For most of your working life, the goal of investing is relatively straightforward: save as much as you reasonably can and give that money time to grow. You contribute to a 401(k), build other savings and investment accounts, and continue accumulating assets for the future.

As retirement gets closer, however, the job of that money begins to change.

You aren’t simply investing for some distant point in the future anymore. You may need part of your savings to help provide income next month, while another portion could be used for a new vehicle or a major trip five years from now. Other money may not be needed for 10, 15 or even 20 years.

Those dollars have very different jobs, which means it may not make sense to manage all of them exactly the same way.

At Freedom Financial, one of the ways we help families visualize this transition is through a concept we call the Fiscal House. The idea is to organize different parts of a retirement plan according to what the money needs to accomplish and when it may be needed.

Just like an actual house, each part has a purpose. The foundation supports your immediate income needs. The walls address expenses that may arise during the first several years of retirement. The roof is designed around longer-term needs and growth. Outside the house, a storm shelter provides readily available emergency cash for the things you simply couldn’t anticipate.

Together, those pieces provide a framework for thinking about how your retirement savings can support you not only when retirement begins, but throughout the years that follow.

What Is a Fiscal House, and How Can It Help Organize Your Retirement Savings?

One of the challenges of retirement planning is that it’s easy to look at your portfolio as one large number.

You may have money in a 401(k), IRA, Roth IRA, brokerage account, bank account or several other places. When you add everything together, you know approximately how much you’ve accumulated. What that number doesn’t necessarily tell you is how those assets are going to support your life in retirement.

That’s where the Fiscal House becomes useful.

Rather than beginning with individual accounts or investments, the framework begins with your needs. What income will you need on a regular basis? What larger expenses are likely to come up during the first decade of retirement? Which dollars can reasonably remain invested for 10 years or longer? How much cash should be available if something unexpected happens?

Once those questions become clearer, you can begin thinking about which assets and strategies may be appropriate for each job.

The purpose isn’t to predict every expense you’ll have for the rest of your life. Retirement is far too unpredictable for that. Instead, the Fiscal House provides a structure for making decisions based in part on when you expect to need your money and what you need those dollars to accomplish.

How the Different Parts of the Fiscal House Support Your Retirement

The Fiscal House separates retirement needs into different time horizons rather than treating every dollar the same way. The foundation, walls and roof each represent money with a different purpose, while the storm shelter sits outside the retirement plan as an accessible reserve for emergencies.

As you move up the house, the time horizon generally becomes longer. The foundation focuses on the income you need now. The walls address money you may need during the first 10 years of retirement. The roof looks farther into the future, while the storm shelter remains separate and readily available when the unexpected happens.

Understanding those different jobs can make it easier to see why a retirement plan may include several different income sources, investments and financial strategies working together.

The Foundation: Creating Income for Your Immediate Retirement Needs

Every house begins with its foundation, and the Fiscal House is no different.

The foundation represents the income you need to support your regular lifestyle in retirement. These are the expenses that continue month after month, including housing, utilities, groceries, insurance and the other costs associated with everyday life.

Building the foundation begins by understanding how much income your lifestyle requires and then identifying the dependable income sources already available to you.

For example, imagine a retired couple determines that they need approximately $8,000 per month to support their lifestyle. If their existing income sources provide $5,000 per month, there is still a $3,000 monthly gap that needs to be addressed.

Several sources may contribute to this foundation.

Social Security

For many retirees, Social Security is one of the first sources of monthly income that goes into the foundation.

The amount you receive can depend on factors including your earnings history and when you choose to claim benefits. For married couples, the decision can also involve considering how two benefits work together over the course of retirement.

Within the Fiscal House, the important part is understanding how much of your regular monthly income need Social Security is expected to cover. From there, you can begin identifying what other sources may be necessary to complete the foundation.

Pensions

Some retirees enter retirement with a pension from an employer. Like Social Security, that recurring income can help cover a portion of the regular expenses that make up the foundation.

Understanding what the pension will provide, whether the benefit changes based on the option selected, and how it works alongside other income sources can help determine how much additional income the retirement portfolio may need to produce.

Rental Properties

For families who own income-producing real estate, rental properties may provide another source of cash flow during retirement.

Rental income can contribute to the foundation, although it is also important to consider the expenses and responsibilities associated with owning the property. Maintenance, vacancies and other costs can affect how much income ultimately becomes available to support your retirement lifestyle.

The Fiscal House allows that income to be considered alongside Social Security, pensions and other sources rather than looking at the property in isolation.

Lifetime Income and Other Income-Producing Strategies

After accounting for Social Security, pensions, rental income and other dependable sources, some families may still have a gap between the income they receive and the amount their lifestyle requires.

Depending on the individual plan, that remaining need could be addressed through interest and dividends, income-producing investments, lifetime annuities or other strategies designed to provide retirement income.

There isn’t one solution that is appropriate for every family. The purpose of building the foundation is to understand where your retirement paycheck will come from and how the different sources can work together to support the life you want to live.

The Walls: Preparing for Expenses During the First 10 Years of Retirement

Not every retirement expense fits neatly into a monthly budget.

