As always, nothing contained in this or any other blog post should be considered investment, tax, or personal financial advice.
Sweden stayed neutral for over 200 years.
Through two World Wars, the Cold War, and countless regional conflicts, they maintained their famous policy of non-alignment. Then Russia invaded Ukraine, and suddenly neutrality felt a lot less safe.
In March 2024, Sweden officially joined NATO.
Sometimes the world changes around you, and neutrality becomes a choice you can no longer afford to make.
The important thing to remember here is that "Sweden’s original decision to become neutral was in-essence a political decision to protect its security, and its decision to join NATO follows the same logical approach" - it chose neutrality to protect its security. And, ultimately, reversing course and choosing a side was done for the same reason - to protect its security.
Your retirement planning works the same way.
The Default Side Chooses You
Most people think they haven't picked a retirement strategy yet. They're wrong.
If you're contributing to a 401k and hoping it works out, you've chosen a side. If you're buying target-date funds because they seem reasonable, you've chosen a side. If you're planning to follow the 4% rule because you read about it somewhere, you've chosen a side.
You've chosen what we call "default retirement planning" – the collection of conventional strategies that most people end up with because they're widely available and sound sensible enough.
Here's the problem: Default planning produces default results. Average strategies create average outcomes.
And in retirement, average can mean running out of money before you run out of life, or it can mean living a financially smaller life than you need to for fear of that happening.
Livet Leker (But Not for Long)
The Swedes have a phrase: "Livet Leker" – life is grand, life is playing, life is good.
That's what we want retirement to feel like, right? The payoff for decades of saving and planning and delaying gratification. The reward for all that blood, sweat, and tears.
But here's what happens with default retirement planning: You spend 30-40 years accumulating wealth, then switch to a strategy designed to make you afraid to spend it.
You transition from growth mode to survival mode. From wealth building to wealth preservation. From "life is grand" to "let's hope this lasts."
When Accumulation Becomes Distribution & "Interest-Only"
The moment you stop earning a paycheck and start depending on your investments for income, everything changes.
During your working years, market volatility was, in a sense, your friend. Stock market crashes meant you could buy more shares at lower prices. The longer you had until retirement, the more time you had for recovery.
But once you're retired and pulling money out? Volatility becomes your enemy.
This is why target-date funds work the way they do, gradually shifting from stocks to bonds as you approach retirement (as explained here and here). The logic makes sense: You can't afford a 20%, 30%, or 40% portfolio loss when you're depending on that money to pay your living expenses for the rest of your life, so it would be too risky to remain 100% in equity markets where falls like that do occasionally happen.
So you end up with what retirees often do: A conservative portfolio heavy in bonds and cash, designed to generate steady income without the wild swings of the stock market.
The classic version of this is what I call the "interest-only" approach: Invest everything conservatively, live off the interest, and never touch the principal.
Sounds safe, right?
It's actually a trap.
For what follows, let's take as simple example where $1,000,000 conservatively invested produces $30,000 (3%) of interest income to live on.
The LIVET Problem
Let me walk you through why the conservative, interest-only approach might create almost as many problems as it solves. I call it the LIVET problem – each letter represents a challenge that this "safe" strategy can't handle.
L is for Liquidity (Real vs. Perceived/Technical)
With interest-only investing, your money is technically accessible, but practically locked up. Sure, you could sell your bonds or empty your savings account, but doing so defeats the entire strategy. If you take out the money, what will be used to generate your future income?
You've created what I call "perceived" or "technical liquidity" – money that's available in theory but off-limits in practice. Meanwhile, life has a way of presenting situations where you need real money for real problems.
In this example, if you remove $100k from the $1m asset base, your $30k of income would drop to $27k forever after.
I is for Inflation
Inflation is retirement's silent killer. Even at a modest 3% annually, your purchasing power gets cut in half every 23 years.
If you're living off fixed interest payments, your income might stay the same, or even decline (depending on interest rates) while everything else gets more expensive. Eventually, you'll have to start dipping into that principal you were trying to preserve. And once you start eating into your nest egg, there's less left to generate future income.
In this example, the $30k you were living off of in year 1 of retirement is no longer enough by year 10. You'll need to deplete the $1m of principal to make up for the extra expenses.
V is for Volatility
Here's the cruel irony: Volatility helps you build wealth, but it can destroy your ability to use that wealth.
When you're accumulating money, market dips are buying opportunities. When you're withdrawing money, market dips are disasters. This is called sequence of returns risk – the same market volatility that helped you build wealth can help to make you poor if it happens at the wrong time.
A 20% market drop in year two of retirement can do far more damage than a 20% drop in year two of your career.
In this example, the threat of investing other than interest-only is highlighted. If $1m saved over a lifetime is invested and loses 20% in the last year before retirement, then the retiree at 3% can produce only $24k a year due to this bad timing luck.
E is for Estate Planning
If you live a long retirement and stick to interest-only withdrawals, what happens to your legacy?
