Buffett’s 90/10 Strategy for a 65-Year-Old Retiree With $600,000 in an IRA and $2,800 a Month From Social Security: Monthly Cash Flow and Taxes

Quick Read

• Using Warren Buffett’s 90/10 approach — a mix of an S&P 500 fund and Treasury bills — a 65-year-old with $600,000 could generate about $4,800 a month when Social Security is included.

• Senior deductions and the partial taxation of Social Security reduce the federal tax bill to roughly $1,000 a year, or less than 2% of total spending.

• Once required withdrawals begin at 73, taxes will climb, so Roth conversions in the years before then and preserving the bond cushion are key to making the plan last.

• Saving for retirement and drawing income from those savings are very different skills, and many people never get taught the second one. A free guide called The Definitive Guide to Retirement Income is designed to help with that. (Sponsor)

Warren Buffett has been clear about how he wants his wife’s assets invested after his death. In a 2013 letter to Berkshire Hathaway shareholders, he said the instruction for the trustee “could not be more simple”: place 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. No stock-picking, no bond ladder, no annuity.

That guidance is aimed at a widow who will not need to spend the principal. Most people who retire now are in a different situation. So here is Buffett’s 90/10 idea applied to a more typical case: a 65-year-old single retiree with $600,000 in a traditional IRA and Social Security income of $2,800 a month. The question is how much can be spent each month, and how much will go to the IRS.

What the portfolio looks like

Applied exactly as Buffett described, the IRA would be split into $540,000 in an S&P 500 index fund and $60,000 in Treasury bills. The fund Buffett has repeatedly named is Vanguard’s S&P 500 ETF, which most recently closed at $704.78 a share and has paid $7.43 a share in dividends over the last 12 months, for a yield of about 1.05%. Three-month Treasury bills were yielding 4.21% based on Treasury data.

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The income generated naturally by the portfolio is not large. The stock portion produces about $5,670 a year, while the Treasury bill portion contributes about $2,530. Together, that comes to roughly $8,200 annually, or $683 a month, before any shares are sold.

Buffett’s point was never that dividends alone would support retirement spending. His argument was that equities should grow faster over a long retirement, while the 10% in bills provides a reserve to spend in weak markets so shares do not have to be sold at depressed prices.

The spending plan

Using the common 4% withdrawal rate as a starting point, $600,000 would support $24,000 a year, or $2,000 a month. Add the $2,800 Social Security benefit, and monthly income rises to $4,800, or $57,600 a year.

In real terms, the $24,000 IRA withdrawal would work like this: the $8,200 from dividends and bill interest covers about a third of it, and the remaining $15,800 would come from selling a few index fund shares each year, roughly 22 shares at current prices. If stocks have a down year, the retiree could instead draw the full $24,000 from the $60,000 in Treasury bills and leave the fund untouched. That reserve would cover about two and a half bad years.

If more than $2,000 a month is needed from the IRA, that can be done, but the margin for error narrows quickly. A 5% withdrawal equals $2,500 a month and has generally held up over 30 years in most historical periods. A 6% withdrawal, or $3,000 a month, has run out of money in the worst 30-year stretches on record.

The tax bill

This is where the plan becomes more favorable than many people expect.

Start with Social Security. The IRS determines how much of that benefit is taxable by adding other income to half of the benefit. In this case, that means $24,000 in IRA withdrawals plus half of $33,600, which equals $40,800. Because that is above the $34,000 threshold for a single filer, part of the benefit becomes taxable. Using the IRS worksheet, $10,280 of the $33,600 Social Security benefit is counted as income, while the remaining $23,320 is tax-free.

That means total income for federal tax purposes is $24,000 from the IRA plus $10,280 of taxable Social Security, or $34,280.

Next come deductions. For 2026, the standard deduction for a single filer is $16,100. Anyone age 65 or older receives an additional $2,050. Under the tax law passed in 2025, people 65 and older also qualify for a new deduction of up to $6,000 through 2028, and this retiree would receive the full amount because income is well below the $75,000 phaseout level. Combined, those deductions total $24,150.

Taxable income is therefore $10,130, after subtracting $24,150 from $34,280. All of that falls in the 10% bracket, leaving a federal tax bill of about $1,013 for the year.

Put differently, a retiree spending $4,800 a month, or $57,600 a year, would owe the IRS about $1,000. That is an effective federal tax rate of under 2% on cash flow. State taxes vary, and many states do not tax Social Security at all.

What changes at 73

There is one age to keep in mind. Beginning at 73, the IRS requires annual withdrawals from a traditional IRA whether the money is needed or not. If the account has grown to, say, $800,000 by then, the first required distribution would be about $30,200. That exceeds the $24,000 this plan uses, so income rises, more Social Security becomes taxable, and the tax bill goes up.

For the years between 65 and 73, many advisors recommend converting part of the IRA to a Roth each year, often enough to fill out the 10% and 12% tax brackets. For this retiree, that would amount to roughly $22,000 a year in conversions, taxed now at 12% or less instead of later at a higher rate when required withdrawals are added on top of Social Security. The conversion amount is not larger because each dollar converted also increases taxable Social Security, up to the point where as much as 85% of the benefit is taxed. Roth money has no required withdrawals and can be taken out tax-free.

Where the plan is weak

Buffett’s 90/10 approach is designed for someone with a long time horizon and the ability to withstand a steep market decline. A 65-year-old withdrawing 4% annually has those traits, though only just. The $60,000 Treasury bill reserve is what makes the strategy workable. If that cushion were spent on something like a kitchen remodel in the first year, the portfolio would effectively become a 100% stock strategy with a fixed withdrawal rate, which is much riskier.

The other drawback is the 1.05% dividend yield. If the goal is to live on income from dividends alone rather than selling shares, the S&P 500 at current prices will not provide enough. By comparison, a 10-year Treasury currently yields 4.95%, and many retirees may prefer a larger bond allocation than Buffett’s 10%. That is a reasonable choice. It will likely mean less money at age 85, but it may bring peace of mind.

The bottom line

For a single 65-year-old with $600,000 in an IRA and $2,800 a month from Social Security, Buffett’s 90/10 rule would produce about $4,800 a month of spending money and a federal tax bill of roughly $1,000 a year, helped by the new senior deduction and the tax treatment of Social Security. Over the next eight years, the priority would be preserving the $60,000 cushion and moving money into a Roth while tax rates remain low.

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