Guided Retirement Income Planning: Chapter 4


Barry and Adam wrote and published the book “Guided Retirement Income Planning” in November 2020 to create higher levels of financial literacy and to show a comprehensive and logical process for executing income planning in retirement. Since we believe that this subject matter is so important and relevant, we are going to roll out one chapter each month. While our approach and philosophy will remain consistent in every economic cycle, customization for each household will vary.

We want to emphasize that some of you are not close to retirement and it is never too early to plan. You may also have loved ones, friends, or colleagues that are in need of help. We would be pleased to send them a complimentary copy of our book. We simply hope to help as many people as possible. As we present these chapters, we invite you to circle back to us with any questions or concerns about the content and how it relates to you.

Please enjoy Chapter 4 below!


Adam L Schwartz, Partner, CFP®, NSSA®
Barry E Moschel, Partner, RICP®, CLU®, ChFC®, CPA
Tom Manno, Partner, CFP®, CPFA™


“The longer you work the more money you’ll have for retirement. But the longer you work, the less time you’ll have to enjoy that retirement.
(Author Unknown)

The best description that we ever read or heard that explains the difference between accumulation and distribution comes from Wade Pfau, Ph.D., CFA a professor of retirement income at the American College of Financial Services. He wrote the following:

“A mountain climbing analogy is useful for clarifying the distinction between accumulation and distribution: the ultimate goal of climbing a mountain is not just to make it to the top; it is also necessary to get back down. And the skill set required to get down a mountain is not the same as that needed to reach the summit. In fact, an experienced mountain climber knows that going back down is more treacherous and dangerous because climbers must deal with greater fatigue, they risk falling further and with greater acceleration when facing a downslope compared to an upslope, and the way our bodies are designed makes going up easier than coming down.”

Distribution – the retirement phase when you are pulling money from your accounts rather than accumulating wealth – is much like descending a mountain. Your objective in saving for retirement is not just to make it to the top of the mountain (achieve needed wealth) but to safely and smoothly make it down the mountain and spend assets in a sustainable manner.

During the accumulation phase you are focused on getting there and accumulating wealth for retirement. The perils of getting there are your stability of work, spending and saving patterns, taxes, the economy, the markets, and geopolitical risks.

During the distribution stage, you are there and retired. You are reaping the success of your accumulated wealth and hopefully living your dreams. The perils in retirement planning include many of those experienced in the accumulation phase and more. The most prominent risk is longevity, not outliving your money.

From your working years through retirement, you use different forms of capital to flourish. It is important to understand how they contribute to building and using wealth:

  • Human capital: This is your ability to earn income from employment and considered to be an asset. A steady career or job generates stable income with little downside risk. This type of income is comparable to the risk of a bond. An unsteady, or commission-based job, has more upside and downside income potential and as an asset is more comparable to a stock. As you get closer to retirement, the value of human capital (working) declines.
  • Financial capital: These are the tangibles of financial wealth such as retirement assets, real estate, and other forms of savings. They represent the core of your net worth to be used in retirement. From career to retirement, human capital transitions to the use of financial capital.

While accumulating wealth, your human capital naturally decreases risk because your financial capital has more time to recover from volatility and market losses. Ongoing investment contributions toward retirement also increase financial capital and your preparation for its use in the future.

For example, you earn $200,000 per year in a steady job and invest in a 401(k). You are not near retirement and have $800,000 in financial assets. The combination of both asset classes equals $1,000,000. The human capital represents 20% of the combined amount. The remaining $800,000 of financial capital can be invested with this in mind for a suitable asset allocation.1 Within a few years of retirement, the value of human capital diminishes as the imminent use of financial capital (assets) grows. Therefore, your asset allocation and risk taking will need to be reconsidered.

As you get closer to retirement, risks begin to escalate. You are most vulnerable within a twenty-year period, referred to as the “retirement risk zone.” This timeframe encompasses the ten years prior to and after retirement. Human capital is declining. Financial capital is peaking and you have the most exposure to market and sequence of return risk. The impact of a bad sequence of returns in the market is much greater in the retirement risk zone than during other periods. Managing risk becomes so much more critical to preserving the longevity of your financial assets. As a result, investment goals often shift from maximizing total returns during the accumulation phase to managing and converting assets into income for retirement.

Your experience in the accumulation phase is different than your experience in the distribution phase. Planning needs to be flexible to support transitioning from accumulation to distribution when evolving through the different phases of retirement. Your retirement needs to last! (See Chart 4.1 at the end of chapter to visualize the retirement risk zone.)

Therefore, it is so important to have a tangible retirement income plan. In action, it will help transition from accumulation, adapt long-term sustainable withdrawal rates, and adjust for changing economic and market conditions, environmental factors, and lifestyle needs.

The Lighter Side of Longevity

  • Age is not a particularly interesting subject. Anyone can get old. All you have to do is live long enough. (Groucho Marx)
  • I intend to live forever, or die trying. (Groucho Marx)
  • I intend to live forever. So far, so good. (Steven Wright)