During the first several years of retirement, you may replace a vehicle, renovate part of your home, take a major trip or encounter another sizable expense. You may know some of those expenses are coming without knowing exactly when they will occur or how much they will cost.

The walls of the Fiscal House are designed around these mid-term needs, generally within the first one to 10 years of retirement.

This distinction matters because money you may need several years from now has a different time horizon than money you don’t expect to touch for another 15 or 20 years.

Planning for Larger Retirement Expenses

Part of building the walls is thinking beyond regular monthly spending and identifying larger expenses that could reasonably occur during the earlier years of retirement.

Some may be relatively predictable. You may know that your current vehicle probably won’t last another 10 years, for example, or that you’ve been planning a major home renovation or several larger trips once you have more time to travel.

The exact timing may be uncertain, but acknowledging those expenses in advance can help determine how much of your retirement savings should remain positioned for mid-term needs.

Managing Risk for Money You May Need Within 10 Years

If a portion of your savings is likely to have a job within the next several years, exposing all of it to significant market fluctuations could create unnecessary risk.

For that reason, the walls generally emphasize a more conservative investment approach and active risk management. The objective isn’t necessarily to eliminate market exposure or growth. Rather, it is to recognize that these assets may need to become available sooner and position them with that time horizon in mind.

Thinking this way can also make conversations about investment risk more useful. Instead of labeling an entire retiree as either “conservative” or “aggressive,” we can consider the job and time horizon of different portions of their portfolio.

Maintaining Flexibility as Retirement Changes

Even with careful planning, you won’t know exactly what you’ll spend during each of the first 10 years of retirement.

Having resources positioned for mid-term needs can provide flexibility as priorities change. You may travel more than expected, decide to move, help a child or grandchild, or discover that a home project has become more important than it seemed when retirement began.

The walls aren’t designed around predicting every one of those decisions. They’re designed to recognize that retirement will continue to require access to money beyond your regular monthly income.

The Roof: Investing for Growth and Needs 10 Years or More Into Retirement

While some of your money may be needed immediately, another portion may have a very long time horizon.

That’s what the roof of the Fiscal House is designed to represent.

These are dollars generally intended for needs 10 years or more into the future. Because that money may have more time before it is needed, it can potentially be positioned with a greater emphasis on long-term growth.

Retiring doesn’t necessarily mean that every dollar you own suddenly needs to become conservative. Someone who retires in their 60s could reasonably spend 20, 25 or 30 years in retirement. A portfolio therefore has to consider what life may cost many years from now, not just what it costs today.

Staying Invested for Long-Term Growth

Money that isn’t expected to be needed for 10 years or longer has more time to move through normal market cycles than money earmarked for an expense next year.

That longer time horizon may allow part of the retirement portfolio to remain invested with a greater emphasis on growth.

The goal isn’t simply to pursue the highest possible return. It’s to position long-term dollars according to the job they’re intended to perform while recognizing that some assets may still need to grow throughout retirement.

Planning for the Long-Term Impact of Inflation

Inflation is one reason growth can remain important even after you’ve retired.

The lifestyle that requires a certain amount of monthly income today may cost considerably more 10 or 20 years from now. Housing costs, groceries, utilities, travel and other everyday expenses can all increase over time.

Keeping a portion of the portfolio focused on longer-term growth can help the retirement plan account for the possibility that your future income needs won’t look exactly like they do when retirement begins.

Preparing for Future Healthcare Needs

Healthcare can also become a more significant consideration later in retirement.

While no one can predict exactly what their future healthcare needs will be, the possibility of higher medical expenses or long-term care needs is another reason some retirement assets may have a much longer job ahead of them.

The roof provides a place to think about those future needs without requiring the same dollars to also support today’s monthly expenses.

Leaving a Legacy

Not every dollar in a retirement plan will necessarily be spent during retirement.

Some families want to preserve assets for children or grandchildren, charitable organizations or other legacy goals. Those objectives may have an even longer time horizon than the retiree’s own future spending needs.

Including legacy goals within the long-term portion of the Fiscal House can help those assets remain connected to the broader retirement strategy rather than treating estate and legacy planning as a completely separate conversation.

The Storm Shelter: Keeping Emergency Cash Outside Your Retirement Plan

Even a thoughtfully designed retirement plan cannot anticipate everything.

A major home repair could appear unexpectedly. A family situation may require financial help. An expense could arise that wasn’t included anywhere in the retirement budget. Having money available for those moments is important, but that money has a different purpose than the assets being used to support the rest of your retirement plan.

That’s where the storm shelter comes in.

How Emergency Cash Is Different From Retirement Investments

In the Fiscal House, the storm shelter represents emergency cash that is readily accessible and intentionally kept outside the retirement plan.

Its primary job isn’t to generate income or pursue long-term growth. It’s there to provide liquidity when something truly unexpected happens.

How much belongs in the storm shelter will depend on each family’s circumstances, but separating those dollars from the rest of the plan acknowledges that emergency savings have a very different purpose from long-term investment assets.

