As you get closer to retirement, you probably start wondering what you should be doing with the assets you’ve saved up. You’ve accumulated a meaningful sum, but how do you put it to work so you can maintain your lifestyle throughout retirement? Do you leave your funds where they are, or are there other pieces that belong in the plan?
There’s no one-size-fits-all answer, and it isn’t really an either/or decision. At RC Planners, we build retirement income around two connected pieces: an income floor that covers essential expenses with predictable, guaranteed sources, and a three-bucket strategy that manages everything else based on when you’ll actually spend it. Let’s look at how keeping assets in traditional retirement accounts fits into that structure, and where other tools fill specific gaps.
Building the Income Floor First
Before deciding what to do with the rest of a portfolio, RC Planners starts by identifying how much annual income is needed to cover basic lifestyle spending. That number gets compared against guaranteed income sources: Social Security (a public annuity) and any pension income (a private annuity). If there’s a gap between what those sources provide and what basic spending requires, that gap gets filled with an asset-backed annuity, which can function similarly to a personal pension and can be built with riders for lifetime income. This floor is what makes essential expenses predictable and sustainable regardless of what markets do in any given year, and it’s the piece that most directly addresses longevity risk: the risk of outliving your money.
Keeping the Remainder in Traditional Retirement Accounts
For many pre-retirees, the assets beyond the income floor stay right where they are, inside traditional retirement accounts.
- Tax-Deferred Growth: Your assets can continue to compound without paying annual taxes on accumulated funds until you start making withdrawals.
- Inflation Protection: Keeping a healthy amount of equity in market-based funds, positioned as Bucket Three money you won’t need for ten or more years, can help your portfolio outpace inflation over a multi-decade retirement.
- Simplicity: Your accounts are already established, making them easy to track and monitor.
The cons are worth weighing just as carefully.
- Market Volatility Exposure: Leaving assets in the market means staying exposed to downturns. If a downturn hits right as you retire and that money hasn’t been segmented by time horizon, drawing income from a shrinking balance could shorten how long your portfolio lasts. This is why RC Planners separates near-term money into Bucket One rather than leaving everything exposed to the same market risk.
- The Risk/Reward Dilemma: Traditional accounts don’t inherently generate monthly paychecks. You have to manage the tradeoff between growing your money and spending it, which is exactly what the bucket strategy below is designed to do.
- Potential Tax Surprises: If tax brackets change in the future, or if you haven’t planned for Required Minimum Distributions (RMDs) from a traditional 401(k), you could be pushed into a higher tax bracket, which may affect taxes on Social Security or Medicare premiums.
Time-Segmenting the Remainder: The Three-Bucket Strategy
Rather than treating the rest of a portfolio as one undifferentiated pool, RC Planners segments it by when it will actually be spent.
- Bucket One (Years 0–3): Held conservatively, since there’s little time to recover from a downturn before this money gets used.
- Bucket Two (Years 3–10): Managed moderately, aiming for returns at or above inflation without taking on full market risk.
- Bucket Three (Year 10+): Fully invested for growth, since there’s time to ride out short-term volatility. As Bucket One is spent down, funds are rebalanced from Bucket Three to Bucket Two to Bucket One, keeping the structure replenished over time.
Within this structure, tools like Fixed Indexed Annuities (FIAs) can also play a role in the income floor discussed above, offering customized cash flow and, in some cases, principal protection that can help insulate near-term dollars from a market downturn. The tradeoff is complexity: managing a floor alongside a bucketed portfolio takes more strategic oversight, and products like annuities may mean less immediate access to those specific funds. It’s worth talking with a financial advisor about how these pieces fit together for your specific goals.
So, What’s Next?
Transitioning into retirement isn’t an all-or-nothing decision between leaving everything in your retirement accounts or moving into other vehicles. It’s about building an income floor for your essential expenses, then time-segmenting the rest so each dollar is positioned for when you’ll actually need it. Speaking with a financial professional about your goals and which of the seven retirement risks concern you most is the best way to help ensure you have a well-positioned plan tailored to your retirement lifestyle.
