Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

How Much Fixed Income Do You Really Need in Retirement?

• Ari Taublieb, CFP®, MBA • Episode 293

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Stop letting your birthday decide your bond mix.


That “age in bonds” rule feels safe, but it can quietly rob you of growth, freedom, and spending power.

In this episode, Ari challenges the traditional 60/40 rule and shows how to build a smarter allocation based on your actual life, not your birth year. Using a real client story—a couple with $2 million in a 401(k), $85K in rental income, and $50K in part-time work—we explore how to balance risk, income, and long-term security without falling into the target-date trap.

You’ll hear:

  • Why age-based rules and target-date funds often miss the mark
  • How to define risk as losing purchasing power, not watching prices move
  • When higher equity can safely support early retirement dreams
  • How to use part-time work, rental income, and Social Security to reduce bond dependence
  • Turning volatility into an advantage with Roth conversions and tax-smart rebalancing
  • The “five-year war chest” method for withdrawals without panic selling

It’s not about chasing returns, it’s about funding freedom. Learn how to design your portfolio around the life you want, not the rule someone made decades ago.

If this conversation helped you rethink your allocation, follow the show, share it with a friend, and leave a quick review.


Ready to build a plan that aligns your investments, taxes, and cash flow? Visit https://www.rootfinancial.com/start-here/ to start your custom plan today.

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Advisory services are offered through Root Financial Partners, LLC, an SEC-registered investment adviser. This content is intended for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. Viewing this content does not create an advisory relationship. We do not provide tax preparation or legal services. Always consult an investment, tax or legal professional regarding your specific situation.

The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.

Comments reflect the views of individual users and do not necessarily represent the views of Root Financial. They are not verified, may not be accurate, and should not be considered testimonials or endorsements

Participation in the Retirement Planning Academy or Early Retirement Academy does not create an advisory relationship with Root Financial. These programs are educational in nature and are not a substitute for personalized financial advice. Advisory services are offered only under a written agreement with Root Financial.

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Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.


SPEAKER_00:

