Retiree Asset Allocation: A Planner’s Guide Beyond the 60/40

I’ll never forget Jim and Carol. Both were clients, both retired at 62 with identical

$1 million portfolios and the same “balanced” 60/40 retiree asset allocation. By all accounts, their futures looked the same. They weren’t.

Jim retired in late 2007, just before the Great Financial Crisis. Carol retired in early 2009, near the market bottom. Jim’s early withdrawals from a crashing portfolio, a phenomenon known as Sequence of Returns Risk, were catastrophic. He was forced to sell assets at fire-sale prices to fund his income, and his portfolio never recovered. Carol, on the other hand, retired into a roaring bull market. Today, her portfolio is worth over $2.5 million.

Same plan, same allocation, wildly different outcomes.

Here’s the deal: The single biggest threat to your retirement is not a bad stock pick. It’s a bear market in the first few years after you stop working. And the old advice on asset allocation is dangerously unprepared for it.

Beyond 60/40: A Professional Financial Planner’s Guide to Retiree Asset Allocation (2026)

You just retired. Or you’re about to. Now comes the real question: how do you actually invest your money? For decades, financial advisors have given the same answer: 60% stocks, 40% bonds. The classic 60/40 portfolio.

But that formula was built in a different era. Lower life expectancy. Lower inflation. Lower volatility. Different tax rules. Today, 60/40 is broken.

In this guide, I walk you through the exact framework professional financial planners use for retirees. The one that actually works in today’s retirement landscape. Watch the video below for the overview, or scroll down to read the complete breakdown with real-world examples.

Your Retirement Portfolio’s Real Job

Asset allocation for retirees is not about chasing the highest returns. It requires a radical mindset shift. Its job is to generate a reliable, inflation-adjusted paycheck for the rest of your life while protecting your nest egg from a fatal blow early on.

⚡ Key Takeaways

• Sequence Risk is the Enemy: A market crash in your first 3-5 years of retirement can be a knockout blow. Your allocation must be built to defend against this specific risk.
• The “Bucket Strategy” is Your Shield: This strategy separates your ‘now’ money (for immediate income) from your ‘later’ money (for long-term growth) to mitigate sequence risk.
• Asset Location Is a Tax Multiplier: What you own is important. Where you own it (Roth, 401k, Taxable) can be the difference between a tax-free and tax-burdened retirement.
• Myth vs. Fact: The myth is that a static “set it and forget it” 60/40 split is safe. The fact is that a dynamic model is required to fight inflation, taxes, and market shifts.

That “100 Minus Age” Rule? Time to Retire It.

You’ve heard the old rule of thumb: subtract your age from 100 to find your ideal stock allocation. If you’re 65, you should have 35% in stocks. All right, let’s be blunt.

In today’s world of longer lifespans and volatile markets, this advice is not just outdated, it’s reckless. It completely ignores your personal risk tolerance, your income needs, and the sequence of returns risk we just talked about. We can do better. A great first step is to get an honest look at your own feelings about risk.

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The Real Pillar of Retiree Portfolios: The Bucket Strategy

Instead of a single, blended portfolio, imagine three distinct pools of money, each with a specific job. This is the “Bucket Strategy,” a framework championed by experts like Christine Benz at Morningstar.

1. Bucket 1: The Cash Reserve (Years 1-2)
   • What it holds: 1 to 2 years’ worth of your living expenses in ultra-safe assets like cash, money market funds (I often recommend Empower’s high-yield cash account for its competitive rates), and short-term bonds.
   • Its Job: This is your paycheck. You draw from this bucket for all your expenses. It guarantees your income is insulated from stock market volatility. If the market crashes, you don’t have to sell a single stock to pay your bills.
2. Bucket 2: The Stabilizer (Years 3-10)
   • What it holds: High-quality intermediate-term bonds and potentially some inflation-hedging assets like TIPS (Treasury Inflation-Protected Securities).
   • Its Job: To provide stability and generate income to refill Bucket 1. As you spend down your cash, you sell assets from this bucket to replenish it, ideally during periods when the market is stable or up.
3. Bucket 3: The Growth Engine (Years 11+)
   • What it holds: A diversified portfolio of global stocks and other growth assets like real estate.
   • Its Job: Long-term growth. This is the part of your portfolio designed to outpace inflation and ensure you don’t run out of money in your 80s and 90s.

How it Works in Practice:

You live off Bucket 1. At the end of the year, you look at your portfolio.

If stocks (Bucket 3) had a great year, you sell some of those profits to refill Bucket 1.

If stocks had a bad year, you leave them alone and instead sell some bonds from Bucket 2 to refill your cash bucket.

This simple mechanic prevents you from selling low and locking in losses.

Building Your Buckets: Tax-Smart Asset Location

Now, here’s the part most guides miss. It’s not just what you own, but where you own it. This is Asset Location.

You might be wondering: “I have a 401(k), a Roth IRA, and a brokerage account. Does it matter which one holds my stocks vs. my bonds?”

Answer: Yes. It makes a huge difference to your after-tax income.

• Tax-Deferred Accounts (Traditional IRA/401(k)):
  • This is the best place for your most tax-inefficient assets. Think corporate bonds, bond funds, and REITs that generate a lot of ordinary income. Holding them here defers taxes until you withdraw.
• Tax-Free Accounts (Roth IRA/Roth 401(k)):
  • This is where you want your highest growth potential. Your stocks and aggressive growth funds go here. All of that growth is completely tax-free in retirement, which is an incredible advantage, often achieved through strategic Roth IRA conversions earlier in life.
• Taxable Brokerage Accounts:
  • This is for your most tax-efficient assets, like individual stocks you plan to hold for a long time, ETFs, and municipal bonds. These generate long-term capital gains, which are taxed at lower rates than ordinary income.

⚡ Bottom Line:

By placing your assets in the correct accounts, you can significantly increase your after-tax retirement income without taking on any additional market risk. Curious how a conversion could impact your taxes?

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Answering Your Top Retirement Allocation Questions

The Bottom Line: Engineering Your Paycheck

Jim’s story and Carol’s story are a perfect example of why retiree asset allocation is a different game. It’s not about winning, it’s about not losing at the worst possible time.

By structuring your portfolio with the Bucket Strategy, aligning your assets in the right tax-located accounts, and understanding your true risk, you’re not just building a nest egg…

You’re engineering a paycheck you can count on.

The old rules are retired. It’s time your strategy was too.

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Note: The content provided in this article is for informational purposes only and should not be considered as financial or legal advice. Consult with a professional advisor or accountant for personalized guidance.

• Sharing the article with your friends on social media – and like and follow us there as well.
• Sign up for the FREE personal finance newsletter, and never miss anything again.
• Take a look around the site for other articles that you may enjoy.

Note: The content provided in this article is for informational purposes only and should not be considered as financial or legal advice. Consult with a professional advisor or accountant for personalized guidance.