When It Comes to Retirement, Which Fruit Are You?

Over the years, I have had thousands of meetings with people about their pending retirements. I've listened to their hopes and dreams, in addition to concerns and worries, regarding one of the biggest transitions they will face. And I've noticed something: of all the subjects and life skills we've learned in school, retirement was never one of them. 

Credit: Getty

This inspired me to design a simple model to help people understand their retirement options for a healthy fiscal future. It's all about fruit.

Remember the government's food pyramid? That's the nutrition model we learned in grade school to guide us in healthy eating habits. Grains are at the base of the pyramid, requiring the greatest number of servings, followed by fruits and vegetables, then dairy, meat and poultry, and at the very top are sweets and fatty foods, requiring the least number of servings.

There's a reason why this model worked and is still remembered today. Most of us are visual learners. That's why I adapted the food pyramid for a "fruitful retirement," casting people as either apples, pears or strawberries when it comes to their retirement.

Each piece of fruit represents a type of retirement situation with an associated strategy to mitigate its inherent risks. Once you know which fruit you are, you can customize your plan to suit your situation.  

Rather than focusing on accumulating money for possessions, this process focuses on creating the kind of life you want to live after employment.

Imagine a pyramid that's a retirement triangle. Much like the food pyramid, it's broken down into three sections. But here, the sections are expenses: Needs, Wants and Legacy.

The base of this pyramid is the foundation representing our Needs —  the items necessary to our existence, such as food, shelter, utilities and health care.    

The middle represents our Wants — items that satisfy our human desire to entertain, have fun, travel, explore and connect with others through hobbies, sports or the arts. When calculating your Wants, think about your spending during a non-pandemic shutdown scenario.

The top tiny triangle of our pyramid represents our Legacy. It is what we intend to pass onto our family, house of worship, charity or other cause while we are living or after we have died. 

Once you understand this retirement triangle, you can easily determine your '"fruit" relating to it.

Pears are widest at the bottom (Needs), Apples widest in the middle (Wants) and Strawberries are widest at the top (Legacy). Your fruit is determined by the area of the retirement triangle where your income stream falls short.

If your income sources such as Social Security and any pensions or retirement savings don't cover your Needs, you are a Pear, since your income shortfall is at the lowest level of the pyramid. 

Pears must focus on providing guaranteed income sources to match necessary expenses. Annuities from insurance companies can offer a way to guarantee income, either for life or a predetermined number of years. It's helpful to work with a financial professional in choosing one.

Pears may also want to consider working longer either in a full-time or part-time capacity to raise their Social Security income, which is based on their earnings. This will also add more time to save money and mean fewer years to withdraw your retirement savings. 

Pears should seriously consider analyzing their planned retirement date and expenses in relation to the long-term sustainability of their plan.

The biggest risks for Pears, other than cash flow, are health care expenses and the rising cost of living generally, since most guaranteed income payments other than Social Security don't keep pace with inflation.

If your income sources will cover your Needs but not your Wants, you are an Apple, since your income shortfall is at the middle of the retirement pyramid.

Apples are where most retirees fit. They have many decisions to make, such as how to allocate their portfolio to balance their risk comfort zone while generating an income stream to keep up with the rising cost of living. 

Apples might consider implementing a dividend portfolio strategy that generates enough income from  investments to cover their Wants. This strategy focuses on owning stocks of companies with a solid dividend-paying history and continued expectations of that. 

Many portfolios won't be large enough to support a dividend-only approach, though. Then, a total return strategy that distributes principal and income would be more appropriate. 

The investment approach for a total return portfolio would focus on a balance between stocks and bonds. The most common total return technique I see financial planners use today is the bucket approach, with each bucket focusing on the time until the money will be needed. 

For example, bucket No. 1 would be for the first two years, and held in basic savings, money-market accounts or funds, bank CDs or short-term Treasuries. 

Bucket No. 2 would be for years three to seven in retirement, holding investments that would be similar to the total return strategy above, but with less stock exposure.

Bucket No. 3 would be for years eight and beyond and should hold only stocks.

The greatest risk for Apples is to allow fear to drive financial decisions by avoiding huge investment losses early in retirement and not properly preparing for the cost of health care. 

If your income sources will cover both your Needs and your Wants, you are a Strawberry. In this case, your income may or may not cover all your Legacy items.

Strawberries, though, have the ultimate financial flexibility because their Needs and Wants are secure. They can prioritize leaving a Legacy through tax-smart vehicles like Roth IRAs, life insurance, charitable distributions and charitable trusts. These vehicles can be very beneficial to families looking to maximize the after-tax estate value left to their heirs or to a third party, while, in some cases, receiving tax benefits today.  

The greatest risks to Strawberries are taxes and leaving money behind with no plan to distribute it.  This is why having a team of financial professionals can be beneficial. 

I hope my "fruitful retirement" model will help prevent retirement from feeling overwhelming for you. If anything, it should be the most rewarding stage of your life.

Editor’s note: This article is adapted from "The Fruitful Retirement: A Financial Framework for Your Life's Greatest Chapter" by Jim DeGaetano.

Jim DeGaetano 



Jim DeGaetano, CPA, CFP® is the author of “The Fruitful Retirement,” founder of Diamond Wealth Advisors and author of “Larry the Bunny Saves His Money”– a children’s book that teaches kids 8 and under about money and saving. Read More