Part 1 - Objectives and Portfolio Setup

From Saving to Spending

For most of our working lives, retirement planning is simple: put money away for “later.” But somewhere past 50, later suddenly becomes now.

Retirement generally moves through three main phases—preparing, planning, and execution.

The planning phase is your crucial window to map out what income you actually need and where it will come from before you flip the switch. You might make a model like the one below to help you.

Eventually, you reach the execution phase: taking money out of the pot instead of adding to it. A big psychological and tactical shift.

If a portion of your retirement income comes from an investment portfolio you manage yourself, you are in the exact same boat as I. This series documents how I am setting up my own portfolio—not as rigid financial advice, but to share my personal journey, choices, and reasoning.

So, how am I actually setting up my portfolio?

Main portfolio objective

My overall strategy is based on 20 years of retirement, starting around 65. Hopefully, the first 10 years I am healthy enough to do things that are enjoyable and these will often cost money. For this first period my overall objective for the portfolio is simple:

​ Get a 6% nominal return with a reasonable risk, take out 4% as an income stream and leave 2% in to counter inflation.

Just to put some numbers on this. Say my portfolio is €500 000 then a 6% return is €30 000. I take out €24 000 as income and I leave €6 000 in. Of course, if you need €48 000 per year from your investments, you need a 1 million portfolio. And so on.

Putting average inflation at 2% is critical assumption. Using my example, €24 000 with an inflation of 2% is €24 480 in year 2 but in year 10 you are looking at €28 682. Adds up quickly. With 3% inflation these numbers are €24 720 and €31 314. Inflation is definitely something to guard.

The addition reasonable risk in my main objective is important.

1. Like most Europeans I have a fixed “floor income”. For me, it’s mostly social security and tax-efficient provisions I arranged myself. So I am able to and willing to take some risk with my portfolio.
2. The risk needs to balance two opposing forces:
   • I need a good income to help have a great first 10 years of my retirement.
   • If I run into a market crash and I am too exposed, it could become unpleasant. I do not want to be forced to transform a temporary portfolio loss into a permanent one. This might lead to a disastrous beginning of the next 10 years.

Just a personal note. I am adamant to spent my money. As a retiree, I cannot keep saving for later. Later is now. It is time to spend because the first years of my retirement are probably my best. Writing that down is easy but to actually do it, is quite a mental leap. After decades of protecting and nurturing the pot, all of a sudden I have to violate it by taking money out. Feels like sacrilege. The shift is hard.

Okay, lets take a look at an asset allocation that fits my objective.

Asset allocation

After looking at example portfolios, getting info from asset managers and reading blogs of fellow retirees, I came up with the following allocation. I also tried to estimate the nominal returns per asset category. There is plenty of info available to do this, maybe too much.

I found Portfolio Visualizer helpful. This tool allows you to model portfolio’s via asset classes (not actual products!) and test them. You only need a free account for this.

Table: Asset Allocation and Estimated Nominal Returns

Please note that these returns are nominal and not real so they do not take inflation into account.

1. I used various sources to get the estimated returns and I decided to check the final table with Gemini (Pro in Thinking-mode). Two quotes:

   The final expected portfolio return of 6.43% is a highly realistic, slightly conservative projection for a diversified 75/25 stock-and-bond/cash mix.

   Consider adjusting Gold’s nominal return to reflect historical inflation tracking (e.g 2.5% to 4.0%).

   I did not make any changes, I like to be on the conservative side.

2. This allocation is different from the classic 60% stocks and 40% bonds. The main advantage of the 60/40 used to be the low or even negative correlation between stocks and bonds which reduced volatility. Having had bonds in the painful 2022, I have experienced first hand how rapidly increasing inflation can break this model and give unpleasant outcomes.

3. I use short term bonds as cash equivalent for 10%. For another 10% I want bonds with a maturity longer than a year.

4. I have 75% stocks with a big tilt towards more stable stocks (low beta). There is a substantial overlap between dividend and value stocks but for me it is about the two characteristics: is a stock attractively valued and/or does it offer significant dividend payouts? Of course I want both, but who doesn’t?

5. Market Stocks are to insure that I have growth in my portfolio. For this category, main indices like MSCI World, S&P 500 and STOXX 50 are my point of departure.