Protecting the Rest of Your Fiscal House From the Unexpected

Without an appropriate cash reserve, an emergency could require you to sell investments at an inconvenient time, take an unplanned distribution from a retirement account or pull money from a portion of the plan that was intended for another purpose.

Keeping emergency cash separate can help protect the structure you’ve created inside the Fiscal House. Your foundation can remain focused on immediate income needs, the walls can continue supporting mid-term expenses, and the roof can remain positioned for longer-term goals.

The purpose of the storm shelter is to have readily available cash for expenses you couldn’t reasonably plan for without unnecessarily disrupting the rest of your retirement strategy.

Why Different Parts of Your Retirement Portfolio May Need Different Investment Strategies

Once you look at the Fiscal House as a whole, one of its most important lessons becomes clearer. Retirement investing doesn’t necessarily have to be an all-or-nothing decision between safety and growth.

Consider someone who becomes very conservative with their entire portfolio on the day they retire. While that may reduce certain types of short-term market risk, it could also limit the growth potential of money they won’t need for another 15 or 20 years.

The opposite approach creates its own challenges. If nearly everything remains positioned for long-term growth, the retiree may have to sell investments during an unfavorable market simply because they need money for income or a major expense.

The Fiscal House approaches the question differently. Rather than asking how aggressive or conservative the entire portfolio should be, it considers when different dollars are likely to be needed and what each portion of the portfolio needs to accomplish.

That distinction creates room for several investment and income strategies to coexist within the same retirement plan. Some assets may be focused primarily on dependable income. Others may emphasize risk management and accessibility over the next several years. Still others may remain positioned for longer-term growth.

The individual investments matter, but so does the reason each investment is there.

Your Fiscal House Should Evolve Throughout Retirement

Building the Fiscal House isn’t a one-time exercise completed on the day you retire.

Time continues moving, which means the role of your money can change with it. An investment that was originally intended for a need 15 years away will eventually be associated with a need only five years away. As that time horizon changes, it may make sense to reconsider how those assets are positioned.

Your life can change as well. Spending patterns evolve, markets rise and fall, tax laws change, healthcare needs become different and family priorities shift. You may decide to move, travel more, help children or grandchildren or reconsider what you ultimately want to leave behind.

Those changes are one reason ongoing portfolio management can be an important part of retirement planning.

The goal isn’t simply to build the foundation, walls and roof and then leave everything untouched for the next 30 years. The Fiscal House provides the structure, but that structure should continue to be reviewed as retirement progresses.

This is also where investment management becomes part of the broader retirement-planning process. Portfolio decisions shouldn’t happen in isolation from income needs, spending plans, taxes and other financial priorities. As one part of the house changes, it’s important to understand whether another part may need attention as well.

A Strong Retirement Plan Considers How All the Pieces Work Together

The Fiscal House helps illustrate why retirement planning shouldn’t necessarily revolve around any one investment or financial product.

An annuity may play an important role in creating lifetime income for one family, but it isn’t an entire retirement plan. A growth portfolio may be appropriate for long-term assets, but it doesn’t necessarily solve next month’s income need. Holding cash can provide valuable liquidity, but keeping too much money on the sidelines for decades can create other challenges.

Each tool should have a reason for being there.

That’s ultimately what the Fiscal House is designed to help families understand. Retirement planning isn’t simply about accumulating a collection of accounts, investments and financial products. It’s about coordinating those resources so different parts of your money are prepared for different parts of your retirement.

When you can clearly identify what your money needs to do today, what it may need to do over the next decade and what it needs to accomplish much farther into the future, the financial decisions surrounding retirement can begin to feel more organized.

Learn How to Build Your Fiscal House With Freedom Financial

After spending decades accumulating retirement savings, it can be tempting to believe that reaching a certain account balance means the hard part is over. In many ways, however, retirement introduces an entirely different planning challenge.

The money you’ve accumulated now needs to provide income, remain available for future expenses, keep pace with long-term needs and give you enough flexibility to respond when life doesn’t go according to plan. Trying to accomplish all of those goals with the same dollars in the same way can make retirement more difficult to manage.

At Freedom Financial, we use the Fiscal House as one way to help families see how their income needs, investment portfolio, emergency reserves and longer-term goals can fit together. The goal is to help you understand not only what you own, but what each part of your retirement plan is intended to accomplish.

If you’re approaching retirement and aren’t sure whether your savings are organized around when and how you may actually need them, we’d be happy to help you take a closer look at your Fiscal House.

To learn more about retirement planning with Freedom Financial, call us at 205-988-0006.

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Insurance products are offered through the insurance business Freedom Financial Group. Freedom Financial Group is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. AEWM does not offer insurance products. The insurance products offered by Freedom Financial Group are not subject to Investment Advisor requirements. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to protection, safety, or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the issuing carrier.Freedom Financial Group is not affiliated with the U.S. government or any governmental agency. This article is meant to be general and is not investment or financial advice or a recommendation of any kind. Consult a financial advisor before implementing any strategy discussed here. Freedom Financial Group is not affiliated with the U.S. government or any governmental agency. This article is meant to be general and is not investment or financial advice or a recommendation of any kind. Consult a financial advisor before implementing any strategy discussed here 4412045 – 09/26