Today is not one of my normal episodes where I go through a case study in detail. This is a story. Now I hope it's one of the most entertaining stories when it comes to bonds in retirement, because that can only be so entertaining unless you are weird like me who loves this stuff. But I'm going to share this story with you now because I think it's powerful. And I appreciate all of you who continue to listen to the podcast, whether it be on the apps or on YouTube, and share the kind comments on how this helps you in your retirement journey. So the way that I think about bonds now has completely shifted from when I entered the industry. You'll see textbooks that say, make sure to have the amount of bonds based off how old you are. So if I'm 60 years old, I might want to have 60% in bonds. And that just didn't make sense to me because I thought, well, shouldn't it vary? Like what if I want to spend$100,000 in retirement and my neighbor wants to spend$200,000 in retirement and we're both 60? Like, why would we both have 60% in bonds? That didn't make sense. But then I thought, you know, these people must know more than I know, clearly. What else am I missing? So I would read on more and more. And then there would be other rules of thumb, such as, hey, maybe get a target date fund. If you know you want to retire in 2040, why don't you get a fund that will attempt to mimic what your portfolio, quote unquote, should look like if you retire in 2040? But what I started to find is these rules of thumb, they're okay as a starting spot, but they don't go into detail. Meaning they err on the side of caution, but I would argue too much. So if you're overly conservative, what happens is you actually look back and you go, wow, I lost a lot of memories in life. So an overly dramatic example of this is imagine you're scared to get hit by a car. Are you gonna never drive and not go anywhere? Well, obviously you'll look at life very differently, and that's not a fun life. But most people don't take it to that degree with investing, but I do look at it in that lens. And the reason for that is there are people I see who don't need any bonds at all. It's completely unnecessary. I will still recommend them. Well, why would I do that? Well, I can tell a client might sleep better at night if their portfolio is less volatile. So today I'm not focusing on the emotional side. The example and story I'm gonna share is strictly on the math. Whether you like me or don't like me, this is gonna be directly correlated to what does the math say. So I'm gonna start hopping in, but before I do, my name is Ari Taubleb. I am the chief growth officer here at Root Financial. I'm the host of this podcast, the Early Retirement Podcast, and I love helping people retire early. I am a CFP, a certified financial planner, and that is not why you should listen to me. How many doctors would you never let touch your body? Probably a lot of them. And I'm grateful to doctors because they put my hip together, which is why I still can play soccer today. I'm a big Arsenal fan, if you're not aware, and we are gonna win the league this year. Now, if you don't like soccer or sports in general, don't worry. This episode is still gonna apply to you. So I'm reading these books on how much should you have in bonds, and if you read one book, it's gonna have a different answer than another one, and that makes sense, and there's so many rules of thumb out there, and I get it. Most people, if they were to actually look at all the math, would get that analysis paralysis and go, well, I don't know. I just want to make sure I don't screw up retirement. So I've heard of a 60-40 before where people have 60% equities or stocks and 40% bonds or fixed income. Why don't I just try that? And if you do try that, you're probably gonna be okay. Like that's the reality is for people that are wondering, oh my gosh, am I gonna screw up if I don't have the right bond allocation? I mean, you could, but most of the time it's you're gonna look back and go, wow, I could have done a lot better. Not, oh my gosh, am I not gonna be able to eat? So that I find puts a lot of clients just at ease right away. They're like, okay, it's not like I'm not gonna be okay. It's I'm gonna look back and go, well, I could have retired five years earlier. So my job is to optimize. That's how I see it. I want you to know the earliest time where it can truly become optional. And I don't want you to lose sleep at night if you're invested away that doesn't align with you. So I'm by no means the harshest guy in the world trying to say, look, I need you to retire early for me, because then you're gonna be happier if you're gonna lose sleep every single night because you're invested a certain way, that just gives you so much anxiety that defeats the purpose of all of this. But if we're looking at the math here, what I'm also not gonna do is I'm not gonna let my clients off so easy, which is why I joke that I'm the meanest advisor on YouTube or listening on the podcast app because you work too hard. I'm so transparent. I want to make sure you know the earliest time works optional. And I don't want you mad at me when you're 85 with$10 million going, why didn't you tell me I could have retired earlier? So with that being said, here's the example. A client came to me and said they want to spend$100,000 in retirement. And I said, Okay, is that every year? Is that just the beginning? They said, well,$100,000, but to be honest, we'd like to spend a little bit more, maybe$120 or$130 if we could, because the first five years of retirement is when we're gonna have maximum health and energy. I said, Great, let's just call it$130. And that's$130 after taxes, adjusted for inflation. Is that right? They said, that's right. I said, okay, how old are you guys? And they said, well, we're 60 and 61. I said, got it. No Social Security, right? They said, correct. I said, Do