Given a choice, is there a do-over?

Just like a few of the 60-70-years that preceded it, the first year of retirement can throw you for a loop. Sometimes the timing is just off.

2022 was a tough year to have retired.

Especially without any contingency planning.

The great idea that you had at the beginning of the year looks like a disaster come year-end. This was a rough year to retire. The timing was terrible, and no one knew that on January 1st.

Let me paint you a picture of one hypothetical New Retiree Couple who woke up on New Year's Day starting their permanent vacation.

Imagine them looking at their IRA account statements for 12/31/2021 and seeing that their $608,000 in IRAs had earned over 8% that year. The pie-chart on their statements showed they had 68% in Equities, 27% in Fixed Income and 5% in Cash.

They hoped that was a good mix for a new retiree.

The couple figured that if they had earned 8% that year, they could "afford" to spend 5% of the account each year. So, they set a systematic withdrawal of $2,500 per month to be deposited into their checking account.

With that $2,500 and their Social Security benefits, our retired couple were going to be in good shape. All the bills were easily covered, and plenty would be left over for some fun and long-awaited travel.

In January and February, they noticed that there was news of the stock market going down. It wasn't until the quarterly statement came in early April that they saw the IRA balance was down to $570,000. It will bounce back they thought.

The next quarterly statement came in July, and they were hesitant to see the IRA balance. They were disappointed (and a little mad) to see a current balance of $468,000. They were down almost 23% in six months.

What to do they wondered? Stay the course or make changes? Not knowing what to do, they did nothing.

October 8th the next quarterly IRA statement arrived. Even with the $7,500 in withdrawals taken in the quarter, the account was up a little to $482,000. They breathed a sigh of relief.

Where will the account end the year? No one knows for sure.

Given enough time, stocks and bonds (the Equities and Fixed Income from the pie-chart) recover their losses. At least that has been the case for 100's of years now.

Where our newly retired couple made a mistake was in not having an alternative or complement account to their one IRA account. What if the couple had $450,000 in their stock and bond IRA and the other $158,000 in an account not subject to market losses.

An account they can use when their "risky" account is suffering losses. In other words, they would give themselves choices on where best to take their income each year.

They could, for example, draw down the entire $158,000 and allow the stock and bond account the time it needs to bounce back. At $2,500 a month, the "safe" account would last 7-years at current interest rates.

Plenty of time, hopefully, for the stock and bonds to recover.

Not to add on to the couple in the example above, but they have another problem. With their IRA balance down to $482,000, the $30,000 a year they are withdrawing ($2,500 per month) is now up to a 6.2% withdrawal rate. Many experts would consider that unsustainable for a 30-year retirement.

Are you someone who has the majority of your retirement nest egg in one account? It could be the best account in the world, but sometimes having a Plan B account is priceless.