Retirement Income Shouldn’t Depend on the Market; It Should Depend on Math

The math isn’t as tough as you might think. It all starts with dividing your assets into three different buckets.

A man holds up a calculator.
(Image credit: Getty Images)

Market ups and downs can keep retirees on edge, worried about potentially big losses from which they may never be able to recover.

And those worries aren’t necessarily misguided. From 1928 through March 2022, there have been 26 “bear markets.” A bear market is a market decline greater than 20% that lasts at least two months. The average bear market decline since 1928 has been 35.62%, so the potential for big losses is real.

The good news, though, is that there are ways to protect yourself from these inevitable market downturns. After all, your retirement shouldn’t be an endless series of sleepless nights. And, with careful income planning that covers your lifestyle needs, allows for emergencies and includes a suitable amount for investment and growth, it doesn’t have to be.

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For me, this approach to retirement can be summed up with this phrase: Your income shouldn’t depend on the market. It should depend on math.

Just how might that math play out?

Let’s say a couple are closing in on retirement, their savings plan went well and they have $1 million stashed away. That’s a nice tidy sum, but at a time when retirement can last 20 years, 30 years or longer, it’s still important to plan wisely so that the money stretches out the rest of their lives. And as you probably know, people are living longer these days, which means it’s even more important to make the right financial decisions.

Here’s where math gets involved – and we start dividing that money into buckets.

Safety bucket

Unexpected emergencies arise in life – both in and out of retirement – so it’s good to have money in reserve that’s allocated just for that purpose, to help with a smoother ride during retirement. We always ask our clients how much they need in this bucket to feel comfortable, just in case the car needs new tires, the roof leaks or some other crisis, small or large, occurs. As you might imagine, the amounts they give vary, but let’s suppose the couple in our example settle on $50,000 as the figure they want in the safety bucket. That gives us a good beginning to then explore how to manage the rest of their savings.

Income bucket

It is when pondering the contents of this bucket that retirees must decide how much money they will need coming in each month to pay for their lifestyle. Certainly, they need money for groceries and to pay the electric bill, water bill and other necessary expenses. But they also want leisure time as well.

Let’s say our couple settle on an income goal of $6,000 a month, and they expect to receive $2,000 a month each from Social Security, for a total of $4,000. That means there’s a $2,000 gap they need to fill between what Social Security provides and their income goal.*

One possibility for bridging that gap would be to use at least some of their retirement savings to purchase an annuity, which works somewhat similar to a personal pension plan, with the potential of providing a guaranteed monthly income that you won’t outlive. There are different types of annuities, but I lean toward fixed-indexed annuities because you can’t lose money with them, which means you have the potential for a more predictable income stream regardless of what the market does.**

Now that their monthly expenses are taken care of, our couple can move to the next portion of this math problem – figuring out what they have left for long-term investment purposes.

Growth bucket

Certainly, retirees need to be careful with their money, but this is the bucket where you can be somewhat aggressive with investments because your income needs are taken care of, and you have that safety bucket that offers protection in case of an emergency. The growth bucket allows you to keep up with – and hopefully outpace – inflation.

Of course, this is also a bucket that can go down in value if the market drops, so this shouldn’t be money that you expect to dip into anytime soon. The last thing you want in retirement is to be forced to take money out of your savings when the market is tanking. The account balance would start to drop rapidly as market forces, combined with your withdrawals, drained it. That’s a scenario that could send retirees back into the workforce.

Many people take the approach that retirees need to be conservative with their money, but that may not be true with of all your money. As long as you have your lifestyle taken care of, and that emergency fund is set, it’s OK to find ways to make your money grow. This isn’t to say you should be overly aggressive. There’s no need for Las Vegas-style gambling. But you can create a portfolio that’s a little heavier on equities and a little lighter on bonds than the 60/40 split that so many people recommend. Unfortunately, it’s common in the financial world to see people being given advice that deals in generalities like the 60/40 split, but when you enter retirement, you shouldn’t rely on cookie-cutter approaches. You need to get advice that’s specific to your needs.

One of the great things about this three-bucket approach is the possibility of taking advantage of market growth without having your entire retirement fortunes tied to it.

Certainly, your numbers – and your needs – will be different from those of this example couple. Perhaps your comfort level calls for more, or less, money in that emergency fund. Maybe you expect to do a lot of traveling in retirement and want enough money in the income bucket to cover those desires.

That’s why, as you near retirement, it’s important to sit down with a financial professional who can help you figure out the answers to your own math problem. That way, those market ups and downs won’t have so much power over you – and you, instead, can focus on the joy retirement brings.

* The hypothetical example provided is for illustrative purposes only; it does not represent a real life scenario, and should not be construed as advice designed to meet the particular needs of an individual’s situation.

**Fixed index annuities are designed to provide guarantees of principal and credited interest, and a death benefit for beneficiaries. The interest credited on your contract may be affected by the performance of an external index. However, your contract does not directly participate in the index or any equity or fixed interest investments. You are not buying shares in an index. They are subject to surrender charges and may have applicable fees. Guarantees are backed by the financial strength of the issuing company.

Ronnie Blair contributed to this article.


Insurance services are offered through Capital A Insurance. Securities offered through Madison Avenue Securities, LLC (MAS), member FINRA/ SIPC. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). Neither MAS nor AEWM is affiliated with Capital A Insurance or Capital A Wealth Management. 1126032 – 4/22


All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to guarantees or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.


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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Brandon Domenick, Investment Adviser Representative
Managing Partner, Capital A Wealth Management

Brandon Domenick is a managing partner with Capital A Wealth Management in Cranberry Township, PA. Domenick began his career in the financial industry after earning a Bachelor of Science in business administration from Westminster College. He maintains his FINRA Series 65 securities registration through AE Wealth Management and is also licensed in life, accident and health insurance.