you have any pensions or rental income? They said, Well, yeah, we do have a few rental properties we inherited, and those are fortunately doing well for us. So that's bringing in about$85,000 a year. I said, Great. Either of you guys still working? And one of them was doing part-time work. Nothing crazy, but it was bringing in about$50,000 a year. It didn't take a lot of their time, so they wanted to do it. So I said, okay. So it sounds like you're bringing in like$130,000,$140,000 a year. Is that right? They said, that's right. I said, okay, tell me about market volatility. Like, does it bother you? They go, Ari, we haven't checked our account for years. We don't even know our passwords. We just let the money ride. We know it's going to go up and down, and maybe we should be adjusting it, and that's kind of why we're talking to you. And I said, Well, maybe we shouldn't adjust it. And they go, that's weird, considering this is like your profession. Shouldn't you be telling us what we should adjust? I said, okay, well, let's think about this. You said you want to spend$130,000 a year, right? They said, that's right. I said, okay, so sounds like you have about$140,000 or so based off the bonus they get from their part-time work. So theoretically, if I didn't send you any money from your portfolio, could you live like between the rental income and the part-time work? I know that will stop, but theoretically today, could you live if I sent you no money? They go, yeah, we could live, but maybe we need a little bit extra buffer if we take a few extra trips. I said, okay, so what amount do you think you have in bonds? Let's look at your portfolio. And they had about$2 million. And most of it was in their 401k. So if we make a change, it doesn't have a tax impact. And they said, I don't know, maybe 25%? I said, okay, let's look. So we looked. It was about 40%. 60% was equities, 40% was fixed income. Now, why is that? Well, if they have a target date fund, which is what they had, a target date fund is trying to make sure that if they retire, markets don't go like this, straight down, and all of a sudden they can't create the income they need. But the target date fund has no idea that they have rental income and they're working part-time and how much they want to spend and their legacy goals and how their health. It doesn't know anything. So it's just taking a guess. It's a starting spot. It's like a rule of thumb. So here they are, and they don't have the age rule of thumb, because once again, they're 60, 61. They don't have 60% in bonds, they have about 40% in bonds. So theoretically, if we're looking at a plan and we want to optimize, what this person should have should be based on how much income they want. So if they want$130,000 a year and they have enough coming in from their jobs just about, remember the one job and rental income. Theoretically, if I switch their portfolio from 60% equities and 40% bonds to 100% equities and 0% bonds, they could still live. Now I'm not saying they do that, but they could still live. And they said, Yeah, but isn't that super risky? I said, Well, let's talk about risk. What is risk to you? And they said, risk is us running out of money. I said, I love it. Okay, what else does risk mean to you? They go, Well, risk is also, I mean, we there's a reason we have equities is we know they grow over time. I said, got it. Okay, I like the way you're thinking about it. So risk could otherwise be said, risk is basically the purchasing power of our dollars. We want to make sure it outpaces inflation so we don't run out of money. Is that right? They go, Yeah, that's about right. They said, I know you like this stuff, so you use your fancy words, purchasing power, and all these textbook things. I said, That's true. They caught me on that one. But the truth is, I said, guys, we probably want to make sure that we're not losing sleep over how you're invested. Is that right? And they go, of course. I said, Well, are you gonna check your account in retirement? They said, No, we are not gonna check. That's we're paying you. Your job is to check and tell us when we should be doing different things. I said, Well, we're probably gonna need to do some Roth conversions and other tax things along the way. We're not gonna talk about that today, but we're going to need to do that. They go, Yeah, we've seen some of the videos. We understand the value of doing something like that down the line. I said, Okay. So today, what if we switched your allocation from 60% equities to 100% equities? And they said, Well, that sounds like a big change, especially the husband in this case, who is less financially savvy to the wife. Um, the husband was like, That seems like what about 70%? What about 80%? I go, I get why you're saying that. It's because it feels like a big change. But if we just look logically at this, what we're doing is we're just making sure you have enough income. The role of your portfolio is to create income for you today and in the future. Is that right? They agreed. I said, okay, well, today you have your income needs met through your real estate, meaning rental income and part-time work. And you told me that you want to turn on Social Security early, right? Because of your health. They said, that's correct. I said, well, if we turn on Social Security in two years, what's going to happen is now you're going to have$150,000 or$160,000 a year coming in. And you're only going to need$130, right? I said, that's right. I said, what about in five years? How much will you need? They go, probably like$100,000 a year, not$130, because our health isn't the same. I said, okay, well, at that point, you're not going to be working part-time, but you're going to have Social Security. So theoretically, if we didn't switch your allocation at all, it w you wouldn't notice a thing. Your 60% that's in equities would remain there. And your$2 