With inflation eating away at the real value of your principal and potential long-term care costs (for which liquidity access may be difficult), there might not be much left to pass on. At the very least, you'll need to manage your willingness and ability to spend money based on when you think you will die (which is generally unknown) and simultaneously how much you want to leave behind. Those two desires will constantly work in opposition to one another.
In this example, combined with the Inflation example above, principal was eroded alongside the interest, leaving far less than intended to heirs. Strategies other than interest-only, such as investing a portion in equities to aim for growth to offset inflation, or allowing yourself to spend down assets over time instead of just the interest, re-open sequence of returns risk and subject you to chance and probability to determine how much you will have left in the future, if anything.
T is for Taxes
Interest income is generally taxed as ordinary income – likely the highest tax rates you'll pay. Regardless of where your assets are located, if you're spending just the interest then effectively every dollar you are withdrawing/spending gets hit with your full marginal tax rate.
Meanwhile, you're missing out on potentially more tax-efficient forms of income like qualified dividends, long-term capital gains, and distributions of principal. The interest-only approach ensures that only your worst tax rate applies to the money you spend.
For example, if your effective tax rate is 30%, using interest at $30k leaves only $21k to spend. $30k of principal or Roth funds would be worth $30k, while $30k of long-term capital gains (at an example 15% rate) would provide $25,500 to spend.
The LEKER Problem
But wait, there's more. Even if you solve the LIVET issues, you still have to deal with what I call the LEKER problem – all the reasons you might actually want to access your wealth during retirement.
Each of these highlights the likelihood of the "LIVET" problems and examples coming into play.
L is for Long-term Care
Average long-term care stays can costs over $100,000 per year in some states. Medicare may not cover some or all of it. If you're living off interest payments and suddenly need skilled nursing care, where does the money come from?
Your "preserved" principal may have just became your only lifeline.
E is for Emergencies
Retirement doesn't immunize you from financial surprises. Home repairs, medical bills, family crises – these don't stop happening just because you've retired.
Living off interest-only income can mean you're unprepared for anything beyond your basic monthly expenses.
K is for Kids
Maybe your adult children need help with a house down payment. Maybe your grandchildren's college costs more than expected. Maybe family circumstances change and you want to help.
Interest-only planning assumes your financial needs are completely predictable and never change. That's rarely how life actually works.
E is for Enjoyment
This is the big one. You saved all this money so you could enjoy retirement. But if you're afraid to spend anything beyond conservative interest payments, when do you actually get to live the life you worked for?
The cruise you always wanted to take. The family reunion you want to host. The house renovations you've been putting off. These aren't emergencies – some would say they're the whole point of having money.
R is for Real Estate
Maybe you want to downsize. Maybe you want a vacation home. Maybe you want to help your kids buy their first house.
Real estate transactions require real money, not monthly interest payments. If your wealth is locked up in conservative investments, you're locked out of real estate opportunities and options.
The Lose-Lose Trap
Here's the final insult of interest-only retirement planning: You can lose in multiple scenarios.
Regardless of how markets perform, the strategy to only spend a small percentage of total assets generated by interest income will lead to less enjoyment of your wealth.
You end up with relatively low income regardless of what happens in the economy. Many will spend their retirements afraid to spend money, watching purchasing power decline, and wondering why they saved so much if you were never going to be able to enjoy it.
It may feel like the financial equivalent of buying a Ferrari (a lifetime of wealth building) and never taking it out of the garage (being locked out of all but a small percentage in interest each year).
There's Another Way
The good news? These aren't unsolvable problems.
Just like Sweden eventually recognized that neutrality wasn't working anymore, you can choose a different approach to retirement planning.
You can build strategies that address sequence of returns risk without locking you out of your own wealth.
You can create tax-efficient income streams that don't rely entirely on ordinary income.
You can design flexibility into your plan that allows for both preservation and enjoyment.
You can combine multiple income sources – some guaranteed, some growth-oriented, some tax-free – to create a more resilient overall strategy.
The tools exist. The strategies work. But you have to learn them and choose to use them.
Choose Your Side
Sweden stayed neutral until it determined that neutrality had become a threat to its security.
In retirement planning, neutrality often involves not committing to a strategy, incorrectly convinced that this equates to leaving all options open. It's assuming that conventional wisdom will be enough, that average strategies will produce the results you need, and that alternate strategies that may take time to develop will not be worth making an upfront commitment.
But average retirement planning creates average retirement outcomes. And average, in this case, often means risking running out of money, running out of options, or running out of time to enjoy what you've built.
You're going to end up on a side whether you choose one or not. The question is whether you want it to be the side that most people end up on by accident, or the side that's designed specifically for your situation and goals.
Livet leker – life is grand. But only if you plan for it to be.
The choice, unlike Sweden's geography, is entirely up to you.
2025-8605500.1 Exp 11/2027