6. The Cash Equivalents are part of my portfolio and could be invested in other assets according the strict rules. These are not an emergency fund. An important distinction. The weight of this asset class can vary between 2% and 10%.

7. Gold has a min/max-range. Does it get below 2.5% I start buying, does it get over 5% I start selling.

Three extra conditions

I could create the portfolio above with 6 ETFs and there would nothing wrong with that. But I have three extra conditions:

1. Target Currency Allocation: 40% EUR

   Because I need Euros to pay the bills, currency is a thing. Especially the relation EUR/USD is important. In the last 5 years I have seen big swings in the EUR/USD currency pair that had a profound effect on my investments. My goal is to have 40% of my portfolio in EUR or EUR Hedged.

2. Target Regional Allocation: underweight US

   First reason for my regional allocation is the well-known concentration in a limited set of US companies and sectors. The MSCI World Index (May 2026) has around 71% US with a top 10 of only US companies adding up to over 25% of the weight. With MSCI ACWI, which includes emerging markets, the US percentage only goes down to 63% with China just counting for 2.9%. While China’s GPD is over 60% of that of the US.

   For me, not what I want. I understand that the indices weigh the size of financial markets. Also, US exchanges list many foreign companies and lots of US companies generate revenue abroad. But the current percentages seems too much off-balance.

   Second reason is that that today’s US is different from the one I invested in over the last decades. This is not a political statement but one year of Trump II changed everything. I used to view the US financial markets as just as safe and well-regulated as my dull, age old retail bank. Not any more.

3. Target Regional Allocation: overweight emerging markets

   I expect emerging markets to grow faster than Europe and the US. Unfortunately, which countries are and are not emerging markets is not so clear-cut. For example, South-Korea and Poland are emerging markets in the MSCI but not in FTSE universe. Anyway, the countries I most definitely want exposure to are China, India, Taiwan and the mentioned South-Korea.

Here is my target regional allocation:

Table: Target Regional Allocation

Note that allocating 30% to Europe but wanting 40% in Euro is going to create a problem. We need to come back to that later.

What is not addressed?

I only focus on setting up my portfolio in this blog but in reality you would address other issues as well. Here are four important one’s, the first one stands out.

1. Tax

Every time I show my accountant a self-made retirement spreadsheet model, he is thoroughly unimpressed. What he misses are the exact tax implications. This always leads to a Spock-like, humbling dissection of my models. He is, quite understandably, not able or willing to work with vague, ballpark numbers. So after taking the model apart, he can put it back together including correct and optimized taxation. Makes a a big difference.

I feel comfortable managing my own money but I have no problem paying for his services. In my opinion, a good investment and an excellent way to avoid costly mistakes. Plus you will get a useful income timeline and, to use a fancy term, a matching tax architecture.

And: tax rules differ by EU member state. I share my setup from my personal perspective, but always verify your local tax rules.

2. Do you want to leave money?

This is different for everybody. Can you use the whole pot for your retirement or do you want to save something for the heirs?

If you want to end your retirement period with a certain amount, you might want to work that into your asset allocation, your risk strategy and the amount of money you take out.

3. Evaluate and adapt

This is my model for the next 10 years, (hopefully) the first phase of my retirement. Of course, periodically you need to check how things are going. Things in your life will change and you might need to adapt the model,

I am not talking about yearly re-balancing or changing long term bond allocation from 10% to 12%. This is more about buying or selling a house , trying to finance a yearlong dream cruise or helping out a struggling relative. Loads of unexpected things can and will happen.

The model is to support what you want and if that changes the model needs to adapt, not you.

4. Emergency Fund

What if there is a global crisis and my portfolio is in shambles? For this I have an emergency fund which is completely separate from my portfolio. This post is about the difference between an emergency fund outside your portfolio and the dry powder inside your portfolio.

Needing or not needing an emergency fund is personal. Whatever makes you sleep well at night. For me, replacing 4 years of income from my investments is the objective for my emergency fund.

What is next?

Before we go to the actual products to build this portfolio, we will take a look at the process of product selection in this second post. If you want to go straight to the actual products, go to the third post that selects products for our stocks allocation.