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Note: The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees. There’s a pattern I keep seeing, and it’s become one of the more interesting things about this work. Someone comes in with a PERS 2 or TRS 2 or LEOFF 2 pension nearly locked in, a solid DCP account they’ve been building for years, Social Security waiting in the wings, and no debt. By every measurable standard, they’re in good shape. And then they mention they’ve been losing sleep over a market headline. Take someone like Diane, a hypothetical but very realistic example. She’s a school administrator with 27 years in, planning to retire at 58. Her pension will cover her core monthly expenses. Her DCP account has grown steadily. She has no mortgage left to worry about. And she’s still anxious. When I ask what’s bothering her, it almost always comes down to the same question: “Why doesn’t this feel like enough?” That gap between having enough and feeling like you have enough is one of the most underdiscussed problems in retirement planning. And recent research helps explain why it exists, and what actually closes it. It’s not just you The Global Financial Literacy Excellence Center found that roughly 60 percent of American adults report feeling financially anxious.1 And a notable share of those people aren’t struggling financially. They’re people who, by most measures, are doing fine. As a Wall Street Journal piece put it, even wealthy retirees fear outliving their money.2 The anxiety isn’t really about the account balance. It’s about something else. Fidelity’s 2026 State of Retirement Planning Study sheds some light on what that something else actually is. Among Americans surveyed, those who had a written financial plan were more than twice as likely to feel confident about retirement as those without one. 83 percent confident versus 38 percent.3 Same economy. Same Social Security rules. The plan was the differentiator. So what does that actually mean? I’d break it down into four things I consistently see in people who feel genuinely secure heading into retirement. Not one of the four is about the size of their account. Pillar 1: A real plan, written down This sounds almost too obvious. But there’s a reason it matters more than people expect. Retirement has a lot of moving parts. Pension income. DCP withdrawals and timing. Social Security decisions. The healthcare gap between early retirement and Medicare at 65. Tax brackets shifting year to year as income sources change. That’s a lot to carry around in your head. When all of it lives in your head, every market drop and every scary news article triggers a new wave of “what if.” There’s nothing to anchor to. A written plan does something your account balance can’t. It gives your brain a place to put the uncertainty. It pre-answers the questions: Where is income coming from? What changes if markets fall? What’s the healthcare plan from 58 until Medicare kicks in at 65? The Schwab Modern Wealth Survey found that only about 36 percent of Americans have a written financial plan. But among those who do, 96 percent say they feel confident they’ll reach their goals.4 Clarity is the antidote to anxiety. The plan creates the clarity. Pillar 2: Knowing your actual numbers Having a plan matters. But a plan without real numbers is just an outline. Research from the FINRA Investor Education Foundation found that fewer than half of pre-retirement workers have actually estimated how much monthly income they’ll need, how much to withdraw from their portfolio each year, or what their healthcare costs are likely to be.1 Fewer than half. Right before the most important financial transition of their lives. For Diane, this is where the real work happens. Her pension covers the baseline, but she needs to know the gap. What does her actual monthly spending look like? What does her DCP need to contribute? And what does healthcare cost from 58 until she qualifies for Medicare? Fidelity estimates that a 65-year-old retiring today can expect to spend an average of $172,000 on healthcare throughout retirement, and that doesn’t include long-term care.5 For someone like Diane who retires at 58 and bridges PEBB coverage for several years before Medicare, that number starts earlier and runs longer. In someone’s head, that blurs into one big source of dread. In a written plan with actual numbers attached, it becomes a series of solvable problems. Pillar 3: Knowing what you’re retiring to This is the one that tends to catch people off guard. A well-built plan can tell you whether the numbers work. It can show you how much you can spend, where income comes from, and what happens if markets or healthcare surprise you. What it can’t tell you is what your life will feel like when work is no longer at the center of it. I’ve seen this pattern enough times in my work with public employees that it’s become something I bring up proactively. Someone retires with a full pension, solid savings, and a farewell party. Everything looks fine on paper. But they hadn’t thought through what a regular Tuesday in January looks like. Not a vacation. An ordinary day. Who are you with? What are you working on? What gets you out of bed? For people who spent 25 or 30 years in public service, teaching, or law enforcement, the job is often bound up in their sense of purpose and community. The pension solves the income problem. It doesn’t solve the identity problem. Fidelity’s 2026 study found that 6 in 10 Americans now plan to transition gradually into retirement rather than stopping all at once.3 That path is worth designing intentionally. If the question “what am I retiring to?” feels hard to answer, that’s useful information. It tells you where there’s more planning to do. Pillar 4: A second set of eyes I’ll be upfront: this one is awkward to write, because I’m a financial advisor making the case that people should work with a financial advisor. Make of that what you will. But Fidelity’s research found that people who work regularly with a financial professional report meaningfully lower worry in retirement.3 And the reason isn’t investment selection or tax strategy. It’s that when markets fall and the headlines turn ugly, you’re not alone with the question of what it means for your specific situation. Schroders’ 2025 retirement survey found that 62 percent of already-retired Americans had no idea how long their savings would last.6 They crossed the finish line and were still flying blind. Meanwhile, 90 percent of Americans say planning is still necessary after you retire.3 Yet most retirees are doing it without one. The second set of eyes matters most not when things are going well, but when something changes and you need to know what it actually means for you. Where this leaves Diane Back to our hypothetical school administrator. Her pension is a genuine advantage. It’s the income floor that most Americans don’t have. It creates flexibility and stability that changes the whole picture. But the pension alone doesn’t close the gap between having enough and feeling like you have enough. What closes that gap is being able to see the whole picture. Income, taxes, healthcare, spending, and the life she’s retiring into, all in one place, modeled out and updated as things change. The anxiety lives in the gap between what you have and what you can see. A plan is how you close it. Sources 1. FINRA Investor Education Foundation. “Financial Anxiety and Stress Among U.S. Adults.” Global Financial Literacy Excellence Center. https://gflec.org/wp-content/uploads/2021/09/Financial-Anxiety-and-Stress-Issue-Brief-1.pdf 2. The Wall Street Journal. “Even Rich Retirees Fear Outliving Their Money.” https://www.wsj.com/personal-finance/retirement/retirement-spending-longer-life-savings-4b511053 3. Fidelity Investments. “Fidelity Investments Study: 72% of Americans Say They Will Retire on Their Own Terms as They Embrace New Approaches to Retirement Planning.” 2026. https://newsroom.fidelity.com/pressreleases/fidelity-investments--study--72--of-americans-say-they-will-retire-on-their-own-terms-as-they-embrac/s/609fbcb7-3ea5-4773-a300-0659da881d2a 4. Charles Schwab. “Modern Wealth Survey 2025.” https://content.schwab.com/web/retail/public/about-schwab/schwab-modern-wealth-survey-2025-wave2-findings.pdf 5. Fidelity Investments. “Fidelity Investments Releases 2025 Retiree Health Care Cost Estimate.” https://newsroom.fidelity.com/pressreleases/fidelity-investments--releases-2025-retiree-health-care-cost-estimate--a-timely-reminder-for-all-gen/s/3c62e988-12e2-4dc8-afb4-f44b06c6d52e 6. Schroders. “Schroders Retirement Study Finds Inflation Taking Toll on Retirees.” 2025. https://www.schroders.com/en-us/us/intermediary/media-center/schroders-retirement-study-finds-inflation-taking-toll-on-retirees/ -Seth Deal
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Note: The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees.
