A common approach is ensuring guaranteed sources—Social Security, any pension, and in some cases fixed annuities—cover your essential expenses, while market-based investments fund discretionary spending and growth. The right mix depends on your specific numbers, but this framework gives you a starting point.
Why the “Pay-Check, Play-Check, Care-Check” Framework Works
If you’re five years from retirement with $300,000 or more saved, you’re probably thinking about how to turn that nest egg into reliable income. One question comes up more than any other: how much should I lock into guaranteed income, and how much should stay invested?
The answer isn’t one-size-fits-all, but a helpful way to think about it is the “Pay-Check, Play-Check, Care-Check” framework.
Pay-Check covers your essential monthly expenses—housing, utilities, food, insurance, healthcare premiums. These are the bills that don’t go away whether the market is up or down. Social Security and any pension you have form the foundation here. If those don’t fully cover your essentials, you might consider adding a fixed annuity or other guaranteed income source to close the gap.
Play-Check funds discretionary spending—travel, hobbies, dining out, gifts to family. This money can come from your investment portfolio. If the market has a rough year, you can dial back the European vacation or delay the kitchen remodel without affecting your ability to pay the mortgage or buy groceries.
Care-Check is your reserve for healthcare costs that aren’t covered by Medicare or insurance—long-term care, out-of-pocket medical expenses, or assisted living down the road. Depending on your situation, this might be funded by a combination of savings, health savings accounts, or long-term care insurance.
A Real-World Example
Let’s say your essential monthly expenses in retirement will be $5,000. Social Security will cover $3,200, and you have a small pension that pays $800. That leaves a $1,000 monthly gap.
The rest of your portfolio—let’s say another $200,000—stays invested in a diversified mix of stocks and bonds. That money funds your discretionary spending and continues to grow over time. If the market drops 20% one year, your essential expenses are still covered. You might skip the cruise or postpone a big purchase, but you’re not forced to sell investments at a loss to pay the electric bill.
Who This Applies To
This framework works best if you’re within five years of retirement and have a clear picture of what your expenses will look like. It’s also helpful if you’re someone who worries about market volatility but still wants growth potential.
If you’re already retired and drawing from your portfolio, you can still apply this thinking—it’s never too late to build more certainty into your income plan.
Conclusion
We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to see how we can help you Retire ”Your Way!”
How much of my retirement income should be guaranteed versus invested in the market?
A common approach is ensuring guaranteed sources (Social Security, any pension, and in some cases fixed annuities) cover your essential expenses, while market-based investments fund discretionary spending and growth — though the right mix depends on your specific numbers.
This structure — sometimes described as a “Pay-Check, Play-Check, Care-Check” framework — reduces the risk that a market downturn forces you to cut into basic living expenses. Essential costs (housing, healthcare, food) are covered by predictable income; discretionary spending (travel, hobbies) draws from the portfolio, where some year-to-year flexibility is more acceptable. The specific ratio depends on your total assets, other income, and comfort with market risk, and is worth mapping out precisely rather than guessing.
What is an “income floor,” and why do some advisors recommend building one?
An income floor is the amount of guaranteed income needed to cover essential expenses, built from sources like Social Security, a pension, or an annuity, so basic needs are met regardless of market performance.
The idea behind an income floor is to remove essential living expenses from market risk entirely, so a downturn affects only discretionary spending rather than your ability to pay for housing, food, and healthcare. Not everyone needs a fully guaranteed floor — it depends on your other assets and comfort with risk — but it’s a useful concept to evaluate against your specific situation.
Can I combine an annuity with a traditional investment portfolio, or do I have to choose one approach?
Most retirement income plans combine both — using an annuity or other guaranteed source for essential expenses while keeping a diversified portfolio invested for growth and discretionary spending.
These approaches aren’t mutually exclusive, and combining them is more common than choosing one exclusively. A typical structure uses guaranteed income to cover non-negotiable expenses, while the remaining portfolio stays invested for growth, inflation protection, and flexibility. The right mix and allocation between the two depends on your total assets, other income, and personal risk tolerance.
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Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. This commentary reflects the personal opinions, viewpoints and analyses of the author, Dale Soutas. It does not necessarily reflect the views of Foundations Investment Advisors, LLC (“Foundations”) and is provided for educational purposes only and the contents are solely maintained by and the responsibility of the applicable 3rd party. The 3rd party content is subject to change at any time without notice, and does not represent an express or implied opinion or endorsement of any specific investment opportunity, investment strategy or planning strategy. Foundations in no way deems reliable any statistical data or information obtained from or prepared by third party sources in this commentary, nor does Foundations guarantee its accuracy or completeness. No legal or tax advice is provided or intended.
This is not endorsed or affiliated with the Social Security Administration or any U.S. government agency.
The S&P 500 index tracks the stock performance of about 500 of the largest US public companies. Investors cannot invest directly in an index. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
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