Clients do a fairly good job of accumulating wealth. Whether they’ve sold a business or had a successful executive career, clients—especially when they’ve had the right guidance from advisors—save and invest money over their working careers.

But, then, in a single day, a client’s main financial goal changes from accumulating wealth to needing to convert those funds to an income stream that will last for the rest of his or her lifetime!

Clients and their advisors often do a lousy job transitioning from wealth accumulation to retirement income.

In our firm’s case, we plan carefully, using a retirement-income philosophy that starts by dividing a client’s wealth- accumulation assets into three buckets (i.e., portfolios).

Bucket one equals two years of the retiree’s living expenses and is held in cash or cash equivalents. Subtract from that amount any certain, nonportfolio sources of income such as pensions and social security payments.

We plan carefully, using a retirement-income philosophy that starts by dividing a client’s wealth-accumulation assets into three buckets (i.e., portfolios).

Bucket two represents money the client is likely to spend over the next 10 years and is primarily focused on generating income and yield. All of the income and appreciation produced by bucket two is directed to bucket one, until bucket one has two years’ worth of the retiree’s expenses.

Our final advice, and probably the part that is the most misunderstood, is that we recommend bucket three for assets with a time frame of greater than 10 years. Bucket three is the most misunderstood because retirees often do not want to take market risk. So, either intentionally or not, they trade market risk for the “death by a thousand cuts: inflation risk.”


Cash accounts and even fixed-income assets have historically struggled to beat inflation. We hope that our retirees have a 30-year retirement, with money left over for the next generation (dependent upon estate-planning goals). Thus, inflation is as concerning as market volatility for retirees.

Bucket three, then, focuses on capital appreciation, with a rebalancing strategy where all capital appreciation flows to bucket two until bucket two has enough assets to generate the income needed to fill bucket one!

In addition to the bucket approach, we also recommend that clients—during the wealth accumulation years—develop a “tax-balanced balance sheet.” Retirees who can take distributions from post-tax assets before accessing pre-tax assets (as opposed to withdrawing solely from pre-tax assets) allow their pre-tax assets to continue to be invested and grow, which can increase a retiree’s overall income! So, we recommend—during the wealth accumulation years—that retirees save in both pre-tax and post-tax investment vehicles.

The distribution phase of life can be daunting and filled with many pitfalls. In addition to the risks we have already mentioned (inflation, market volatility, longevity and liquidity), there are rising healthcare costs, long-term care events, social security and tax-bracket mismanagement.


It is our responsibility as advisors to help our clients navigate these risks and help provide a steady income stream that lasts throughout their lifetime.

James L. DiNardo offers advisory services as a representative of Northwestern Mutual Wealth Management Company (WMC), a limited purpose federal savings bank, and a wholly owned subsidiary of The Northwestern Mutual Life Insurance Company, Milwaukee, Wis. (NM). Northwestern Mutual is the fleet name for NM, its subsidiaries and affiliates. Investments held with or managed by WMC are not insured by the FDIC, are not deposits or other obligations of, or guaranteed by, WMC or its affiliates and are subject to investment risks, including loss of the principal.

James L. DiNardo is an insurance agent of NM (life insurance, annuities and disability income insurance), and Northwestern Long Term Care Insurance Company, a subsidiary of NM, and a registered representative of Northwestern Mutual Investment Services, LLC (NMIS), an NM subsidiary, broker-dealer, investment advisor, member FINRA, SIPC.

Pioneer Financial is a marketing name used by a group of Northwestern Mutual representatives (not all of whom are affiliated with WMC) including James L. DiNardo (referred to as the “firm”), and is not a legal entity, partnership, investment advisor, broker-dealer or affiliate of NM. The information contained in this article is not a solicitation to purchase or sell investments or securities. The views expressed herein are those of the author and may not necessarily reflect the views of Northwestern Mutual. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNERTM and federally registered CFP (with flame logo), which it awards to individuals who successfully complete initial and ongoing certification requirements.

This article was originally published in the December 2016/January 2017 issue of Worth.