Retirement Jenga
Building a portfolio requires a completely different set of skills than living off one. It reminds me of a game of Jenga. As you set up the tower; all that really matters is you keep stacking in a balanced way. Any block could go anywhere on the way up. When it comes to playing Jenga though, the objective changes completely. You’re no longer building—you’re carefully removing pieces; each block you remove changes the rest of the game.
In Jenga, randomly pulling blocks is how you lose. Same with retirement; distribution order can be the difference between a plan that lasts and one that quietly erodes. This is the truth about living off a portfolio in retirement. If you don’t consider how each block will alter the balance of what’s left, things could end up tumbling down quickly. It’s no small feat to accumulate a nest egg that could support you for the rest of your life, but withdrawal strategies have tremendous implications for the longevity of a plan.
The inconvenient truth about investing is that mistakes could quickly wipe out long periods of doing the right thing. Avoiding expensive mistakes can be the difference between leaving a legacy or outliving your money. Remember, you don’t live off your account balances in retirement, you live off what you can net after taxes. Portfolios of equal dollar amounts could have vastly different dollars to spend if withdrawal strategies are dialed in. Having a tax conscious withdrawal strategy could really stretch what you have to spend while managing the amount of taxes. Ignoring tax implications could leave you destitute.
Drawing down from a portfolio in retirement is a lot like Jenga. Each time it’s your turn to remove a block you want to assess the way everything is balanced and pick a block that won’t compromise more of the integrity than necessary. When it comes to your turn again, a new assessment is needed, did the stability of the tower get impacted by other people’s moves? Just like another player could take out a key block or bump the table, legislation or big swings in the market could impact the structure of your plan. In real life Market volatility, Inflation, Healthcare costs etc. can necessitate a reevaluation. A strategy that looked stable can become fragile fast.
There’s a balance between planning moves with all of the currently available information while padding in some flexibility for surprises. If your drawdown plan doesn’t have the flexibility to bend if there’s a change in tax legislation you’re exposed to legislative risk. This is part of why you should constantly be assessing not just the current tax implications of withdrawals but also what that will leave you with for the future.
You don’t play Jenga the same way once the tower is built. Retirement is no different. Accumulation is one game. Distribution is another. It’s not just about having enough. It’s about how you take it out without weakening the whole structure. Make sure you or your advisor actually understand that difference. Because in retirement, the risk isn’t running out overnight. It’s getting it slightly wrong over time
Related Reading: A View from the Top
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