I’ve noticed a pattern with the clients I work with. When the Social Security question comes up, most people have already made up their mind before we even start talking. They’ve heard the advice. Wait until 70. Get the biggest check possible. End of story. And honestly, the math behind that advice is real. Claim at 62 and your benefit gets reduced. Wait until 70 and it can be roughly 77% higher than if you had claimed at 62.1 That’s not nothing. But here’s what I’ve started to notice. That number, the size of the monthly check, is only one piece of the puzzle. And for a lot of Washington State public employees, it may not even be the most important piece. The question most people aren’t askingLet me walk through a hypothetical that captures what I’ve seen in practice. Imagine someone like Karen. She’s 62, wrapping up a 28-year career as a budget analyst with a state agency, and she’s enrolled in PERS 2. Her pension is going to replace a meaningful portion of her income, but she’s also built up a solid DCP account (the 457(b) plan available to many Washington public employees2). She’s been told to wait until 70 for Social Security. And on the surface, that sounds right. But when we sit down and actually look at her full picture, a different question starts to matter more. Not “which age gives me the biggest check?” but “which claiming age gives me the best after-tax outcome for my entire retirement?” Those are not the same questions. Where the math gets more interestingHere’s the part most people don’t think about. Every dollar Karen pulls from her DCP or traditional IRA is taxed as ordinary income at the federal level.3 If she’s not drawing Social Security yet, she’s relying entirely on those accounts to fund her life in the early years of retirement. That’s fine, but those are fully taxable dollars going out the door every month. Social Security is taxed differently. Up to 85% of the benefit may be subject to federal income tax, depending on total income.4 But a minimum of 15% is always federally tax-free, regardless of how much other income you have.4 That’s a real difference. The same dollar of living expenses, funded from Social Security instead of her DCP, carries a lower federal tax cost. And over several years of early retirement, that adds up. The Roth conversion windowThis is the part of the conversation that most people miss entirely. Karen has a window of time between when she retires and when required minimum distributions kick in around age 73.5 That window is valuable. It’s a chance to convert pre-tax money from her DCP or IRA into a Roth account, paying tax now at a potentially lower rate, so future withdrawals are tax-free.5 But here’s the challenge. Every dollar she pulls from her DCP for living expenses takes up tax bracket space. And every dollar she wants to convert to Roth also takes up that same space. They’re competing. If Karen takes Social Security at 62, even at the reduced amount, she needs less from her DCP each year to cover her expenses. That frees up room in her bracket. And that room can go toward Roth conversions instead. The goal isn’t to convert as much as possible as fast as possible. The goal is to convert strategically, filling each tax bracket thoughtfully over several years. That means knowing in advance where the guardrails are. As conversion amounts increase, total income rises with them. That can push into Medicare’s IRMAA thresholds, which trigger higher Part B and Part D premiums.6 Those thresholds change annually, so this is something to model each year, not just once. A good plan accounts for this from the start and builds around it rather than getting caught off guard. Social Security, when timed as part of this broader picture, doesn’t compete with Roth conversions. It actually creates more room to do them well. A pension changes the whole pictureHere’s something I think about a lot folks who have a pension. Karen’s pension is already going to provide a base of income in retirement. It’s not optional, it’s not market-dependent, it just shows up every month.2 That changes what she needs her portfolio to do. She doesn’t need her DCP and IRA to replace her entire paycheck. The pension handles the foundation. That means the DCP has a different job: flexibility, tax management, and long-term growth. When someone has a pension as their income floor, the case for draining that account aggressively in early retirement just to delay Social Security gets weaker. The math changes. So when does waiting until 70 still make sense?It does sometimes. I want to be honest about that. If Karen has serious reasons to expect a long life, or if she’s the higher-earning spouse and survivor benefit planning is a priority, waiting can absolutely be the right call. The break-even analysis is legitimate. It usually works out somewhere in the early 80s/late 70s, meaning if she lives past that point, the larger check tends to win mathematically.1 But those calculations assume static years with no taxes, no cash flow considerations, and no effect on the rest of the plan. That’s not how retirement actually works. What I’d suggest insteadRun the actual projections for your specific situation. Not a general rule, not a calculator that only looks at one number. A real analysis that accounts for your pension income, your DCP balance, your Roth conversion goals, and what taxes are going to look like across the next 10 to 15 years. The answer for Karen might be 62. It might be 65. It might still be 70. But whatever the answer is, it should come from her specific numbers. Not from a default. Social Security timing is one of those decisions that quietly connects to everything else in retirement: your tax brackets, your Roth conversions, your future RMDs, your Medicare premiums. It all flows together. Getting it right is worth the time to actually look at it. Sources1. Social Security Administration. "Retirement Benefits: When to Start Receiving Retirement Benefits." https://www.ssa.gov/pubs/EN-05-10147.pdf 2. Washington State Department of Retirement Systems. "Deferred Compensation Program." https://www.drs.wa.gov/plan/dcp/ 3. Internal Revenue Service. "Publication 590-B: Distributions from Individual Retirement Arrangements." https://www.irs.gov/publications/p590b 4. Social Security Administration. "Income Taxes and Your Social Security Benefit." https://www.ssa.gov/planners/taxes.html 5. Internal Revenue Service. "Retirement Topics: Required Minimum Distributions." https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds 6. Centers for Medicare and Medicaid Services. "Medicare Costs." https://www.medicare.gov/basics/costs/medicare-costs The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees. I read something this past year that has stuck with me. It was a research paper by David Blanchett and Michael Finke. The title is dry. “Retirees Spend Lifetime Income, Not Savings.” But what they found is the kind of thing that quietly changes how you think about retirement. They looked at how actual retirees use their money in real life, and what they noticed was striking. Retirees spend roughly 80% of their lifetime income each year. That includes Social Security, pension benefits, and annuity payments. But they only spend about half of what they could safely take from their savings.1 Half. It shows up across every age group and every income level they studied. The “license to spend” Blanchett and Finke have a phrase for this. They call lifetime income a “license to spend.”1 When money lands in your bank account every month, you spend it. When you have to log into a brokerage account and pull the money out yourself, something different happens. You hesitate. There’s a moment where you wonder if it’s the wrong time, or whether you should wait until the market settles, or whether $40,000 is too much. That hesitation has a real cost in retirement. It shows up as smaller vacations and the trip to see the grandkids that you keep postponing. The research found that married households with $500,000 to $1 million saved often only withdraw about 2% per year.1 That’s roughly half of what the Guyton-Klinger guardrails research considers sustainable for a 65-year-old couple with a balanced portfolio.2 So the question becomes interesting. What kind of retirement do you actually want to live, and what would let you live it? Where the DRS pension comes in Washington State public employees walk into retirement with a head start most Americans don’t have. If you have a PERS, TRS, SERS, or LEOFF pension, that monthly check is doing exactly the kind of work the research describes. It anchors your retirement income. It’s already doing some of what guaranteed income is supposed to do. But here’s the thing. For a lot of the public employees I sit down with, the pension by itself doesn’t quite cover the lifestyle they want. There’s still a gap between what the pension pays and what they want to spend. That gap typically gets filled some combination of the following three options. Personal savings (DCP, IRAs, Roth accounts), part-time work, and Social Security. So when it comes time to claim Social Security, the question is bigger than “what’s my biggest check?” It’s also a question about how much of your monthly income you want coming from a guaranteed source, and when you want it. A hypothetical Take a hypothetical PERS 2 member. Call her Linda. She’s 62 and has $700,000 saved across her DCP and a Roth IRA. The textbook answer says delay Social Security to 70 to maximize her benefit. But Linda’s pension is around $40,000 a year, and her spending need is closer to $80,000. To bridge that gap from 62 to 