Retired Or Close To It? Here’s How 3 Experts Would Manage Your Money

Retirement isn’t the end of your financial plan — it’s the beginning of a new one. With a steady paycheck no longer coming in, how you invest your money is crucial.

The challenge? Keeping your money growing while also protecting it so you can reliably draw down income for decades.

But there’s no one-size-fits-all formula. The best approach depends on your income needs, risk tolerance, time horizon and financial goals.

To help you think through how to invest during retirement — or right before it — we asked financial advisors how they typically manage portfolios for retirees. While their methods differ slightly, they say your portfolio in retirement generally needs to do two things at once: generate predictable income and keep pace with inflation. And to do that, you need a strategy.

Let’s break down some of their key recommendations.

Define your income needs

Before thinking about asset allocation, it’s important to understand how much income you’ll need from your portfolio — and when.

That includes accounting for:

• Social Security, pensions or annuities
• Health care and long-term care costs
• Expected withdrawal rates
• Legacy or estate planning goals

If you haven’t created a retirement budget yet, start there. It’ll help you map out how much income you’ll need and when, so you’re not guessing whether your retirement accounts and Social Security will suffice. Before moving on to asset allocation and withdrawal rates, get clear on your numbers.

Consider the bucket strategy

Sean Williams, CFP and founder of Cadence Wealth Partners, uses a “bucket strategy” to organize retirement investments by time horizon. It helps segment money based on when you’ll need it.

“At the heart of this strategy is allocating assets by time horizon to ensure capital is available when needed — especially in retirement — without sacrificing long-term growth,” says Williams.

In theory, it breaks down like this:

• Bucket 1 (0-3 years) — Cash or cash equivalents.
• Bucket 2 (4-8 years) — A mix of 40 percent stocks, 60 percent bonds.
• Bucket 3 (9-14 years) — A more aggressive 70/30 stock/bond mix.
• Bucket 4 (15+ years) — All stocks.

The proportions depend on how much you need to withdraw annually and what guaranteed income sources you have, such as Social Security, annuities or pensions.

Here’s a quick example: A retiree with a $2 million portfolio who needs $100,000 per year to live would start with $300,000 in Bucket 1. But if they’re getting $30,000 a year from Social Security, they only need to withdraw $70,000 a year from investments. That reduces the immediate cash bucket to $210,000 and allows a larger portion of the portfolio to remain invested for long-term growth.

“This accomplishes two major goals,” Williams explains. “It gives clients three full years of living expenses covered by the least volatile asset (cash), and eight years covered by stable investments. Just as importantly, it helps keep them invested in equities throughout retirement … but with a lot of peace of mind.”

In real life, Williams simplifies things further. Instead of four separate accounts, clients typically have one cash reserve and one larger investment account, with the right asset mix to match the buckets.

“Each year, we replenish the cash bucket like a waterfall from the other buckets,” Williams adds.