plan ahead. You can lower your tax bill by shifting your retirement nest egg from tax-deferred accounts like IRAs or 401(k)s to Roth accounts. While your tax bill will increase in the year of the shift, you can time it correctly to ensure that this occurs while you still have a paycheck coming in and while tax rates are lower.
Remember that tax rates tend to increase year after year, much like inflation, and one thing is certain: You will have to pay them. It's better to do so while you still have a paycheck coming in and when tax rates are lower, so you won't feel the tax burden as acutely.
Additionally, your retirement funds can continue to grow tax-free until you're ready to use them.
Don't overlook your RMDs: Develop a strategy to take them when it's most beneficial for you.
Understanding sequence risk
They say what you do with your money five years before retirement and five years into retirement have more of an impact on the quality of your retirement than a lifetime of saving. It’s not untrue, but really, it's the timing of the actions you take with your money that matters most. Think again of the trip down the mountain. If it’s raining and icy, it’s probably not a good time to continue your descent.
Similarly, sequence risk is what we call it when withdrawing funds from a retirement account will hurt the overall rate of return. For example, retiring during a bear market can take huge chunks out of your retirement accounts in losses while simultaneously you’re withdrawing money to live. Many financial professionals say that sequence of returns risk is a matter of luck — one can never predict what the market will do, of course. But at our firm, we say it never comes down to luck; it comes down to planning.
To combat sequence risk, you might consider working longer, investing more in government bonds or asking your financial professional to show you some annuity products or life insurance policies with an income rider to help you have more liquidation and income options should sequence risk be at a high when it’s your turn to retire.
The bottom line
Many retirees, and unfortunately some financial planners, too, overlook the fact that their financial portfolio needs much more attention during the distribution phase than it did during the accumulation phase. With no new money coming in from paychecks, there's much less room for error. One misstep could cause you to tumble down the retirement mountain. To protect the quality of your retirement, speak with your financial professional about developing a plan to seamlessly shift from accumulation to distribution.
related content
- A Retirement Income Distribution Plan Is as Critical as Saving
- How to Create Retirement Income That’s Driven by Cash Flow
- Am I Going to Be OK in Retirement? Yes, With Focus on Five Key Areas
- In Retirement Planning, What’s Your Retirement Personality?
- Five Reasons You’ll Blow Up Your Retirement Plan
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Cliff Ambrose, the visionary behind Apex Wealth, serves as a wealth manager with an innate passion for steering individuals toward enriched financial independence. His journey began with a robust educational foundation in finance and economics, culminating in a degree that set the stage for his financial guidance career. With his start at Metlife, Cliff acquired valuable hands-on experience in the industry, complemented by securing his Series 6 and Series 63 licenses and, later, his Series 65 qualification.
-
Savings Goal Calculator
Tools Want to know how much you need to save each month to reach your financial goals? Our calculator helps you build a realistic savings plan.
-
Cash vs. Mortgage: How to Pay for Your Second Home
Should you buy your second home outright or finance it with a loan? Weigh the pros, cons and tax implications before making the leap.
-
Gray Divorce Can Throw Your Retirement a Curveball: What to Know
If you're entering retirement and going through a divorce at the same time, you've got some work to do to shore up your long-term financial security.
-
I'm a Real Estate Investing Expert: Optional 721 UPREIT DSTs Can Be the Best of Both Worlds
Before investing in any 721 UPREIT exchange, look for one that offers a straightforward, investor-friendly exit.
-
How an Expired Passport Thwarted Blackmail (and What Other Important Documents You Should Keep)
An optometrist produced his expired passport to foil a blackmail attempt by the daughter of a former employee. After proving he was out of the country on the date of a forged diary entry, he took it a step further.
-
Optimize, Grow, Retain: The Power of Annual Client Reviews
Financial advisers can use annual reviews to help enhance client outcomes, strengthen relationships and build their practice.
-
I'm a Real Estate Investing Pro: This Is What Investors Should Know About Truck Stop Investments
Truck stops might seem like good investments, but they can actually be a risky gamble due to unstable fuel prices, unreliable operators and coming changes in transportation. Instead, consider safer options like industrial or residential properties.
-
Don't Disinherit Your Grandchildren: The Hidden Risks of Retirement Account Beneficiary Forms
Standard retirement account beneficiary forms may not be flexible enough to ensure your money passes to family members according to your wishes. Naming a trust as the contingent beneficiary can help avoid these issues. Here's how.
-
This Is How Life Insurance Can Fund Your Dreams Now
Beyond a death benefit, life insurance can provide significant financial value and flexibility through 'living benefits' while you are still alive, helping with expenses like education, business ventures or retirement.
-
Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on Retirement
While some provisions might help, others could push you into a higher tax bracket and raise your costs. Be strategic about Roth conversions, charitable donations, estate tax plans and health care expenditures.