I’m 60 and Retiring Soon. How Should I Structure My $1.2 Million Portfolio?

There are three systematic risks that all retirees should plan for: inflation, taxes and longevity. Each of these can erode the long-term value of your portfolio in different ways.

Longevity means taking your estimated lifespan into account. Basically, how long will you need this portfolio to last? A retiree may expect live to around age 87 or even longer. So, if you retire at age 65, you’ll want to plan for a retirement that will last for at least 25 years, preferably 35. Otherwise, you’ll risk running out of money and having to live off Social Security alone.

Inflation is the eroding value of money over time. Each year things cost a little bit more, which means the same amount of money will buy less. At the Federal Reserve’s target 2% annual rate of inflation, this causes prices to double roughly every 35 years. At this rate, unless your portfolio and income grow, it will cost twice as much money to maintain the same standard of living 35 years from now. There are many ways to address this, but in general, the best option is to plan for your portfolio income to increase by 2% each year.

Finally, you’ll pay taxes on the income you take from most retirement portfolios. A pre-tax portfolio, like a 401(k) or a traditional IRA, will generate income taxes on the full value withdrawn. If you use a taxed portfolio, you’ll pay either capital gains taxes or income tax, depending on the nature of your assets. Like during your working life, this means you need to plan for your after-tax, spendable income. The only exception is if you hold a Roth IRA or Roth 401(k). In this case, you won’t pay any taxes on your withdrawals.

With these factors in mind, consider how to structure your portfolio. You’ll be looking to generate a reliable annual income that meets three goals:

• Fills your spending and lifestyle needs

• Fits your risk management plan

• Addresses your inflation, longevity and tax risks

While you should take a thorough look at your anticipated budget, a good place to start is with the 80% rule. This is the idea that, in retirement, you’ll need about 80% of your working budget to maintain the same standard of living. So if, for example, you make $100,000 pre-tax, you should plan on an $80,000 pre-tax budget in retirement.

You can start by accounting for Social Security. As of February 2025, the average Social Security benefit was $1,976 per month, or $23,712 per year. Even if you retire early, it’s typically worth drawing a little more from your portfolio and waiting to collect full benefits at age 67.

From there, look at how to invest. If you currently have $1.2 million at age 60, this means five more years of growth. Then you’ll shift to a distribution strategy. Let’s say that you’re currently invested in a mixed-asset portfolio returning 8% per year (roughly the average return of a half-and-half equity/corporate bond portfolio). Setting aside additional contributions, by retirement age, you might have about $1.76 million in your portfolio.

Then, let’s look at four possible investment strategies:

• Structured assets: All annuities

• Possible pretax income: $136,284

• Possible pretax combined income (with Social Security): $159,996 per year

• Benefits: Contractually guaranteed income for life

• Risks: No growth to offset inflation

• Conservative assets: All corporate bonds, 5% average yield

• Possible pretax, inflation-adjusted income: $80,000 for 35 years

• Possible pretax combined income (with Social Security): $103,712 per year

• Benefits: Secure, with significant interest income

• Risks: Low growth leading to less income

• Mid-range assets: Mixed portfolio of equities and bonds, 8% average return

• Possible pretax, inflation-adjusted income: $115,000 for 35 years

• Possible pretax combined income (with Social Security): $138,712 per year

• Benefits: A balance of growth and risk, given the mix of assets

• Risks: More volatility due to the equity portion of the portfolio

• High-growth assets: All equities held in an S&P 500 index fund, 11% average return

• Possible pretax, inflation-adjusted income: $155,000 for 35 years

• Possible pretax combined income (with Social Security): $178,712 per year

• Benefits: Strong average returns leading to high income

• Risks: Very high volatility associated with equities

In all cases, your portfolio and Social Security can generate a combined income well above the median household income. The question is how this works with your own needs. Evaluate your budget and spending, balanced against your risk management options, to decide which approach meets your personal needs. You can also consider reaching out to a financial advisor if you would like some guidance.

Structuring your portfolio in retirement requires a different approach from how you built it during your working years. You need to prepare for a balance of security and reliability, set against the need for real growth during a (hopefully) long retirement. Hitting both of those targets well takes skill and planning.

• Do you have enough to start planning for a retirement? Don’t just rely on back-of-envelope math and rules of thumb. Our retirement calculator can help you generate real numbers based on your real income and needs, right now.

• A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.

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