Three decades of articles, target-date funds, and 401(k) auto-enrollment have largely solved the accumulation problem for diligent savers. The newer, less-discussed problem is decumulation — turning the portfolio back into something that pays the mortgage, the property taxes, the groceries, and the trips, every single month, for the rest of your life.
Most retirees we meet are not under-saved. They are under-organized.
Three buckets, three time horizons
A practical paycheck framework starts by sorting assets by how soon they need to be spent.
- Bucket 1 (0–2 years). High-quality short-term bonds, money markets, or a CD ladder. The money you'll live on this year and next. Volatility is the enemy here, not return.
- Bucket 2 (3–10 years). A diversified mix tilted toward fixed income with a meaningful equity weight. This bucket refills Bucket 1.
- Bucket 3 (10+ years). Globally diversified equity. This is the inflation-beating engine and the legacy assets. It refills Bucket 2 over rolling multi-year windows.
The buckets are conceptual — your custodian sees one portfolio. But the framework matters because it gives you something to point to in a bad market year. The check is funded from Bucket 1. Bucket 1 is funded from Bucket 2 in good market years. Bucket 3 stays invested through volatility because it doesn't need to be touched for a decade.
Where the income actually comes from
A real retirement paycheck rarely comes from one account. For most clients, it's a coordinated draw from multiple sources, each chosen for its tax efficiency in that year:
- Taxable account interest, dividends, and capital gains — already in your income whether you draw on them or not.
- Roth IRA distributions — tax-free, but most efficient if left to grow and used last.
- Traditional IRA / 401(k) withdrawals — taxed as ordinary income; subject to RMDs starting at 73.
- Social Security — the cost-of-living-adjusted floor under your paycheck. Often worth delaying to 70.
- Pensions or annuities — when present, a stable additional floor.
The decision of which account to draw from first has a bigger impact on a 30-year retirement than most asset-allocation decisions. A withdrawal plan is not the same as an asset allocation.
The Social Security decision
Each year you delay claiming Social Security past Full Retirement Age (66 or 67 for most current retirees) increases your benefit by roughly 8%. There is no investment that reliably delivers 8% real return with no volatility. For households with longevity in the family and assets to bridge the gap, delaying to 70 is usually the right move — and it improves the survivor benefit.
Stress-testing the plan
Once a withdrawal plan exists, the right question is no longer "is 4% safe?" — it's "can the plan survive the bad cases?" We model:
- A poor sequence of returns in the first decade of retirement.
- A 25% market decline in year three.
- Higher-than-expected health care costs starting at 75.
- An unexpected need to support an adult child.
If the plan still works in the bottom 10% of those simulations, it will almost certainly work in the average case. If it doesn't, the time to adjust is before you need the money — not when the market is down.