70, she’d need to pull about $40,000 a year from her savings. That’s a 5 to 6% withdrawal rate. The Guyton-Klinger research suggests that’s on the higher end of what’s sustainable, even with all four of their decision rules in place to manage withdrawals during good and bad markets.2 Linda’s other option is to claim Social Security somewhere between 62 and 70. Her check is smaller, but it covers more of that gap, which means she pulls less from savings while she waits. Is that the optimal answer in a spreadsheet? Probably not. But the research suggests a retiree in Linda’s position is more likely to actually spend her money if the gap between her guaranteed income and her lifestyle is smaller. She might be winning on paper while underspending in real life. What I think this changes I’m not trying to talk anyone out of delaying Social Security. There are good reasons to wait. Longevity is the big one. The surviving spouse benefit matters too. And for some folks, claiming early would actually reduce their flexibility to do Roth conversions in their 60s. But the math-only version of this decision misses what the research is telling us about how retirees actually behave. For Washington State public employees, the DRS pension is already carrying part of that load. The Social Security question is partly about the size of the check and partly about how comfortable you’ll feel spending what you’ve saved. A few things worth doing If you’re sitting in this seat right now, a few practical thoughts. Start with running the numbers in dollar terms instead of percentages. A “95% probability of success” doesn’t tell you much. Knowing your portfolio can sustainably support an extra $1,500 a month tells you something real. It’s also worth looking at how much of your essential spending is covered by your guaranteed income (pension plus Social Security). When that covers most of your needs, the portfolio gets to be the part that funds the fun stuff. Then there’s the Roth conversion piece. Social Security and IRA/DCP distributions are taxed differently at the federal level, and the order you turn each one on can matter more than people realize. And finally, pay attention to how you actually feel about spending from your savings. If pulling money from your IRA/DCP makes you uncomfortable in a way that pension income doesn’t, that’s worth weighing in the decision. It’s information, not a flaw. The textbook answer is a useful starting point. It’s just usually not where the conversation ends. Sources 1. Blanchett, D., & Finke, M. “Retirees Spend Lifetime Income, Not Savings.” Working Paper, December 30, 2024. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5076626 2. Guyton, J. T., & Klinger, W. J. “Decision Rules and Maximum Initial Withdrawal Rates.” Journal of Financial Planning, March 2006. https://www.financialplanningassociation.org/ -Seth DealNote: The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees. Most retirement conversations start the same way. When should I take Social Security? How much can I withdraw each year? Should I do Roth conversions? Those are all real questions worth answering. But there's a conversation that almost never comes up until it's too late. Where are you going to live when you're in your 80s? And who's going to take care of you if your health changes? I've started thinking about this more carefully lately, not because it's an exciting topic, but because I've seen what happens when people don't think about it at all. "We'll Just Stay in the House" Take a hypothetical couple I'll call Karen and Tom. Karen is a PERS 2 member with the county, 27 years of service, planning to retire at 58. Tom is a few years older and already retired. They've done everything right. Good pension. Solid DCP balance. Low debt. Their plan for later life? "We'll just stay in the house." That's not a plan. That's an assumption. The house doesn't adapt when Karen can't manage the stairs. It doesn't provide memory care if Tom's cognition declines. It doesn't coordinate doctor visits or medication management. And when something goes wrong, it typically falls on one spouse, then adult children, to scramble for answers under pressure. This is one of the most common patterns I observe working with public employees in retirement. The financial side is often well thought out. The housing and care side is often not thought out at all. The Four Main Options Most people don't realize how many choices actually exist. When you start looking at later-life housing, four main paths emerge. The first is aging in place, staying in your current home with modifications and outside support as needed. This works well for some people, but it requires a lot of coordination and can become costly as care needs grow. The second is moving in with family. For some, this is meaningful and works beautifully. For others, it places a significant burden on adult children and carries real risks if the family situation changes. The third is moving to an assisted living facility or a standalone memory care community when needs arise. The challenge here is that these moves often happen reactively, in a moment of crisis, which limits your options and your control. The fourth, and the one most people haven't fully considered, is a Continuing Care Retirement Community, or CCRC. These are also called Life Plan Communities. There are roughly 1,900 of them across the country, including several here in Washington State.¹ What Makes a CCRC Different The basic idea is that you move in while you're still healthy and independent. The community then provides care across a continuum, from independent living to assisted living to skilled nursing to memory care, all on the same campus. You don't have to move every time your needs change. That's the defining advantage.¹ CCRCs typically require an entrance fee and a monthly fee. The fees vary significantly by community, contract type, and location. This is one of the more complex financial decisions in retirement planning, which is why starting the research early matters. Some of the better communities have waiting lists measured in years.³ The Four Risks You're Actually Managing When I think about later-life housing, I think about four categories of risk. The first is care risk. If your health changes, will you have access to the care you need, when you need it? The second is financial risk. Long-term care is expensive. Around 70% of people who reach age 65 will need some form of it during their lifetime.⁴ The costs have been rising steadily across all care settings.⁴ The third is coordination risk. When someone moves into a crisis, managing care across multiple providers, facilities, and family members is enormously hard. Communities that handle care transitions internally reduce this burden significantly. The fourth is emotional risk. Decisions made in a hospital hallway at 2 a.m. are rarely the decisions you would have made with time and clarity. Planning now gives you and your family that clarity. The Tax Angle Most People Miss If you move into a CCRC, a portion of both the entrance fee and the ongoing monthly fees may be deductible as a medical expense on your federal income tax return. The IRS has addressed this in several rulings going back decades.⁵ The basic principle is that if the CCRC can demonstrate what portion of your fees goes toward providing medical care, that portion qualifies as a deductible medical expense under Section 213 of the tax code. For most people, the medical expense deduction threshold is hard to clear. But CCRC fees can be large enough that it becomes relevant, especially in the year you enter. This is worth discussing with a CPA or financial advisor before you sign anything. If a refund of the entrance fee is later received, a portion of that refund may need to be reported as income.⁵ The mechanics matter, and they're not always explained clearly by the community's sales team. When to Start Thinking About This Most financial planners treat this as a problem for your late 70s. I'd push back on that. The research, waitlists, and financial planning associated with a CCRC can take years.³ And your health status at the time of application will matter. The sooner you start learning, the more options you'll have. For Washington State public employees nearing retirement, this isn't an immediate action item. But it belongs in the retirement planning conversation now, not as an afterthought a decade later. The pension provides a reliable income floor, which is actually a meaningful advantage when it comes to CCRC financial planning. Many communities conduct a financial review as part of the admission process. Having a predictable monthly income alongside portfolio assets is exactly the kind of stability they're looking for. A Few Starting Points If this is a conversation you want to have, here's where I'd suggest beginning. Start by discussing it with your spouse or partner, separately from any financial pressure. What does each of you actually want? What are you afraid of? Write it down. Then do some general research. Resources like myLifeSite³ offer educational tools specifically for people navigating CCRC decisions. Newsweek also publishes an annual ranking of top communities.² And if you're a PERS, TRS, or LEOFF member working through retirement income planning, bring this topic into those conversations. Your pension, DCP balance, and portfolio together tell the full picture of what's financially realistic. Because "we'll stay in the house" deserves more than a passing nod. It deserves an actual plan. Sources
-Seth DealThe examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees.
