Retirement Planning: How to Go From Life-Long Saver to Spender

By John Bajkowski 

AAII founder James Cloonan’s Level3 withdrawal approach allows you to stay invested in assets that offer the greatest potential for long-term wealth growth while satisfying current funding needs and minimizing real risk. The approach of the Level3 withdrawal strategy is to reduce the need to draw upon your equity assets during a market downturn to fund your regularly anticipated short-term funding needs. With the recent volatility in the market, a Level3 approach might be just what you need in your portfolio strategy.

The article Optimizing Retirement Withdrawals Using the Level3 Strategy offers insight on how the Level3 withdrawal strategy builds upon the idea that you should maximize your long-term wealth potential by being fully invested in stocks until you reach a point that you anticipate the need to withdraw funds for expenditures. The primary time that this will happen is at retirement when avoiding short-term risk becomes paramount. Bajkowski presents Cloonan’s compelling argument for establishing a short-term defensive allocation and keeping the remainder of your assets in stocks.

Some key points that the article highlights include:

• The principles of “Investing at Level3”
• History of how the defensive Level3 approach would have worked during downturns
• An overview of Level3 rules for the withdrawal stage 

By Carrie Schwab-Pomerantz 

Becoming a spender after a lifetime of saving means having an entirely new approach to your money. It can be tough regardless of your financial expertise or the size of your portfolio. The Schwab Center for Financial Research has come up with nine guidelines to help you reduce your financial stress and give you the upper hand as you move into retirement.

Some of the important highlights from the article include:

• The importance of reviewing your situation
• How much cash you really need to maintain
• The value of consolidating
• Why you shouldn’t be afraid of tapping into principal 
• The 4% guideline
• How to be more tax efficient

Ultimately, you want to try to avoid getting tunnel vision when preparing for life in retirement, which makes it important that you keep in mind the guidelines the article From Saver to Spender: Managing Your Money in Retirement lists. As an experienced investor, you likely have the drive and knowledge to follow these guidelines and manage your money wisely. However, as you keep an eye on your accounts, don’t forget about the rest of your financial life. And as always, another pair of eyes can help you create such a strategy and spot trouble before it happens, so discuss your retirement plans with your adviser and family members.