Retirement investing is often framed as a race to build the biggest possible nest egg. But a safer, more useful goal is simpler: build a plan that reliably pays the bills for decades.

Near retirement, unnecessary stock exposure can become a dangerous luxury. Dr. William J. Bernstein, a retired neurologist, investment adviser, and author, said, “When you’ve won the game, stop playing with money you really need.”

Income First

A portfolio exists to fund spending, not to win a performance contest. Bernstein’s approach starts by estimating how much annual income retirement will require, then choosing assets that can deliver that income with a high level of certainty. The mindset shift is powerful: instead of chasing maximum growth at all times, the focus becomes securing the right lifestyle with fewer unpleasant surprises.

The 4% Rule

The famous 4% withdrawal guideline isn’t “wrong,” but it isn’t a law of nature either. With lower expected returns, a starting withdrawal closer to 3.5% or even 3.0% may reduce the risk of running short. Small percentage changes matter because withdrawals compound too—especially across long retirements and uneven markets.

How withdrawals are calculated also changes outcomes. Taking a fixed percentage of the current portfolio value each year can lower income during bad markets, but it can also protect the portfolio from being drained too aggressively. In contrast, setting an initial dollar amount and raising it every year with inflation can feel stable, yet it can pressure the portfolio when returns are weak early on.

Two Buckets

A practical structure is a two-bucket portfolio. The first bucket is designed to cover essential spending not met by guaranteed income sources. The second bucket can take stock risk for growth and flexibility. This split isn’t only financial—it’s psychological. When essentials are covered, it becomes easier to hold stocks through downturns without panic selling.

The first bucket is meant to be boring on purpose. It exists so the household can keep paying for food, housing, and medical needs even if markets stumble. The second bucket is where upside lives, but it should be treated as optional fuel, not a lifeboat. This framing supports discipline when headlines get loud.

Safe Tools

For the “safe” bucket, Bernstein highlights two main building blocks. One is a ladder of Treasury Inflation-Protected Securities (TIPS), designed so bonds mature over time and fund planned spending. The other is an inflation-adjusted immediate annuity that converts a lump sum into a stream of payments that moves with inflation.

Neither option is perfect. A TIPS ladder can run out if life extends beyond the ladder’s planned years. An annuity depends on the claims-paying ability of the insurer. Still, both are designed around reliability, not excitement. For retirees, that trade can be worth it because stability reduces the chance of forced stock sales in a downturn.

Delay Benefits

Guaranteed income sources deserve attention, especially the inflation-adjusted retirement benefit many households can claim later for a larger check. Bernstein’s logic is simple: if life expectancy is reasonably healthy for a couple, delaying benefits can act like buying a strong form of inflation-linked income. Spending from savings before age 70 may increase the lifetime payout later.

This strategy isn’t universal, but it’s a useful lens. It treats delayed benefits as a form of secure income that can reduce pressure on the portfolio during older ages. It also helps shift focus away from obsessing over short-term market moves and toward building dependable cash flow that lasts.

Low Yields

Fixed-income yields can feel discouraging, especially when retirees compare them to the long-run returns stocks have delivered. Bernstein acknowledges that reality: safe assets don’t pay much in some periods. But there’s a twist—policies that pushed yields down also helped boost the value of many portfolios over time, leaving retirees with larger balances than they might otherwise have had.

Even so, locking into low yields immediately isn’t always required. For some investors, using short-term or intermediate-term bonds can be a temporary bridge while waiting for better conditions. The key is not chasing yield blindly. Safety tools should prioritize predictability and inflation protection, not flashy payouts that may hide risk.

How Much

Bernstein suggests saving roughly 25 years of “residual” expenses—meaning the spending that remains after guaranteed income covers part of the budget. A simple example shows the logic. If annual spending needs are $70,000 and guaranteed income provides $30,000, the residual is $40,000. At a 4% withdrawal rate, that residual implies about $1 million allocated to reliably funding that spending gap, using a risk level matched to the household’s plan.

This framework forces clarity. Instead of guessing how big a nest egg “sounds right,” it ties savings to the gap that must be filled. It also makes trade-offs visible: lower guaranteed income, higher spending, or earlier retirement increases the required safe portfolio size.

Timing Stocks

Younger investors can tolerate larger stock allocations because they have time to recover and can even benefit from lower prices by continuing to buy. Bernstein encourages strong saving behavior, noting that a consistent savings rate—such as 15% of income—can do more for outcomes than trying to forecast markets.

Near retirement, the math changes. Stock losses combined with withdrawals can create a destructive sequence where the portfolio shrinks faster than it can rebound. If the safe bucket is not fully built, Bernstein argues the stock allocation should typically be well below 50%. Otherwise, poor early returns can threaten the plan within a decade.

Transition Plan

The tricky zone is the middle: not young enough to ignore volatility, not yet fully protected by safe assets. Bernstein’s answer is a gradual transition, starting five to ten years before retirement. That period is when stocks can become “toxic” because the portfolio no longer has time to heal before withdrawals begin.

If the safe bucket is still too small, working an extra year or two can be a powerful lever. It adds savings, reduces the number of years withdrawals must cover, and may increase future guaranteed income. This isn’t always possible, but it’s a practical option that often beats taking extra market risk at the wrong time.

Conclusion

Retirement safety isn’t about abandoning stocks forever; it’s about using stocks when they help and reducing them when they can do real damage. Build income needs first, create a safe bucket for essentials, and shift gradually in the decade before retirement to avoid risky timing. A strong plan can keep essential spending covered even if markets fall early in retirement.