One of the things I ask clients about is their account security. How they protect their online logins. Whether they use unique passwords. What kind of verification they have set up on their financial accounts. The answer is almost always the same. Same password across most accounts. Verification codes sent by text message. Maybe a vague sense that they should probably do more, but it hasn’t felt urgent enough to act on. These are people who have done everything right when it comes to saving. They’ve been contributing to their DCP for years. They’ve maxed out Roth IRAs. They’re sitting on solid PERS, LEOFF, or TRS pensions. And yet this one area, the security around their accounts, almost never gets any attention. I get it. It doesn’t feel like financial planning. But after looking at the latest data on cybercrime, I think it might be one of the most important financial planning conversations we’re not having. It’s not your investments that keep me up at night I spend a lot of time helping clients think about pension options, Roth conversions, tax-efficient withdrawal strategies, and building a proper war chest for early retirement. Those are the big, tangible planning decisions. But here’s what I’ve started telling people more often: a gap in your cybersecurity can do just as much damage to your retirement as picking a bad investment. If not more. According to the FBI’s 2025 Internet Crime Report, Americans lost nearly $20.9 billion to cyber-enabled fraud last year.1 That was a 26% increase from the year before. And investment-related fraud was the single largest category, accounting for more than $8.6 billion of those losses.1 The people losing money aren’t careless. They’re retirement savers. People who spent decades building a nest egg. How a six-digit code can unlock your entire retirement Here’s what I think most people don’t realize. When you log into a financial account, you assume there are three separate things protecting you: your username, your password, and that multi-factor authentication code that gets texted to your phone. Three layers sounds pretty safe. But think about what happens when you forget your password. Most financial institutions ask you to verify a few pieces of personal information, like your name, date of birth, the last four digits of your Social Security number, and your zip code. Then they send you a verification code to reset everything. After years of large-scale data breaches, that personal information may already be out there for a lot of Americans. Which means that six-digit verification code might be one of the last real barriers protecting your retirement savings. Account takeover fraud, where someone gains access to your financial accounts through social engineering, resulted in roughly $360 million in reported losses across approximately 4,700 incidents last year.1 And since that only reflects what was actually reported, the real number is almost certainly higher. The pattern to watch for What I’ve learned from studying these situations is that the scam almost always follows the same pattern. Someone contacts you, claims to be from your bank or brokerage, and says there’s suspicious activity on your account. They create a sense of urgency. Then they ask you to verify your identity by reading back a code that was just sent to your phone. And that’s it. That one code can give a thief full access. The FBI actually has a term for people who show up at the exact moment you feel most vulnerable. They call them "rescue merchants." They present themselves as the helpful professional rushing in to save you. It works because when someone tells you your money is at risk, your instinct is to act, not to pause. Why this matters for Washington public employees specifically If you’re a Washington public employee approaching retirement, you likely have money spread across multiple accounts: your DRS pension, a DCP 457(b) plan, maybe a Roth IRA or traditional IRA, and possibly a taxable brokerage account. Each of those accounts is a potential target. And the more accounts you have, the more entry points exist. Washington residents filed over 25,600 cybercrime complaints in 2025, with total losses exceeding $458 million.1 For Washingtonians over 60, the numbers were especially concerning: more than 5,300 complaints and nearly $180 million in losses.1 Your pension itself is protected by the state retirement system. Nobody is draining that. But your DCP account, your IRAs, your brokerage accounts? Those are held at financial custodians, and they’re only as safe as your login credentials and the security practices you put around them. What you can do about it Never share a verification code with anyone who contacts you. If your bank or brokerage calls, don’t give them anything. Hang up, then call the number on the back of your card or type the institution’s website directly into your browser. If there truly was suspicious activity, they’ll know about it when you call them. Switch to an authenticator app. If your financial institution offers one, use it. Authenticator apps generate codes directly on your device, which makes them much harder to intercept than codes sent via text message. Add a verbal password to your accounts. Some institutions allow you to set up an extra PIN or verbal password before any changes can be made over the phone. It’s a simple step, but one more hurdle for anyone trying to access your money. Freeze your credit. This won’t stop every scam, but it prevents someone from opening new accounts in your name. You can freeze and unfreeze your credit for free at each of the three major bureaus. Consider a password manager. Using the same password across accounts is one of the most common vulnerabilities I see. A password manager generates unique, complex passwords for each account so you don’t have to remember them all. The bigger picture I think there’s a reason most people focus on their investments and not their security. Investment decisions feel tangible. They feel like you’re doing something productive. Figuring out how to freeze your credit or set up an authenticator app feels like a chore. But here’s the thing. You could have the perfect pension option selected, a beautifully diversified portfolio, and a tax-efficient withdrawal strategy, and a single text message and a six-digit code could put a meaningful chunk of that progress at risk. It’s one of those areas where a small amount of effort up front can save you from a devastating outcome later. And if you’re within a few years of retirement, the stakes are even higher, because you may not have the time or the earning years to recover from a significant loss. So take an hour this weekend. Update your passwords. Turn on an authenticator app. Freeze your credit if you haven’t already. These aren’t exciting steps. But they’re the kind of thing that protects everything else you’ve worked so hard to build. Sources 1. Federal Bureau of Investigation. “2025 Internet Crime Report.” Internet Crime Complaint Center (IC3). 2025. https://www.ic3.gov/AnnualReport/Reports/2025_IC3Report.pdf 2. Securities Investor Protection Corporation. “What is SIPC?” https://www.sipc.org/for-investors/what-sipc-protects 3. Fidelity Investments. “What is SIPC coverage?” April 23, 2025. https://www.fidelity.com/learning-center/smart-money/sipc The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees. I was reviewing a client's DCP statement recently when she pointed at her bond fund and said, "This one is clearly the winner." She wasn't wrong, exactly. On paper, the bond fund had delivered the best return for the amount of risk taken. The smoothest ride of anything in her portfolio. But that number was telling her something incomplete. And it was pointing her toward a decision that could actually hurt her in retirement. The smoothest ride isn't always the best ride There's a common way to evaluate investments that basically asks: how much return did I get for the amount of volatility I had to endure? Financial professionals use it all the time. It’s called the Sharpe Ratio. And on the surface, it makes sense. Who doesn't want a smooth ride? But consider three hypothetical investments over the past 25 years. By that "smoothness" measure, a bond fund came out on top. A large cap stock fund came in second. And a small cap stock fund came in last.