Updated

Updated · Fidelity Investments · Sep 18

Fidelity Outlines 5 Retirement Income Strategies to Balance Withdrawals and Growth

Updated

Updated · Fidelity Investments · Sep 18

Fidelity Outlines 5 Retirement Income Strategies to Balance Withdrawals and Growth

Q: What hidden market trap makes selling stocks early in retirement devastating, and how can a cash bucket prevent it?

The hidden trap is sequence-of-returns risk: a steep market drop in the first years of retirement can do outsized damage because retirees are withdrawing money at the same time. That forces them to sell more shares when prices are low, locking in losses and leaving fewer shares to recover when markets rebound. Two retirees can earn the same long-term average return and still end up with very different outcomes if one faces bad returns early and the other later. That is why Fidelity planners warn against relying on portfolio income alone or assuming principal should never be touched. What matters more is whether the portfolio can support spending through bad early market years without forcing distressed sales of stocks. A cash bucket helps by creating a short-term spending reserve, typically one to three years of planned withdrawals held in cash, money market funds, short-term Treasuries, CDs, or a bond ladder. In a downturn, the retiree can spend from that reserve instead of selling equities at depressed prices. That gives stocks time to recover and reduces the long-term damage from an unlucky early bear market. The broader solution, consistent with Fidelity’s guidance, is a diversified retirement plan that balances growth and income, stress-tests withdrawal needs, and keeps some liquid reserves for contingencies. Guaranteed income sources such as Social Security, pensions, or annuities can also reduce how much must come from the portfolio when markets are weak.

3 articles · Updated · Fidelity Investments · Sep 18

Fidelity said retirees should expect to spend some principal rather than rely solely on interest and dividends, framing that drawdown as manageable if built into a plan.
Five steps anchor its approach: set a stock-bond allocation, stress-test contingencies, choose suitable investments, manage taxes when rebalancing, and revisit the plan regularly.
2 spending buckets—essential and discretionary—help determine risk, with Fidelity urging guaranteed income such as Social Security, pensions and annuities to cover core expenses before portfolio withdrawals.
Stocks still play a key role because a yield-heavy portfolio can reduce diversification, push investors toward riskier assets and leave savings short of inflation over a retirement that can span 3 or 4 decades.