Six Surprises New Retirees Face in the Drawdown Phase

You may have mastered saving for retirement, but shifting from building wealth to spending it can still feel jarring. Here are the changes most likely to catch you off guard — and how your approach needs to evolve.

For decades, the formula is straightforward: save, invest, let your money compound, and repeat. Retirement changes that dynamic almost overnight. The habits that helped create your nest egg are not always the ones that protect it best once you stop earning a paycheck.

As a financial planner with nearly two decades of experience, I have worked with many successful savers who knew how to accumulate assets but were surprised by the drawdown phase. The transition is real, and understanding it ahead of time makes it much easier to manage.

Here are six things that can happen to your investments when work ends.

1. Sequence-of-returns risk becomes much more important

While you were still saving, an early market drop could actually help by letting you buy shares at lower prices. Over time, that kind of volatility often evened out. In retirement, however, the order of returns matters a great deal.

A sharp decline in the first few years after retiring, while you are also taking withdrawals, can cause far more damage than the same decline later on. You are selling shares to cover living expenses at exactly the wrong time, and those shares no longer have a chance to recover when the market rebounds.

Two retirees with identical average returns over a 30-year retirement can end up in very different financial positions depending on when the bad years arrive. The person who faces turbulence late may do just fine, while the person who encounters it early may run short despite having the same long-term average. Most people do not hear about sequence-of-returns risk until it is already relevant.

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2. The focus shifts from maximum growth to income and stability

Accumulation is about growth. Retirement is about funding your life with the money you have built. That usually means stepping back from the most aggressive parts of the portfolio and leaning more on investments that can generate income and endure volatility with less stress.

This does not mean abandoning stocks entirely, because a retirement that may last decades still needs growth to stay ahead of inflation. Instead, it means adjusting the mix so a bad year does not force you to sell your best assets at a loss just to pay the bills. The allocation that worked at 45 is often not the one that works best at 65.

3. Cash becomes a useful tool

During your working years, holding a lot of cash may have felt inefficient — money sitting on the sidelines instead of being invested. In retirement, a cash reserve serves a very different purpose.

Keeping one or two years of expenses in cash or cash equivalents gives you a source of funds when markets are down, so you do not have to sell investments after they have fallen in value. That buffer helps the rest of the portfolio stay invested through rough periods.

This can be a difficult mindset change for lifelong savers, who spent years hearing that idle cash is wasted cash. In retirement, that same cash can be doing important work.

4. Required minimum distributions start steering the plan

At some point, tax-deferred accounts stop being entirely under your control. Required minimum distributions, or RMDs, generally begin at age 73, and the IRS requires you to withdraw a calculated amount each year whether you need it or not. Those withdrawals are taxed as ordinary income.

For someone with a sizable traditional IRA, the forced withdrawals can be large enough to push them into a higher tax bracket or trigger Medicare surcharges. Missing an RMD can also be expensive: the penalty is 25% of the amount not taken, though it is reduced to 10% if the mistake is corrected promptly.

RMDs turn your portfolio into a source of taxable events on a schedule you do not control. That is why the years before age 73 are so valuable for planning. Withdrawing some tax-deferred money earlier, or converting some of it while you have room in lower tax brackets, can reduce the size of future RMDs. If you wait too long, the distributions — and the tax bill that comes with them — only grow.

5. Dollar-cost averaging works in reverse

For years, you probably added money on a steady schedule and benefited from buying more shares when prices were lower. That discipline helped build your portfolio over time.

Retirement reverses the pattern. You begin taking money out regularly, which means you often sell more shares when prices are down — the mirror image of dollar-cost averaging.

That is one reason withdrawal order and a cash buffer matter so much. Taking a fixed dollar amount from a falling market can reduce your share count faster than many people expect. The same mechanical force that helped grow your wealth can work against it if you do not plan for it.

6. Spending can be harder than saving

This final shift is psychological, but it is very real. People who spent their entire lives saving often have trouble flipping the switch and becoming spenders. Some under-spend because they are nervous, denying themselves travel or comforts they worked for, simply because seeing the balance decline feels wrong after years of watching it rise.

Others go in the opposite direction and spend too freely early on, before they have a clear sense of how long the money must last.

Neither extreme is ideal. Becoming a deliberate, comfortable spender — using the money you worked to build without fear or recklessness — is one of retirement’s most underrated challenges, and one that few people are warned about in advance.

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Putting it all together

Taken together, these six issues point to a single conclusion: retirement is not simply accumulation continued under a new name. It is a different stage with different rules, different risks, and a different relationship to money. The instincts that helped build a nest egg — save aggressively, stay invested, and ignore short-term noise — do not always translate neatly into spending that money down over time.

That does not mean retirement should be something to fear. It means the transition deserves its own plan rather than just an extension of the one that got you there. The period around retirement is when these changes tend to matter most, which is why thinking them through in advance, ideally before you stop working, can make the move much smoother.

The accumulation phase rewards discipline and patience. The drawdown phase rewards planning and flexibility. Recognizing the difference — and adjusting before it catches you by surprise — is a big part of the challenge.

This material is for educational purposes only and should not be considered tax or legal advice. Please consult with your tax advisor or attorney regarding your specific situation.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. Stock investing includes risks, including fluctuating prices and loss of principal.

Advisors associated with Chesapeake Financial Planners may be either (1) LPL Financial Registered Representatives offering securities through LPL Financial, Member FINRA and SIPC, and investment advisor representatives offering investment advice through Great Valley Advisor Group; or (2) solely investment advisor representatives offering investment advice through Great Valley Advisor Group and not affiliated with LPL Financial. Great Valley Advisor Group, and Chesapeake Financial Planners are separate entities from LPL Financial.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.