¹ Now look at what actually happened to a hypothetical $10,000 invested in each. The bond fund grew to roughly $29,000. The large cap stock fund grew to about $74,000. And the small cap fund, the "worst" performer by the smoothness measure, grew to nearly $97,000.¹ The smoothest ride left the most money on the table. I think about this a lot when I'm working with Washington State public employees who are retired or nearing retirement. They have a pension coming. They have years of contributions in their DCP 457(b). And they're trying to figure out how to position everything for a retirement that could last 30 or 35 years. A smoothness score doesn't know any of that. It just rewards low volatility. It doesn't care about your goals. Why I evaluate investments as a team, not as individuals Here's what I think matters more. How do your investments work together? Take someone like hypothetical Lisa. She's 53, a parks department supervisor with 24 years in PERS Plan 2. She has about $350,000 in her DCP account and another $180,000 in a Roth IRA she's been building. Lisa's PERS pension is going to provide a stable, predictable income floor for the rest of her life. That changes everything about how we should think about the rest of her portfolio. When you already have a pension, you don't need your bond allocation to generate income. You need it to do something different. You need it to protect your portfolio during the worst moments in the stock market, so you never have to sell stocks at a loss to pay your bills. This is where the type of bonds you own starts to matter more than most people realize. The bond choice most people don't think about Research from the Financial Planning Association examined how U.S. government bonds and corporate bonds each performed inside a diversified portfolio alongside stocks.² The findings were striking. When you look at corporate bonds and government bonds by themselves, corporate bonds have historically earned slightly higher returns. That makes sense. They carry more risk, so they should pay you more. But when you put them inside a portfolio with stocks, the picture flips. Government bonds have historically moved differently than stocks.² When stocks fall hard, government bonds tend to hold their value or even go up. Corporate bonds tend to fall right alongside stocks during the worst downturns.² The credit risk and liquidity risk in corporate bonds show up at exactly the wrong time. One analysis found that once you account for the higher trading costs, fund expenses, and taxes on corporate bond interest (Treasury interest is exempt from state and local taxes), the slim return advantage of corporate bonds essentially disappears.² Another study of 60/40 portfolios over more than 90 years found nearly identical returns whether you used corporate or government bonds, but the portfolio with Treasuries had a meaningfully smaller maximum drawdown.³ That last point is the one I keep coming back to. In retirement, the size of the drop matters just as much as the size of the gain. What this means for your retirement portfolio For someone like Lisa with a PERS pension as her income foundation, the role of bonds in her portfolio isn't to generate the highest possible return. It's to be the part of the portfolio she can draw from when stocks are down, without locking in losses. This is what I call the war chest approach. I typically suggest keeping roughly five years of portfolio withdrawals in high-quality, short-duration government bonds. Not because bonds are exciting. Not because they score well on any single metric. Because they do their job when you need them most. If you want higher returns in your portfolio, the research suggests it's more effective to adjust your stock allocation, rather than reaching for yield with riskier bonds.³ The pension does the heavy lifting on stability. The bonds protect you during bad markets. And the stocks drive long-term growth. Each piece has a role. And evaluating any one piece in isolation misses the whole point. What to think about from here If you're a Washington State public employee approaching retirement, take a look at what's actually inside your DCP bond funds. Are they holding mostly government bonds, or a mix that includes significant corporate bond exposure? Think about how your full picture fits together. Your PERS or TRS or LEOFF pension, your DCP, your IRAs, and Social Security. Each piece should complement the others. And be cautious about chasing the investment that looks best on any single measure. The best portfolio isn't the one with the smoothest individual pieces. It's the one you can stick with for 30 years because it's built to weather the storms that are guaranteed to come. Sources
-Seth DealThe examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees. I keep running into the same conversation. Someone sits down across from me. They’ve got a PERS 2 pension, a healthy DCP balance, maybe some savings in a Roth IRA. On paper, they’re in great shape. But when I ask what they’re looking forward to in retirement, there’s this long pause. And then they start talking about what they’re afraid of. Running out of money. Spending too much. What happens if the market drops right after they retire. They’ve spent 25 or 30 years accumulating. And now the idea of actually using that money feels almost impossible. I think about this a lot. Because there’s a growing body of research suggesting that the hardest part of retirement isn’t saving enough. It’s giving yourself permission to spend. What the research actually says about money and happiness You’ve probably heard some version of the idea that money only buys happiness up to about $75,000 a year. That number comes from a well-known 2010 study by Daniel Kahneman and Angus Deaton, who analyzed over 450,000 survey responses and found that day-to-day emotional well-being stopped improving beyond that income level¹. The finding went everywhere. And most people took it to mean that once your basic needs are covered, more money doesn’t matter. But that’s not quite right. A 2023 follow-up study, published in the same journal, told a more nuanced story. Researchers Killingsworth, Kahneman, and Mellers found that the original flattening pattern only applied to the least happy 15 to 20 percent of the population. For everyone else, happiness continued to rise steadily with income well beyond that threshold². For the happiest 30 percent of people, it actually accelerated past $100,000. So what does this mean for someone approaching retirement with a pension and a portfolio? It means the question isn’t just “do I have enough?” It means the question is also “am I going to use it in a way that actually makes my life better?” The spending problem nobody talks about Here’s what I’ve observed working with Washington State public employees. Most people approaching retirement have been in saving mode their entire careers. Paycheck deductions into DCP. Steady pension contribution. Maybe some extra going into a Roth or a taxable account. That discipline is what got them here. But it also created a deeply ingrained habit that’s really hard to reverse. Consider a hypothetical couple. Let’s call them David and Karen. David is 57, retiring from a county job with 28 years of PERS 2 service. Karen still works part-time. Between his pension, their DCP savings, and Social Security down the road, they have more than enough income to maintain their lifestyle. But David can’t bring himself to book the trip to Portugal they’ve been talking about for years. He keeps looking at their account balances and thinking, “Maybe next year.” The truth is, David’s pension already does something incredibly powerful. It takes the worst-case scenario off the table. Why your pension changes everything Behavioral finance research points to a concept called “taking the worst case off the table.” The idea is simple. When people feel like their basic needs are permanently secured, they’re far more willing to spend on the things that actually bring them joy. For