The retirement red zone refers to the five years before and after retirement, when market volatility and withdrawal timing can have a larger impact on your long-term financial outcomes. This is the phase when your financial decisions begin to carry greater weight. It’s no longer just about growing your portfolio. It’s about how that portfolio supports your income, lifestyle, and your long-term plan for a retirement that could last 30 years or more.  
Think of the retirement red zone like shifting from training for a marathon to actually running it. During the training phase, the focus is on building strength and endurance. Once the race begins, pacing, timing, and energy management become just as important. 
The same concept applies here; your strategy needs to evolve.
As the founder of Fisher Financial Group, LLC, Dan Fisher has this to say:

“When you get close to retirement, things start to feel different. It’s not just about growing your money anymore; it’s about how you’re going to use it.”
Balancing growth and income in the retirement red zone involves structuring your portfolio to support near-term income needs while maintaining long-term growth potential. This often includes segmenting assets by time horizon, coordinating withdrawal strategies, and managing tax exposure as you transition into retirement.
What Is the Best Way to Structure Your Portfolio in the Red Zone?
Remember that as your retirement gets closer, it’s less about maximizing returns and more about making sure your portfolio supports your next phase of life. One way to make this more practical is to move beyond a single portfolio and assign specific roles to different parts of your investments.
Which assets are meant to support near-term income needs?
These are the assets you may rely on for the next one to three years of expenses. The goal here isn’t growth; it’s accessibility and stability.
Examples might include:


Cash or high-yield savings


Money market funds


Short-term bonds or Treasury bills


Think of this as your “paycheck replacement bucket.” If markets become volatile, this portion of your portfolio can help cover living expenses without needing to sell longer-term investments at an unfavorable time.
Which assets are there to provide stability and consistency?
This middle layer is often designed to generate a reliable income and moderate fluctuations. These assets may not offer the same growth potential as equities, but they can help create a more predictable experience over time.
 Examples might include:


Investment-grade bonds


Bond funds or bond ladders


Dividend-paying stocks


REITs or income-focused investments


You can think of this as your “income engine.” It may help supplement other income sources, such as Social Security, while also acting as a buffer between short-term cash and long-term growth assets.
Which assets can stay focused on long-term growth?
These are the investments that may not be needed for many years, often 5, 10, or even 20+ years down the road. Because of that longer time horizon, they can remain exposed to market growth.
 Examples might include:


Diversified stock portfolios


Equity ETFs or mutual funds


Exposure to sectors like technology or global markets


This portion of your portfolio is your “long-term engine.” It’s designed to help your assets keep pace with inflation and support spending needs later in retirement.
When these roles are clearly defined, your portfolio starts to feel less like one large pool of money and more like a coordinated system. Each piece has a purpose, and together, they can help support both your current needs and your long-term plans.
How Do You Create Reliable Income Without Giving Up Growth?
Reliable retirement income is often created by combining multiple sources, such as Social Security, withdrawals, and investment income, while maintaining exposure to growth assets for long-term needs.  One of the biggest transitions in the red zone is moving from saving to generating income. That income may come from several places, such as: 


Social Security


Retirement account withdrawals


Dividends and interest


Taxable investment accounts


Other passive income streams, such as real estate


The challenge is coordinating these sources.
For example, drawing from one account too early could increase your tax exposure, while delaying another income source might provide more flexibility later. At the same time, keeping a portion of your portfolio invested for growth can help account for inflation and longer retirement timelines. 
It’s less about choosing between growth and income, and more about how the two work together.
How Do Taxes Affect Your Retirement Income Strategy?
Taxes affect retirement income by determining how withdrawals, dividends, and capital gains are treated. Coordinating which accounts you draw from, and when, can influence your overall tax exposure in retirement. Taxes are often one of the most overlooked parts of retirement planning, yet they can have a meaningful impact on how your income actually works once you stop receiving a paycheck. 
The key issue is that not all income is taxed the same way. As you move through retirement, your income may come from several sources, including retirement accounts, taxable investments, Social Security, and possibly pensions. Each of these is treated differently for tax purposes.
For example, withdrawals from traditional IRAs and 401(k)s are generally taxed as ordinary income, while long-term capital gains and qualified dividends from taxable accounts may be taxed at different rates. Depending on their structure, Roth accounts may offer tax-free withdrawals.
Why Can Taxes Increase in Retirement? 
A common assumption is that taxes go down once you retire. In reality, that’s not always the case. Here are a few situations where taxes may actually rise: 
1. Required Minimum Distributions (RMDs): Once you reach a certain age, the IRS requires you to begin withdrawing from tax-deferred accounts. These distributions are taxed as ordinary income and can push you into a higher tax bracket than expected.
Example: You may not need the income, but you’re still required to take it—and pay taxes on it.
2. Multiple Income Streams Overlapping: If you’re receiving Social Security, taking withdrawals from retirement accounts, and generating income from investments at the same time, your total income may be higher than anticipated.
Example: Social Security benefits can become partially taxable depending on your overall income, which can increase your effective tax rate.
3. Capital Gains From Investment Sales: Selling appreciated assets in taxable accounts can trigger capital gains taxes.
Example: If you sell investments to fund a large expense, such as a home purchase or travel, you may realize gains that increase your taxable income for that year.
4. Loss of Certain Deductions or Changes in Filing Status: Changes later in life, such as the loss of a spouse, can shift your filing status and potentially increase your tax rate.
How Do Different Accounts Impact Your Tax Strategy?
Where your income comes from matters just as much as how much you withdraw.
For example: 


Drawing from a tax-deferred account increases ordinary income


Drawing from a taxable account may trigger capital gains


Drawing from a Roth account may have no immediate tax impact


This creates opportunities to think more strategically about which accounts to draw from first and how to sequence withdrawals over time.
What Are Common Mistakes to Avoid in the Retirement Red Zone? 
Common mistakes include relying too heavily on one asset class, ignoring tax implications, and failing to align investments with income needs. A few patterns tend to show up during this phase: 


Relying too heavily on one type of investment, especially if it has driven recent gains, can increase exposure to a single risk. 




Another is focusing only on returns without considering how income is generated. A portfolio may perform well on paper but still pose challenges for consistent withdrawals. 




Taxes are also frequently overlooked. Decisions made without considering tax impact can affect long-term outcomes more than expected. 


The common thread is that these pieces don’t operate independently. They influence each other. Balancing growth and income in the retirement red zone involves structuring your portfolio to support near-term income needs while maintaining long-term growth potential. 
This often includes segmenting assets by time horizon, coordinating withdrawal strategies, and managing tax exposure as you transition into retirement.
How Can Fisher Financial Group Help You Navigate the Retirement Red Zone? 
As a financial advisor in Northbrook specializing in comprehensive retirement planning, we help coordinate investments, income strategies, and tax considerations to align your portfolio with your retirement goals. At Fisher Financial Group, LLC in Northbrook, IL, the focus is on how all the pieces fit together. 
Connect with us to learn more about our retirement planning services.
 
 
          

About the author

Dan Fisher is a Registered Financial Consultant (RFC) and Federal Retirement Consultant (FRC) who has spent more than three decades guiding retirees and pre-retirees through tax-smart investing and income planning. As the founder of Fisher Financial Group, he brings a practical approach to helping clients make informed choices about their retirement.