Retiring Before Social Security? Consider These Portfolio Changes

Retiring before Social Security kicks in is absolutely doable but only if you rethink how your retirement portfolio is structured during the gap years. Most people assume they can retire at 60 or 62, flip on Social Security, and call it a day. But if you retire earlier or want to delay benefits for a bigger paycheck later you’ll need to make intentional adjustments to your investments, spending plan, and withdrawal strategy. I want to walk you through what really matters when you retire before Social Security, how to design your portfolio for the transition, and which missteps to avoid so you don’t jeopardize your long-term retirement security.

When you retire before Social Security, your portfolio instantly becomes your primary income source. That alone changes the entire risk profile of your investments. In your working years, your paycheck covers the ups and downs of the market. But in retirement especially the early years you’re relying on your portfolio every month. That means the sequence of returns becomes one of the biggest threats to your financial stability. If the market drops early in retirement and you’re withdrawing from a shrinking pool of money, the damage can compound for years. This is why pre-Social Security retirement requires a different portfolio design than retirement after benefits begin.

One of the biggest mistakes I see is people keeping the same allocation they had while working: maybe 80% stocks and 20% bonds, or something similarly aggressive. When you’re withdrawing money before Social Security starts, that level of risk can lead to unnecessary volatility. Instead, I recommend adopting a more structured approach what we often call the “bucket strategy.” It creates stability in the early years, growth for later years, and flexibility as markets change.

Your first bucket the short-term bucket should cover roughly three to five years of planned withdrawals. This is your safety net. If the market drops, you don’t want to be forced to sell stocks at the worst possible time just to pay the bills. This bucket is typically made up of cash, high-yield savings, money markets, or very short-term bonds. It’s not designed for growth; it’s designed for stability and predictability.

Your second bucket the mid-term bucket covers the years between now and when Social Security starts. This bucket usually holds a balanced mix of stocks and bonds. It offers steadier growth while still protecting you from excessive market swings. The idea is to replenish the short-term bucket from this middle bucket when markets allow.

The third bucket is your long-term growth engine. This is your stock-heavy allocation, designed to fund years 10 through 30 (or more) of your retirement. Because you won’t tap this money for a long time, it can weather market cycles and benefit from long-term compounding. If you retire at 60 and delay Social Security until 70, this long-term bucket could remain untouched for a decade, giving it significant room to grow.

One of the biggest advantages of delaying Social Security is the built-in income increase about 8% per year after full retirement age until age 70. That’s a guaranteed return backed by the federal government, and it reduces the strain on your portfolio later in life. But delaying is only realistic if your early-retirement investments are structured to bridge the income gap safely. This is why bucket planning becomes essential it gives your portfolio durability while you wait for that larger Social Security check.

Tax planning is also critical when retiring before Social Security. With little or no earned income in your gap years, you may have the opportunity to perform Roth conversions at historically low tax rates. These conversions can significantly reduce future required minimum distributions and lower your lifetime tax burden. Once Social Security starts, your tax picture changes completely, so these early years may be the best window you’ll ever have.

Another key point is understanding how withdrawals interact with Medicare. If you retire before age 65, any income you take from your portfolio affects your ACA health insurance subsidies. Once Medicare begins, your modified adjusted gross income determines your IRMAA surcharges. Poor planning can unexpectedly increase medical costs for years. Properly structuring your taxable, tax-deferred, and tax-free accounts can help you avoid these traps.

Finally, retiring before Social Security requires real clarity about your spending. The most important number in your plan isn’t your portfolio balance it’s how much you expect to spend each year. Early retirement tends to be more active and more expensive. Later years slow down. Understanding this spending glide path allows you to size your buckets appropriately and avoid unnecessary risk.

Retiring before Social Security can be a smart strategy. It can allow you to leave work earlier, enjoy more active years in retirement, reduce your long-term tax burden, and get a much larger Social Security check later. But it only works if your portfolio is structured intentionally. With the right adjustments short-term stability, mid-term balance, long-term growth, smart tax planning, and clear spending expectations you can retire confidently without relying on Social Security to start the day you stop working.

Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.