most retirees, this means building a safety bucket of cash or conservative investments. A cushion they can point to and say, “No matter what happens, I’m okay.” But Washington State public employees start with something most private-sector retirees don’t have. A guaranteed monthly pension check for life. That pension is your foundation. It covers your baseline. And when you combine it with a war chest of 3 to 5 years of portfolio withdrawals held in high-quality short-duration bonds, you’ve created a level of security that should genuinely free you up. Not to be reckless. But to be intentional. What actually makes retirement fulfilling The research on well-being in retirement consistently points to a few key areas where spending money makes a meaningful difference¹. Deepening relationships. Trips with family. Dinners with friends. Visiting grandkids. The research is clear that spending on shared experiences with people you love has a lasting impact on happiness. Buying back your time. Hiring someone to do the things you don’t enjoy. Yard work. House cleaning. Tax prep (though I might be biased on that one). Eliminating tasks you dislike is one of the most effective ways to use money in retirement. Giving it away. Charitable giving, especially when paired with volunteering, is one of the strongest predictors of well-being in retirement. This doesn’t have to be a large dollar amount. It just has to be meaningful to you. Staying engaged. One of the biggest risks in retirement isn’t financial. It’s losing your sense of purpose. People who retire without a plan for how they’ll stay challenged, connected, and growing tend to struggle. Research on human flourishing identifies engagement, relationships, meaning, and personal growth as essential, not just leisure. The common thread is that none of these things happen by accident. They require you to actually deploy the resources you’ve built. Giving yourself permission From a tax perspective, this is where planning really matters. If David and Karen want to take that Portugal trip, we can look at the most tax-efficient way to fund it. Maybe we pull from DCP in a year when their income is lower. Maybe we use Roth funds that come out tax-free. Maybe we harvest some capital gains in the 0% bracket. The point is that smart spending isn’t the opposite of smart planning. It’s part of it. I think about something I’ve heard attributed to people reflecting on their lives near the end. They rarely wish they had worked more hours or saved a little more aggressively. They wish they had spent more time with the people they loved. And worried a little less about things that, looking back, didn’t matter as much as they thought. Your pension, your DCP, your Social Security. These aren’t just numbers on a statement. They’re tools. And the best use of a tool is to build something that matters to you. If you’ve done the hard work of saving, the next step isn’t to keep saving. It’s to figure out what kind of life you actually want to live. And then go live it. Sources 1. Kahneman, D. and Deaton, A. “High income improves evaluation of life but not emotional well-being.” Proceedings of the National Academy of Sciences. September 21, 2010. https://www.pnas.org/doi/full/10.1073/pnas.1011492107 2. Killingsworth, M.A., Kahneman, D., and Mellers, B. “Income and emotional well-being: A conflict resolved.” Proceedings of the National Academy of Sciences. March 1, 2023. https://www.pnas.org/doi/10.1073/pnas.2208661120 -Seth DealNote: The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees.
I spend a lot of time talking with Washington State public employees about what to do with their DCP savings, their IRAs, and the other investment accounts they've built alongside their pension. And one of the most common things I hear is some version of this: "I've got a chunk of my money in a few individual stocks. They've done well. I don't see a reason to change." I get it. When something is working, it feels right. But a recent academic study caught my attention, and the data behind it tells a story that I think every pre-retiree needs to hear. A Century of Data, One Surprising Finding Finance professor Hendrik Bessembinder at Arizona State University recently published a study called One Hundred Years in the U.S. Stock Markets.¹ It covers nearly 30,000 individual stocks over the full century from 1926 to 2025. The headline number is familiar. The overall U.S. stock market returned roughly 10% per year over that period.¹ A dollar invested in the broad market in 1926 would have grown to over $15,000 by the end of 2025.¹ That sounds great. And it is. But when you stop looking at the market as a whole and start looking at individual stocks, the picture changes dramatically. The median return across all nearly 30,000 individual stocks measured was negative 7%.¹ Not positive. Negative. Let that sit for a moment. The Numbers That Should Worry Stock Pickers Only about 48% of stocks generated a positive return over their lifetime.¹ Fewer than half. It gets worse. When you compare individual stock returns to Treasury bills (essentially a cash equivalent), only about 41% of stocks managed to beat that low bar.¹ Said another way, if you had randomly picked a single stock and held it for its entire life, there was roughly a 60% chance you would have been better off just holding cash. And only about 28% of stocks outperformed the overall market.¹ Roughly three out of four stocks trailed what you could have earned in a simple index fund. Bessembinder's earlier study, published in 2018 and covering data through 2016, found similar patterns with a slightly smaller dataset.² The updated research just makes the case even stronger. Where the Wealth Actually Comes From So if most stocks lose, how does the overall market do so well? The answer is concentration. A tiny number of extraordinary companies do the heavy lifting for everyone else. According to the study, just 46 companies (out of nearly 30,000) created half of all the net wealth generated in the U.S. stock market over the past century.¹ And only about 3.7% of all companies accounted for 100% of the market's net gains.¹ The other 96% of stocks collectively just matched Treasury bills. The top five wealth-creating companies alone (Apple, Nvidia, Microsoft, Alphabet, and Amazon) accounted for over 21% of all wealth created.¹ And here is what really struck me. The concentration has gotten more extreme in recent years. In Bessembinder's earlier study using data through 2016, it took 89 companies to account for half of all net wealth creation.² In the updated study through 2025, it only takes 46.¹ What This Means If You're Approaching Retirement If you have a pension and are getting ready to retire, you already have something most investors don't. A pension. That guaranteed income stream provides a foundation that changes the way you can think about your other investments. But it doesn't eliminate the risk of holding a concentrated stock portfolio in your DCP account or your IRA. Here is the concern. When you're still working and contributing to your accounts, a bad stock pick is painful but recoverable. You have time, and you're adding new money. In retirement, the math changes. You're pulling from your portfolio, not adding to it. A concentrated bet that goes wrong can do real, lasting damage to your retirement income plan. A Better Approach This research reinforces something I talk about with clients all the time. Broad diversification through low-cost funds is not a boring strategy. It is how you make sure you own the small handful of companies that will drive the market's returns going forward. Nobody knows which 46 companies will create half the wealth over the next century. We do know that trying to pick them in advance is a bet against the odds. There are also ways to be more intentional about how you own the broad market. Evidence-based strategies allow you to tilt a portfolio toward characteristics that academic research has linked to higher expected returns, like smaller companies, value-oriented companies, and companies with higher profitability. You still own the whole market. You just own a little more of the areas the evidence suggests are likely to reward you over time. This kind of approach can also help reduce the concentration risk that comes with a traditional S&P 500 index fund, which today is heavily weighted toward a handful of mega-cap tech stocks. Three Things Worth Doing If this data has you thinking about your own portfolio, here are a few steps worth considering. First, take an honest look at any individual stock positions you hold. If a large portion of your retirement savings is tied up in just a few companies, the historical odds are not working in your favor. Second, resist the urge to chase whatever is working right now. Nineteen of the top 30 wealth-creating companies from the last nine years were not in the top 30 over the prior 90 years.