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

Retirement planning generally moves through three phases in sequence: accumulation, distribution and estate.

The accumulation phase covers your working years, when the focus is on building wealth through savings, investment growth and consistent contributions to tax-advantaged accounts like 401(k)s and IRAs. The goal is to accumulate enough to support the retirement you want.

Distribution begins when you stop working and start drawing on what you have built. This phase is about managing withdrawals in a way that balances near-term income needs with the long-term growth required to make your savings last, often across two or three decades. Decisions about withdrawal sequencing, Social Security timing and tax efficiency all fall here.

The estate phase involves preparing for what happens after you are gone. This includes putting proper documentation in place, such as wills, trusts and beneficiary designations, and having conversations with your heirs about what to expect. The focus shifts from managing money for yourself to making sure it transfers according to your wishes with as little friction and tax exposure as possible.

For example, let’s say you’re 60 years old with $1.2 million in your retirement account. You’d like to retire at 65, which is slightly earlier than full retirement age, but not by too much. How should you structure your portfolio? Here are a few things to think about. A financial advisor can also help you determine what might make sense for your ideal retirement scenario.

1. Evaluate Your Approach to Risk

The distribution phase of retirement planning involves an entirely new approach to risk.

During the accumulation phase, most households invest in higher-risk assets. It is common, for example, for people to invest heavily in S&P 500 index funds, a high-volatility asset relative to many alternatives. This is chiefly because you can take a long-term approach to accumulation. You won’t need this money any time soon, so you can let it ride out the bear markets.

In distribution, your approach to risk likely changes. You’ll need to take income from this portfolio, which means you don’t always have the time to let your investments ride out a downturn. In order to avoid having to sell assets at a loss, most households shift their portfolios to a more conservative mix of assets focusing on bonds and annuities.

For your own planning, your approach to investment in retirement should depend on how you can manage risk. The more flexibility you have to adapt around bear markets, the more you can invest for higher-growth, higher-risk assets during your retirement. For example, if you have lots of room to cut spending, alternative assets to draw income from or other options that allow you to leave your portfolio in place during a bear market, you can invest in higher-risk, higher-growth assets.

On the other hand, if you’ll need to rely on a fixed income from this portfolio, then it might be a good idea to invest for more security. This is where a financial advisor can help you explore your options.

2. Anticipate Inflation, Taxes and Longevity

There are three 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 to 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 have 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 taxable brokerage account to invest, you’ll pay either capital gains taxes or income tax, depending on the nature of your assets. If you hold a Roth IRA or Roth 401(k), you won’t pay any taxes on your withdrawals.

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3. Evaluate Your After-Tax Income

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 preretirement income 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.

How to Choose a Distribution Strategy

Choosing a distribution strategy depends on how you plan to use your money in retirement. Start with how much of your income will need to come from your portfolio. If you’ll rely on it for most of your spending, a more stable mix of investments can help reduce the risk of selling assets at a loss during market downturns. If you have other income sources covering a large share of your expenses, you may have more flexibility to take on investment risk.

It’s also important to think about how flexible your spending is. If you can cut back during weaker market periods, you may be able to stay invested in assets with higher growth potential. If your expenses are mostly fixed, a steadier income stream may be more practical.

Your time horizon matters as well. Retirement can last decades, which means your portfolio may still need to grow to keep up with inflation. Focusing too heavily on low-risk, low-return investments can make it harder to maintain purchasing power over time.

Consider how comfortable you are with market ups and downs. A strategy that looks strong over the long term may still be difficult to stick with during short-term losses. Your approach should reflect how you are likely to respond when markets become volatile.

Bottom Line

Structuring a portfolio for retirement requires a different approach than building one during your working years. The priorities shift from growth to a combination of reliable income and enough continued growth to sustain withdrawals over what could be a retirement spanning two or three decades.

Getting that balance right involves more variables than most people expect.

“There are many ways to structure a retirement portfolio for tax-efficiency. Figuring out how much you need to generate from your portfolio annually, and when withdrawals will begin, is a great starting point. Your other income, such as pensions and Social Security, will factor in, as well. A financial advisor can help you model out different market and lifestyle scenarios to find the best asset allocation and distribution strategy,” said Loudenback, CFP®.

Tanza Loudenback, Certified Financial Planner™ (CFP®), provided the quote used in this article. Please note that Tanza is not a participant in SmartAsset AMP, is not an employee of SmartAsset and has been compensated. The opinion voiced in the quote is for general information only and is not intended to provide specific advice or recommendations.

Retirement Income Tips

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