How I Structure 5 Years of Retirement Income Before Touching Equities
Most retirees assume retirement income comes from “the portfolio.”
That’s incomplete.
In higher net worth households, I separate the portfolio into two distinct functions:
Income security
Long-term growth
Before we allow equities to fund lifestyle, we build an income structure first.
Here is how I do it.
Step 1: Define the Real Annual Income Requirement
We do not start with portfolio size.
We start with lifestyle.
For affluent households in this area, that often includes:
Primary residence expenses
Northern Michigan property
Possibly a Florida home
Travel
Healthcare
Ongoing gifting to children
We calculate:
Baseline required spending
Discretionary spending
Irregular large expenses
Then we subtract:
Social Security
Pension income
Rental income
Any guaranteed streams
What remains is the annual portfolio withdrawal requirement.
This number must be precise.
Step 2: Multiply by Five
If a household needs $250,000 per year from the portfolio after guaranteed income, we reserve approximately $1.25 million in stable assets.
Not in theory.
In structure.
That capital is not designed to grow aggressively.
It is designed to fund life.
The purpose is psychological and mathematical:
If markets decline in year one or two, we are not forced to sell equities at depressed prices.
The household sleeps well knowing income is already staged.
This is sequence risk mitigation.
Not market timing.
Step 3: Allocate the Income Sleeve Intentionally
The five-year income reserve is not placed entirely in cash.
It is typically structured across:
High-quality short-term bonds
Treasury ladders
Money market funds
Possibly conservative fixed income vehicles
The goal is:
Stability
Liquidity
Minimal duration risk
This sleeve exists to absorb volatility elsewhere.
It is not there to outperform.
Step 4: Leave the Remainder Invested for Long-Term Growth
If a client has $6M invested and we reserve $1.25M for five years of income, the remaining $4.75M remains growth-oriented.
This portion is allowed to:
Capture equity market returns
Compound
Outpace inflation
Because near-term income is protected, we do not need to react emotionally to market swings.
Equities are touched only when markets are cooperative or when the income sleeve needs replenishing after recovery.
Step 5: Refill Strategically
As years pass, we monitor:
Market performance
Withdrawal rates
Interest rate environment
When equities perform well, we harvest gains to refill the income sleeve.
When markets are down, we draw from the pre-funded income structure instead.
This is disciplined rebalancing with purpose.
Why I Prefer Five Years
Why not three?
Why not two?
In affluent retirements, lifestyle overhead is often higher.
Multi-property maintenance, travel, and healthcare are not optional.
Five years provides a cushion that allows:
Multiple market cycles
Time for recovery
Reduced emotional decision-making
For many households, the greatest risk is not running out of money.
It is reacting poorly during volatility.
Five years removes urgency.
Urgency creates mistakes.
What This Is Not
This is not a prediction strategy.
It does not assume markets will fall.
It does not assume markets will rise.
It assumes volatility exists and structures around it.
In Grosse Pointe, many retirees have substantial accumulated wealth.
The question is rarely whether the portfolio can theoretically support retirement.
The question is whether the structure prevents unnecessary stress during inevitable downturns.
The Result
Clients often tell me the biggest benefit of this approach is not mathematical.
It is emotional.
When five years of income is already staged:
Market headlines matter less
Temporary declines feel manageable
Decisions are deliberate
Retirement becomes less about reacting and more about living.
