On many a morning run, I see hot air balloons drifting across the valley. They’re a common sight before 9 AM, rarely later. Once the ground heats up, conditions become too turbulent for safe flight. The pilots know their window.
You’re facing a similar challenge in retirement, with one critical difference: you don’t know when your window closes.
You’re Already Airborne
If you’re reading this and you’ve got enough money to retire, congratulations. During your working career, you’ve prioritized saving over spending. Now that you plan to enjoy the flight a different mindset kicks in as you begin to use those funds, without knowing exactly how long your journey lasts.
Reading the Invisible Winds
Balloon pilots navigate by using wind currents at different altitudes. Heat the air to rise into different winds. Release heat to descend into different currents. Three invisible forces impact your retirement flight duration, and how you respond determines whether you land safely.
Sequence of returns risk caught Steve and Darlene in 2008. They had retired at the peak of the housing bubble, with some leveraged rental properties producing enough cash flow to cover the mortgage payments. Their lifestyle consumed less than the recommended 4% of their portfolio balance, until the portfolio lost 40% of its value. Suddenly they were spending nearly 7% of their portfolio. They survived the bear market by dramatically cutting their discretionary spending.
James and Alicia also retired at the worst possible time but avoided this particular risk by setting aside enough conservative investments to cover the first two years of their spending needs. And they tended to be more frugal, with their starting spending just 3% of their portfolio, and even at the worst time of the crisis it amounted to just 5% of the balance. Because they had allocated that two-year buffer, they were not forced to sell their highly discounted assets just to make ends meet.
Inflation is personal because the government’s measure of it (CPI for Consumer Price Index) is based on a market-basket of products and services that they decide to measure. A major component of that is housing. James and Alicia paid off their mortgage before retiring, so that part of the CPI doesn’t apply to them. Sure, they need to grapple with rising prices of healthcare, property taxes, etc. Their long-term strategy is to spend 3% less than their portfolio’s targeted return, allowing for inflation and market downturns.
Tax law changes happen every time that control of the government swings between the political parties. With each change, there may be opportunities and challenges to a household’s finances, as well as their investments. It’s important to know about them and take advantage or evasive measures as they occur.
Adding Heat: Tactical Maneuvers
Balloon pilots make constant small adjustments. Retirement portfolios need the same approach. Three tactical maneuvers extend flight time:
Rebalancing during volatility. When stocks drop 25% and bonds drop 10%, your 60/40 (stocks/bonds) portfolio becomes 56/44. It’s a good time to rebalance the portfolio by selling some of the bonds and buying discounted stocks. This way, when the market rebounds, you’ll own more shares of the stocks, which helps you recover faster.
Dynamic withdrawal adjustments. The 4% rule is a starting point, not gospel. In strong markets, that implies more money should be available and you could actually take a smaller percentage. In the tough years, the percentage withdrawn is likely to balloon, and anything you can do to reduce the spending is prudent.
Tax-efficient distributions. The old-school rule of thumb is to spend down taxable accounts first because of favorable capital gains rates, tapping the tax-favored accounts like IRA, 401(k), and Roth accounts later to allow for tax-free compounding. But we’ve discovered that that simplistic approach frequently is not in the family’s best interests over their lifetime. Utilizing the lowest tax brackets every year to reposition assets amongst the asset locations can help a family preserve wealth for later years and for the heirs.
The Unknown Landing Time
Balloon pilots know their fuel supply. You don’t know when your time is up. Steve and Darlene both expect to live to 85, because their parents all lived into their mid-80s. But they stretch their portfolio to the limits leaving them inflexible in the face of the inevitable changes that come with aging.
James and Alicia expect a similar life expectancy, but by maintaining their 2-year cash allocation (which they did deplete during the aforementioned crisis), they were in a much better place when James’ health failed and they needed help with his care. And unlike Steve, James waited until 70 to claim the maximum Social Security benefit. Even though he died at 79 before breaking even on that decision, Alicia has nearly 80% more income indexed to inflation and guaranteed for the rest of her life by the government.
Your Flight Plan Matters More Than Your Altitude
During my morning runs, I’ve never seen a balloon crash. Pilots understand their limitations. They monitor conditions constantly. They make small adjustments before problems become emergencies. They land before turbulence forces a rough touchdown.
Your retirement deserves the same attention. Not obsessive worry, but disciplined monitoring and tactical adjustments. The balloons I photographed this morning will land safely in a vineyard somewhere. Your retirement can also have a smooth landing—you just need to accept that you’re navigating without knowing exactly when the ground arrives.
Schedule a complimentary portfolio stress-test. We’ll analyze your specific situation—your assets, income sources, spending needs, and risk exposures—and show you exactly how different market conditions affect your flight plan. No sales pitch. Just clear analysis of whether your current approach can sustain the retirement you want.
Important Disclosures
This material was created for educational and informational purposes only and is not intended as investment advice. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions may materially alter the performance of your portfolio.
Different types of investments involve varying degrees of risk. There is no assurance that any investment strategy will be successful or that markets will behave as they have in the past.
Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise.
Research and development of this article included the use of artificial intelligence tools.
These are hypothetical situations based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your advisor prior to investing