6 Ways the Drawdown Phase Catches New Retirees By Surprise

For 30 or 40 years, the job is simple: Save more, invest it, let it grow, repeat. Then you retire, and almost everything about how your money behaves changes at once. The habits that built the nest egg are not the habits that manage it well in retirement.

As a financial planner with nearly two decades of experience, I've sat with plenty of accomplished people who mastered the accumulation game but were caught off guard by the drawdown phase. The shift is real, and knowing what's coming makes it far easier to handle.

Here are six things that happen to your investments the moment you stop working.

1. Sequence of returns risk takes center stage

While you were saving, a market drop early in your career was almost a gift. You kept buying shares at lower prices, and time smoothed everything out. In retirement, the order of your returns suddenly matters enormously.

A steep decline in the first few years of retirement, while you're also withdrawing to live on, can do damage that a later decline of the same size would not. You're selling shares to fund expenses at exactly the wrong moment, and those shares aren't around to recover when the market eventually rebounds.

Two retirees with identical average returns over a 30-year retirement can end up in very different places depending purely on when the bad years arrived. The one who hit turbulence late may sail through comfortably. The one who hit it in years one and two may run short, even though the long-run average was identical.

This is the single biggest behavioral and structural shift. But most people have never heard of sequence of returns risk until it is upon them.

2. You move from 'growth at all costs' to income and stability

The whole point of accumulation is growth. The point of retirement is using the money. That usually means dialing back the most aggressive parts of the portfolio in favor of holdings that can produce income and ride out volatility with less drama.

This isn't about abandoning stocks altogether, since a multi-decade retirement still needs growth to keep pace with inflation. It's about changing the mix so that a bad year doesn't force you to sell your strongest holdings at a loss to pay the electric bill. The balance you held at 45 is rarely the balance that serves you at 65.

3. Cash suddenly has a job

During your working years, large cash balances felt like a drag — money sitting idle while it could have been invested. In retirement, a cash reserve becomes a tool rather than a missed opportunity.

Holding a year or two of expenses in cash and equivalents gives you somewhere to draw from when markets are down, so you aren't forced to sell investments at depressed prices. That buffer is what lets the rest of the portfolio stay invested through a rough patch.

The mindset flip is hard for lifelong savers, who spent decades being told that idle cash is wasted cash. In retirement, that idle cash is doing important work.

4. Required minimum distributions start making decisions for you

Eventually the IRS stops letting your tax-deferred accounts grow untouched. For 2026, required minimum distributions (RMDs) generally begin at age 73. From that point, you must withdraw a calculated amount each year whether you need the money or not, and it's taxed as ordinary income.

For someone with a large traditional IRA, those forced withdrawals can be substantial enough to push you into a higher tax bracket or trigger Medicare surcharges. The penalty for missing one is steep: 25% of the amount you failed to take, reduced to 10% if you correct it promptly.

RMDs turn your portfolio into something that generates taxable events on a schedule you don't control. This is also why the years before 73 carry so much planning value. Drawing down or converting some of those tax-deferred dollars earlier, while you have room in lower brackets, can soften the size of the RMDs waiting for you later. Wait passively and the distributions, and their tax bill, only grow.

5. Dollar-cost averaging runs in reverse

For decades, you put money in on a regular schedule, buying more shares when prices were low. That steady-drip discipline worked in your favor.

In retirement, the flow reverses. You're taking money out on a regular basis, which means you sell more shares when prices are low — the mirror image of the dollar-cost averaging strategy that served you so well.

This is why withdrawal sequencing and that cash buffer matter so much. Pulling a fixed dollar amount from a falling market chips away at the share count faster than most people expect. The same mechanical force that built your wealth can erode it if you don't plan around it.

6. You become a spender — and that's harder than it sounds

This last one is psychological, but it is no less real. People who spent their whole lives saving often find it genuinely difficult to flip the switch and spend. They under-spend out of anxiety, denying themselves things they planned and saved for, because watching the balance drop feels wrong after decades of watching it climb.

I've seen retirees with more than enough ration their own travel and comfort as if the money were not really theirs to use. Others swing the other way and spend too freely early on, before they have a clear read on how long the money needs to last.

Neither extreme serves you. Becoming a deliberate, comfortable spender, drawing down the money you worked to build without fear or recklessness, is one of the underrated challenges of retirement, and almost nobody warns you about it in advance.

Putting it together

Look at these six issues together and a theme emerges. Retirement isn't just "accumulation, continued." It's a different game with different rules, different risks and a different relationship to your own money. The instincts that built the nest egg — save aggressively, stay heavily invested, ignore short-term noise — don't all translate cleanly to spending it down over decades.

None of this means retirement is something to dread. It means the transition deserves its own plan, not just an extension of the one that got you here. The years right around your retirement date are when these shifts hit hardest, which is exactly why thinking them through in advance, ideally before you stop working, tends to make the whole transition smoother.

The accumulation phase rewarded discipline and patience. The drawdown phase rewards planning and flexibility. Knowing the difference — and adjusting before the shift catches you off guard — is most of the battle.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.