¹ Tomorrow's biggest winners probably are not today's headlines. Third, remember that time is still on your side. If you're in your 50s, you may have a 30 or 40-year investing horizon ahead of you. The companies with the biggest cumulative returns in this study were not always the flashiest. Many were simply businesses that compounded at solid rates for a very long time. Small differences in annual returns lead to enormous differences in outcomes over decades. Your pension from DRS provides a stable income floor. That is a real advantage. Pairing it with a broadly diversified, evidence-based investment portfolio in your DCP and other accounts is, in my view, the most reliable way to build the retirement you're working toward. Sources
The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees. I had a conversation recently with a client who had done everything right. She had 27 years of PERS 2 service. A healthy DCP balance. An IRA from a previous job. She was 56 and thinking seriously about retiring at 58 or 59. We were talking about Roth conversions when she stopped me: "Wait. If I convert this year, I cannot touch that money for five years, right?" It is one of the most common questions I hear. And the answer is almost always: it depends. The Roth conversion 5-year rule is one of the most misunderstood pieces of the tax code. Even reputable financial publications get it wrong.1 There are actually two different 5-year rules, one for contributions and one for conversions, and mixing them up can lead to unnecessary taxes or unnecessary fear of a strategy that could save you real money.2 A quick refresher on Roth conversions A Roth conversion is when you move money from a pre-tax account (like a Traditional IRA or your DCP) into a Roth account. You pay income tax on the converted amount that year. But after that, the money grows tax-free, withdrawals are tax-free, and there are no required minimum distributions.3 For Washington State public employees with a pension, the years between retirement and claiming Social Security can be a golden window for conversions. Your taxable income may drop significantly once you stop working. That creates room to convert at lower tax brackets. But before you convert a single dollar, you need to understand how the withdrawal rules work. And that starts with two simple questions. Two questions that simplify everything Here is the easiest way to figure out how the 5-year rule applies to your situation. Answer these two questions: 1. Do you currently have a Roth IRA that was funded at least 5 tax years ago (with any dollar amount)? 2. Are you age 59 ½ or older? If you answered yes to both, you are in what I think of as the golden scenario. You can withdraw everything from your Roth IRA (contributions, conversions, and earnings) completely tax-free and penalty-free. Full stop.2 This is the part that surprises people. If you are over 59 ½ and you have had any Roth IRA open for at least five tax years, a brand new conversion you do today is accessible immediately. No new 5-year waiting period on the converted amount.4 The scenario that matters most for pre-retirees Let me walk through a hypothetical that comes up frequently. Say Tom is a 57-year-old county maintenance supervisor with 25 years of PERS 2 service. He opened a Roth IRA eight years ago and put in $500 just to get it started. He is now thinking about doing a $50,000 Roth conversion from his Traditional IRA. Tom might assume he has to wait five years before touching that $50,000. But here is what actually happens. Because Tom is under 59 ½, this conversion does start its own 5-year clock for penalty purposes. If he tried to withdraw the converted amount before five years pass and before he turns 59 ½, he would face a 10% early withdrawal penalty.2 But here is the key. When Tom turns 59 ½ (about two and a half years from now), that penalty clock becomes irrelevant. The 10% penalty only applies to early withdrawals. Once you are 59 ½, you are no longer "early." And because Tom already has a Roth IRA that is more than five tax years old, he satisfies both conditions for a qualified distribution.4 At 59 ½, Tom can withdraw the full $50,000 conversion plus any growth, tax-free and penalty-free. No five-year wait required on the conversion itself. This is the piece that gets misreported constantly. The conversion-specific 5-year rule is an anti-abuse rule designed to prevent people under 59 ½ from using Roth conversions to dodge early withdrawal penalties.1 Once you are past 59 ½, it simply does not apply to you. Where people actually get tripped up The scenario that can catch you off guard is when you are over 59 ½ but have never had a Roth IRA before. In that case, you can access your converted principal right away (you already paid tax on it). But any earnings on that conversion are not tax-free until the Roth has been open for five tax years.2 It is a narrow issue, but it matters if you are converting a large amount and it grows significantly in the first few years. This is why starting a Roth IRA early, even with a tiny amount, is such a valuable move. It starts the clock. And once that clock has run, it never resets, even if you close the account and open a new one later.1 One thing every Washington State employee can do right now If you do not already have a Roth IRA, open one and fund it with any amount. Even $50. If your income is too high for a direct Roth IRA contribution, you can do a small conversion from a Traditional IRA instead. Either way, you start the 5-year clock.2 This is one of those rare pieces of financial planning advice that costs almost nothing, takes 15 minutes, and could save you real money down the road. Especially if you are a PERS, TRS, or LEOFF 2 member planning to retire in your late 50s and considering Roth conversions during those bridge years between retirement and Social Security. Now that the 2017 tax rates were made permanent by the One Big Beautiful Bill Act, the old "convert before rates go up" urgency has faded. But the underlying math has not changed. Roth conversions remain one of the most powerful tools to manage your tax bill across a multi-decade retirement.5 The 5-year rule is not a reason to avoid the strategy. It is a detail to understand so you can use it with confidence. And as always, work with your CPA or financial advisor before making any conversion decisions. The rules are nuanced, and your individual tax situation matters. Sources 1. Slott, Ed. "The most misunderstood Roth conversion tax rule." InvestmentNews. October 8, 2019. https://www.investmentnews.com/ira-alert/the-most-misunderstood-roth-conversion-tax-rule/169866 2. Kitces, Michael. "Understanding The Two 5-Year Rules For Roth IRA Contributions And Conversions." Kitces.com. January 1, 2014. https://www.kitces.com/blog/understanding-the-two-5-year-rules-for-roth-ira-contributions-and-conversions/ 3. Internal Revenue Service. "Roth IRAs." https://www.irs.gov/retirement-plans/roth-iras 4. Taylor, Joy. "What to Know About the Five-Year Rules for Roth IRAs: The Kiplinger Tax Letter." Kiplinger. January 14, 2025. https://www.kiplinger.com/taxes/five-year-rule-on-roth-ira-contributions-and-payouts-kiplinger-tax-letter 5. Internal Revenue Service. "Publication 590-B: Distributions from Individual Retirement Arrangements (IRAs)." https://www.irs.gov/publications/p590b -Seth DealThe examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees.