million, let's just pretend here, I'm going to look at do some simple math. I'm going to assume a$2 million portfolio, let's say it grows by, I'm just going to say 6%. So in five years, we want to know what it would be worth. So if you have$2 million and you're$401K, and let's just assume 60% of that is in equities, 4% fixed income. I'm just going to say a 6% return. Just an estimate here. That's a big deal. I mean, look, your$2 million after five years at 6% would turn to$2.6 million. Once again, they didn't even have to withdraw from it. That's what's amazing because they have rental income. Now you guys can replace rental income with the current money from your W-2 paycheck or inheritance or whatever you want. The example makes the same. It's the same regardless of where the money comes from. So now let's assume they switch to 100% equities. If they have 100% equities, what we want to know is how much more value would that add? And is it worth the potential headache? Meaning, if this was a couple that said, well, we're going to check our account all the time, 100% equities, we're going to lose sleep at night, then maybe this would be a terrible recommendation. But in this exact example, if we get 10% growth over five years, instead of having 2 million become 2.6 million, it now becomes 3.2 million. So that's a big deal. And all I did was have a conversation. So what they could choose to do is say, well, that feels like a big switch. And it is. It is a big switch, but it's not when you actually look at the logic. The logic is saying, well, that makes total sense. Because if markets go down and they have 100% equities, which is what many of you are thinking right now, what about the downside? Well, if markets go down, do you remember when I said we're going to have to do at some point Roth conversions? It might make more sense to accelerate those Roth conversions because when the recovery happens, that's all going to be tax-free. Because the$2 million in their 401k, that's going to grow to$3.2 if it gets 10% growth. That's all pre-tax. We're going to have to convert that at some point. So the win-win here is if markets go down, we accelerate Roth conversions and move money from their 401k to a Roth IRA. It's a in it's tax arbitrage. We're taking advantage of the situation so that in the future they pay less taxes on those same dollars. And if markets go up, great. We have more money that we can choose to spend or give or do whatever we want with. So in this case, the couple went, well, I do see it's a big switch, but because I don't check my portfolio, I don't really care. And you're going to tell me if we should switch anything, of course we would. So it didn't bother them and it yielded a significant difference. But I'm willing to have that conversation and I'm willing for I'm not married to the 100%. I don't get more money. If 100%, I don't care. I would rather the client go, I want to spend$300,000. My goal is for my clients to live their best life. If they're making more money, great. Generally, what we're doing is we're giving more because clients who are having unfortunate significant health events might want to give more or take more people on trips. They told me they want to spend$130. What if it turns out they went, wow, how much could we spend? Well, if we were to have their money grow to$3 million and they go, well, we want to be able to take a conservative amount from that. I'm just doing some very simple math here. There's no reason I couldn't get say, guys, you could take easily$150,000, about 5% from that, and I wouldn't even bat an eye. I'd go, that that is more than sustainable if you wanted to do that every single year. Look, these are the dollars they work so hard for. So do they need to do it? No. But there are situations where having bonds does not make sense. And there are situations where, like, let's just keep it simple, pretend they don't have any rental income. Sometimes I'll call rental income that they inherit or just inheritance as a whole, the lucky sperm and egg club, because it's kind of funny. And it's true. So if that's the case, if you inherit a good fortune, well, that's awesome. But if you don't, and they still want 130,000, they want to know how much can they withdraw. You need to reverse engineer the allocation. Everything I just did, we got to go back. Because pretend you have a$2 million portfolio. What's two, what's um, we're gonna say they didn't ever switch their allocation, so they still have 40% in bonds. 40% of$2 million, that's$800,000. So that means$800,000, that represents about five years' worth of expenses. That's what we want to make sure we always have five years worth. So$800,000, if we divide that by five, that's giving them about$160,000 a year that they can withdraw, pay taxes on so that they can live. So the reality is if they didn't have any rental income and the and one of them still wanted to work part-time, we'd probably want somewhere close to that$800,000 amount in fixed income or bonds, so that we have five years of what we call war chest or conservative assets. So you can see here, I'm not married to one or the other. I just want them to make sure that they are living their best life and they don't look back going, well, why didn't you educate us more on maybe why we should switch our allocation? So hopefully this episode resonated in that maybe you thought for the first time, well, my bond allocation should change. If it does, send me an email. I like hearing from you guys. Drop a comment on YouTube, like and subscribe. If you're listening on the podcast app, please rate and review. It helps more people find the show. And then finally, this is what we specialize in at Root Financial. You can reach out to us and we will create a custom plan for you so you retire early with confidence. We do all the tax, estate, healthcare, withdrawal, and we love it. See you guys next time.