How to Build a Retirement Portfolio: Step-by-Step Example with a $1.5M Case Study
When you’re retired, the way you invest changes completely. You’re no longer saving for “someday” — now your investments have to work for you.
In this guide, we’ll walk through exactly how to build a retirement portfolio using a real-life example of a couple retiring at age 60 with $1.5 million.
This isn’t investment advice — just an educational walkthrough to help you understand how different pieces of a retirement plan fit together.
Why Your Investment Strategy Changes in Retirement
When you’re working, your focus is growth. You can handle market swings because you’re not drawing from your investments yet.
Once you retire, the game changes. You now have to think about:
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Withdrawal rates (how much you can safely take out each year)
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Asset allocation (the mix of stocks vs. bonds)
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Cash flow (where your income is coming from)
It’s all about balancing growth and stability — making sure your money lasts for decades, even through market ups and downs.
Meet Joe and Tracy: A $1.5M Retirement Case Study
Joe and Tracy are both 60 years old, and they’re ready to retire in 2025. Together, they’ve saved $1.5 million for retirement and want to start enjoying their next chapter.
Their plan includes:
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A small pension of $1,000 per month
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Social Security, which they’ll claim at different times
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Withdrawals from their investment portfolio
At first, they plan to take out $11,500 per month — which sounds high, but later on, their Social Security income will reduce how much they need to withdraw.
This is a key lesson:
Your withdrawal rate at the start of retirement doesn’t have to be the same forever.
As your guaranteed income increases (like from Social Security or a pension), your reliance on portfolio withdrawals usually decreases.
Understanding Withdrawal Rates and Cash Flow
Let’s say you’re taking money out of your investments every month. The first few years of retirement can be risky because market downturns early on can have lasting effects — this is known as sequence of returns risk.
That’s why it’s smart to set aside several years of expenses in safer investments like bonds or money markets. Joe and Tracy did exactly that.
They calculated that they’ll spend about $615,000 from their portfolio over their first five years of retirement. So they set aside that amount in conservative investments, leaving the rest for long-term growth.
This strategy allows them to ride out market drops without having to sell stocks at a loss.
The 60/40 Portfolio Debate — and Why It’s Not One-Size-Fits-All
You’ve probably heard of the classic 60/40 portfolio — 60% stocks, 40% bonds. It’s a good starting point, but it’s not a rule.
Some advisors say, “Subtract your age from 100 to figure out your stock percentage.”
But that’s way too simplistic.
What really matters isn’t your age — it’s how much of your portfolio you’re spending.
If you’re not spending much, you can afford to take more risk.
If you’re living off your investments, you’ll want more stability.
How to Match Investments to Your Time Horizon
Here’s a simple way to think about it:
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Money you’ll spend in the next 1–2 years: keep it safe (cash, short-term Treasuries, or money market funds).
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Money you’ll spend in 3–10 years: use bonds and other conservative investments.
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Money you won’t touch for 10+ years: that’s your growth bucket — invest it in stocks or equity funds.
The longer your time horizon, the more you can lean on stocks to outpace inflation and grow your wealth.
Stocks vs. Bonds Explained for Retirees
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Stocks: These are your growth engines. They’re volatile in the short term, but historically they’ve outperformed inflation over time.
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Bonds: These are your stability anchors. They don’t swing as much but usually have lower returns.
By combining both, you create a smoother ride — you get enough growth to protect against inflation and enough stability to weather market dips.
Joe & Tracy’s Sample Investment Mix
For the conservative portion of their money, Joe and Tracy used:
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BND (Vanguard Total Bond Market ETF)
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BIL (SPDR 1–3 Month Treasury Bill ETF)
Half their conservative money went into each. This blend offers some yield while keeping risk relatively low.
The rest of their portfolio stayed in diversified stock index funds for long-term growth.
Over time, as more of their income came from Social Security, their portfolio naturally became more aggressive — because they relied less on withdrawals.
Why Your Asset Allocation Should Evolve Over Time
Here’s something surprising:
Many retirees become more aggressive over time, not less.
As guaranteed income sources like Social Security kick in, you may need to draw less from your investments. That gives your portfolio more flexibility to grow.
The key is staying intentional and reviewing your plan regularly.
Key Takeaways
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Start with cash flow, not your age.
Your spending needs should drive your investment mix. -
Keep 5 years of spending safe.
Protects you from having to sell during downturns. -
Use diversified index funds.
Low-cost and effective for both stocks and bonds. -
Revisit your plan every year.
Life changes — your portfolio should too.
Frequently Asked Questions
How should retirees build a balanced investment portfolio?
Start by matching your investments to your spending needs. Keep a few years of expenses in safe, liquid assets and invest the rest for long-term growth.
What is the best asset allocation for retirees?
There’s no one-size-fits-all rule. Many retirees start around 60% stocks and 40% bonds, but your allocation should reflect your income sources, risk tolerance, and goals.
Should retirees still invest in stocks?
Absolutely. Stocks are essential to outpace inflation and keep your purchasing power strong. Just make sure you have enough safe money set aside to cover short-term needs.
How can I make my retirement income last?
Use a sustainable withdrawal rate, coordinate your Social Security timing, and rebalance your portfolio as needed. Flexibility is your best defense.
What’s the biggest mistake retirees make when investing?
Going too conservative too soon. Inflation can quietly erode your wealth if you don’t maintain enough growth in your portfolio.
Final Thoughts
Building a retirement portfolio doesn’t have to be complicated — it just has to be intentional. Start with your cash flow, protect what you’ll need in the short term, and give your growth investments the time they need to perform.
Your portfolio should serve your life, not the other way around.
