Retirement Money Makeover
A retirement money makeover builds an income plan in six steps: (1) write a real retirement spending budget; (2) cover essential expenses with guaranteed income (Social Security, pension, possibly an income annuity); (3) hold 1–3 years of withdrawals in cash and CDs; (4) simplify the portfolio into low-cost index funds at an age-appropriate mix; (5) sequence withdrawals tax-efficiently (taxable, then tax-deferred, then Roth — with Roth-conversion exceptions); (6) update beneficiaries and estate documents.
Step 1: A Spending Plan, Not a Guess
Retirement budgets aren't uniformly lower — healthcare and leisure often rise early. Build the budget from current actual spending, subtract work costs, add travel/health. Separate essential from flexible — that split drives step 2.
Step 2: Floor the Essentials with Guaranteed Income
Match essential expenses to guaranteed sources: Social Security (timing analysis in the over-50 makeover), any pension, and — if a gap remains — a single-premium income annuity sized to close it. A funded floor lets the rest of the portfolio ride out markets.
Step 3: The Cash Bucket
Hold roughly 1–3 years of planned portfolio withdrawals in high-yield savings and a CD/Treasury ladder. This buffers sequence-of-returns risk — the danger of selling stocks during an early-retirement crash.
Step 4: Portfolio Cleanup
Consolidate stray accounts (how), replace 1%-fee funds with sub-0.10% index funds, and set a stock/bond mix you can hold through a 30–40% drawdown — commonly in the 40/60 to 60/40 range for new retirees, adjusted to your floor from step 2.
Step 5: Tax-Smart Withdrawal Order
The conventional sequence — taxable first, tax-deferred second, Roth last — minimizes current taxes, but low-income early-retirement years are often better used for partial Roth conversions before RMDs begin (age 73–75 depending on birth year under SECURE 2.0). This is the step where fee-only, fiduciary advice most often pays for itself.
Step 6: Paperwork
Beneficiaries on every account (they override wills), will, durable power of attorney, healthcare directive, and a one-page "where everything is" letter for your spouse or executor. Review life insurance and long-term care alongside.
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What is the 4% rule?
A guideline from William Bengen's 1994 research: withdraw 4% of the portfolio in year one of retirement, then adjust that dollar amount for inflation annually; historically this survived every U.S. 30-year period tested. It's a planning benchmark, not a guarantee — longer retirements and market conditions argue for flexibility.
What order should I withdraw retirement money?
The conventional order is taxable accounts first, then tax-deferred (401(k)/IRA), then Roth. Common exception: using low-tax early-retirement years for partial Roth conversions before required minimum distributions begin.
How much cash should a retiree hold?
A widely used guideline is one to three years of planned portfolio withdrawals in savings, CDs, or Treasuries — enough to avoid selling stocks in a downturn, without dragging long-term returns.
When do required minimum distributions start?
Under SECURE 2.0, RMDs from traditional IRAs and 401(k)s begin at age 73 for those born 1951–1959 and 75 for those born 1960 or later. Roth IRAs have no lifetime RMDs.