There is a question I hear in almost every initial meeting with a new client. It is some version of: "How do I know I am not going to run out of money?" I get it. You’ve spent 25 or 30 years saving, and now someone is telling you to reverse the habit. To start spending. But here is what caught my attention recently. A Morningstar research report looked at nine different withdrawal strategies for retirees. And buried in the data was a pattern I keep seeing.1 The biggest risk for many retirees is not overspending. It is underspending. Research has shown that retirees with at least $500,000 in savings had spent less than 12% of their nest egg nearly 20 years into retirement. More than a third had actually grown their wealth.2 People who saved diligently their entire careers are reaching the end of their lives with more money than they started with. They skipped the trips. They said no to helping their kids with a down payment. For Washington State public employees with a pension, this pattern can be even more pronounced. You already have a guaranteed income floor. And yet the instinct to not spend from the portfolio stays strong. Why the 4% rule makes it worse The traditional 4% rule was developed by financial planner Bill Bengen in the early 1990s. Take 4% of your portfolio in year one, adjust for inflation each year, and your money should last 30 years.3 It is a fine starting point. But that is exactly what it is. A starting point. Even Bengen himself has said he uses closer to 5% for his own portfolio.4 The core problem is that the 4% rule does not adapt. Your portfolio drops 30%? Same withdrawal. Your portfolio doubles? Same withdrawal. It was built for the worst-case scenario, which means in most scenarios you leave a lot of money on the table. For someone with a Washington State pension providing $3,000 or $4,000 a month in guaranteed income, that rigidity is especially costly. Your pension already covers a significant portion of your basic expenses. Your portfolio does not need to do all the heavy lifting. What flexibility actually looks like The Morningstar research tested several flexible withdrawal strategies that outperformed the 4% rule. My personal favorite and the one we use with our clients is called the Guardrails method, originally developed by financial planner Jonathan Guyton and computer scientist William Klinger.5 Here is how it works in plain language. You start with an initial withdrawal rate. Morningstar's research found the Guardrails approach supports a starting rate of 5.2%, compared to roughly 4% with the traditional fixed method.1 Each year, you check whether your withdrawal rate has drifted too far from that starting point. If your portfolio has done well and the withdrawal rate drops more than 20% below your starting rate, you give yourself a raise. If markets have struggled and the rate climbs more than 20% above, you take a modest temporary pay cut. That is it. Only one of four things happens each year: you skip the inflation adjustment after a down year, you adjust for inflation normally, you get a raise, or you take a small cut. The beauty is in the simplicity. You are not guessing. You are not reacting emotionally. You have a set of rules that tell you exactly when to spend more and when to pull back. How this plays out for a PERS 2 member Let me walk through a hypothetical example. Say we have a 58-year-old county employee with 28 years of PERS 2 service. Her pension will pay roughly $4,200 per month. She and her husband have $700,000 in their DCP and IRA accounts combined. They will also have Social Security. Using the traditional 4% rule, Karen would withdraw $28,000 per year from her portfolio. That is about $2,333 per month on top of her pension. Using the Guardrails approach at 5.2%, she would start at $36,400 per year, or about $3,033 per month. That is an extra $700 per month in the first year alone. Over 30 years, the Morningstar data showed the Guardrails method produced roughly 16% more in total lifetime spending compared to the fixed approach, while the median ending portfolio balance was still significant.1 That extra money could bridge health care costs through PEBB retiree coverage until Medicare at 65. Or fund travel in those early, active retirement years. And when markets cooperate, the guardrails tell her it is safe to spend a little more. When they do not, she pulls back modestly. No panic. No guesswork. The real problem is not math Here is what gets overlooked in these conversations. The spending problem in retirement is not really a math problem. It is a psychological one. Research shows retirees spend about 80% of the income they receive from guaranteed sources like pensions and Social Security. But they spend less than half of what they could from their investment accounts.2 Same dollars. Same purchasing power. But money that arrives as a paycheck gets spent. Money sitting in a brokerage account feels untouchable. That is why rules-based frameworks matter. When you have clear guardrails telling you when it is safe to spend more and when to pull back, you are essentially turning your portfolio into a paycheck. And for my clients with DRS pensions, that portfolio paycheck is supplementing an already solid foundation. What to do with this If you are a Washington State public employee within a few years of retirement, here is what I would think about. First, know what your pension and Social Security (if you have it) actually covers. Log into your DRS account and look at your estimated benefit.6 That number is the foundation for everything else. Second, stop thinking of the 4% rule as a ceiling. It was built as a worst-case floor. If you are willing to be flexible with your spending, the research suggests you can start higher. Third, consider whether a rules-based withdrawal strategy fits your situation. If you need perfectly consistent income with zero variability, a more rigid approach might suit you better. But if you can tolerate modest adjustments, the potential payoff in lifetime spending is meaningful. Your pension gives you a head start most retirees do not have. The question is whether you are going to use it. Sources 1. Arnott, Amy. "The Best Strategies for Boosting Starting Withdrawal Rates in Retirement." Morningstar. https://www.morningstar.com/retirement/best-strategies-boosting-starting-withdrawal-rates-retirement 2. "Retirees can be too frugal with their spending." CBS News. https://www.cbsnews.com/news/retirees-can-be-too-frugal-with-their-spending/ 3. "Determining Withdrawal Rates Using Historical Data." RetailInvestor.org. https://retailinvestor.org/determining-withdrawal-rates-using-historical-data/ 4. "The inventor of the 4% rule just changed it." MarketWatch. https://www.marketwatch.com/story/the-inventor-of-the-4-rule-just-changed-it-11603380557 5. Guyton, Jonathan. "Decision Rules and Portfolio Management for Retirees: Is the 'Safe' Initial Withdrawal Rate Too Safe?" 2004. https://www.semanticscholar.org/paper/Decision-Rules-and-Portfolio-Management-for-Is-the-Guyton/384c2ebfa36a69f9c346f9456c5cbca63306b4c9 6. Washington State Department of Retirement Systems. "Online Account Access." https://www.drs.wa.gov/ |
Content is for informational purposes only and does not constitute personalized financial or investment advice. Consult with a qualified financial advisor to discuss your individual circumstances before making any financial decisions.
AuthorsBob Deal is a CPA with over 30 years of experience and been a financial planner for 25 years. Archives
July 2026
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