Warren Buffett’s 90/10 Rule for a 65-Year-Old With $600,000 in an IRA and $2,800 a Month in Social Security. Here’s the Monthly Income and the Tax Bill.
Buffett wrote his stock and bond formula for a widow who would never touch the principal. Apply it to a retiree who must spend from the account, and a surprising tax twist and one dangerous mistake decide whether it works.
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Warren Buffett has told the world exactly how he wants his wife’s money invested after he is gone. In his 2013 letter to Berkshire Hathaway shareholders he wrote that his advice to the trustee “could not be more simple”: put 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 is advice for a widow who will never need to touch the principal. Most people retiring this year are not in that position. So here is the 90/10 rule applied to a far more common situation: a 65-year-old who is single, has $600,000 in a traditional IRA, and will collect $2,800 a month from Social Security. The question is what that person can actually spend each month, and what the IRS will take.
What the portfolio looks like
Follow Buffett to the letter and the IRA holds $540,000 in an S&P 500 index fund and $60,000 in Treasury bills. The fund Buffett has named more than once is Vanguard’s S&P 500 ETF, which closed Tuesday at $704.78 a share and has paid $7.43 a share in dividends over the past 12 months, a yield of about 1.05%. Three-month Treasury bills yielded 4.21% as of Monday, according to Treasury data.
So the income the portfolio throws off on its own is modest. The stock side pays about $5,670 a year. The bill side pays about $2,530. Together that is roughly $8,200, or $683 a month, before anyone sells a share.
Buffett’s point was never that the dividends would carry you. It was that the stock side would grow faster than anything else over a long retirement, and the 10% in bills gives you a cushion to live on when stocks have a bad year, so you are never forced to sell low.
The spending plan
Take the standard 4% withdrawal that most planners still use as a starting point. On $600,000 that is $24,000 a year, or $2,000 a month. Add the $2,800 Social Security check and this retiree has $4,800 a month coming in, $57,600 a year.
In practice the $24,000 comes out of the IRA like this. The $8,200 of dividends and bill interest covers a third of it. The other $15,800 comes from selling a few shares of the index fund each year, about 22 shares at today’s price. In a year when stocks fall, the plan is to draw the whole $24,000 from the $60,000 in bills instead and leave the fund alone. That cushion covers two and a half bad years.
If you want more than $2,000 a month from the IRA, you can take it, but the math changes fast. A 5% withdrawal is $2,500 a month and historically still holds up over 30 years in most periods. A 6% withdrawal, $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 surprises people, in a good way.
Start with Social Security. The IRS decides how much of your benefit is taxable by adding up your other income plus half your benefit. For this retiree that is $24,000 of IRA withdrawals plus half of $33,600, which comes to $40,800. Because that is above the $34,000 line for a single filer, part of the benefit is taxed. Run the IRS worksheet and $10,280 of the $33,600 in Social Security counts as income. The other $23,320 is tax free.
So total income for federal purposes is $24,000 from the IRA plus $10,280 of taxable Social Security, which is $34,280.
Now the deductions. For 2026 the standard deduction for a single filer is $16,100. Anyone 65 or older gets an extra $2,050 on top. And under the tax law passed in 2025, people 65 and older get a new deduction of up to $6,000 through 2028, which this retiree qualifies for in full because income is well under the $75,000 level where it starts to shrink. Those three add up to $24,150.
Taxable income is $34,280 minus $24,150, which is $10,130. All of that sits in the 10% bracket. The federal tax bill is about $1,013 for the year.
Read that again. A retiree spending $4,800 a month, $57,600 a year, owes the IRS roughly $1,000. That is an effective federal rate of under 2% on cash flow. State tax depends on where you live, and most states do not tax Social Security at all.
What changes at 73
There is one date to put on the calendar. Starting at age 73 the IRS requires you to take money out of a traditional IRA every year whether you need it or not. On an account that has grown to, say, $800,000 by then, the first required withdrawal is about $30,200. That is more than the $24,000 this plan draws, so income goes up, more Social Security becomes taxable, and the bill rises.
The move many advisors suggest for the years between 65 and 73 is to convert a slice of the IRA to a Roth each year, enough to fill the rest of the 10% and 12% brackets. For this retiree that is roughly $22,000 a year of conversions that would be taxed at 12% or less now, instead of at a higher rate later when the required withdrawals stack on top of Social Security. The number is not bigger because every dollar converted also drags more Social Security into taxable income, until 85% of the benefit is taxed. Money in a Roth has no required withdrawals and comes out tax free.
Where the plan is weak
Buffett’s 90/10 is built for someone with a very long horizon and a stomach for a 30% drop. A 65-year-old drawing 4% a year has both, barely. The cushion of $60,000 in bills is what makes it work. Spend that cushion on a kitchen remodel in year one and the plan turns into 100% stocks with a fixed withdrawal, which is a different and riskier thing.
The other weakness is the 1.05% yield. If you want the income to come from dividends rather than from selling shares, the S&P 500 at today’s prices will not get you there. A 10-year Treasury pays 4.95% right now, and plenty of retirees will look at that and want a bigger bond slice than Buffett’s 10%. That is a fair choice. It will almost certainly leave you with less money at 85, but it will let you sleep.
The bottom line
For a single 65-year-old with $600,000 in an IRA and $2,800 a month in Social Security, Buffett’s 90/10 rule produces about $4,800 a month to live on and a federal tax bill of roughly $1,000 a year, thanks to the new senior deduction and the way Social Security is taxed. The job for the next eight years is to keep the $60,000 cushion intact and to move money into a Roth while the tax rate is this low.
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I've been writing about stocks and personal finance for 20+ years. I believe all great companies are tech companies in the long run, and I invest accordingly.
