Got a question about investing, how it fits into your overall financial plan and what strategies can help you make the most out of your money? You can write to me at . Please put “Fix My Portfolio” in the subject line.

Dear Fix My Portfolio,

Intellectually, I am feeling well prepared for retirement, but in my heart I have an irrational fear that I am not financially ready to retire. I think my fears center around uncertainty in the market and around not having an income stream (I have been working since I was 14). I am currently 57 and my wife is 60. I am looking to retire within three years at the most. My wife thinks she might want to work part time to keep herself busy, but I am pretty convinced I don’t want to spend my retirement working.

Most Read from MarketWatch

• ‘I don’t want to spend my remaining days living hand to mouth’: I divorced my husband and remarried. Can I claim his Social Security?

• Stocks head toward something that hasn’t happened since the days of the dot-com bubble

• Nvidia’s stock chart shows how bulls are using the recent pause to get refreshed

• ‘I am beyond hurt’: If my husband and his son die, his house will go to his daughter-in-law. Is this nuts?

• ‘She’s the queen of CDs’: My mother-in-law, 83, opened 12 CDs at different financial institutions. Should I intervene?

Are we actually going to be able to retire in a couple of years and live a reasonable lifestyle without running out of money? Do we need to change our portfolio setup? How should we draw down our retirement funds, especially while we wait for Social Security?

Our annual expenses, including expectations for having to buy health insurance, and our expenses for entertainment and travel are approximately $70,000 in 2024 dollars.

We have no debt, other than a $20,000 loan from a retirement account, listed below, which will be paid off within the year; two vehicles, each less than five years old; and a house and a cabin that together are worth approximately $650,000. Our combined Social Security income is projected to be $5,700 per month at age 67 and $7,400 per month at 70.

Here’s what we have:

Head vs. Heart

Dear Head vs. Heart,

You’re the kind of retirees the bucket strategy was made for. You have a lot of different accounts of different types, and it just looks like a big mess when you list them. It’s definitely hard to get a handle on things that way.

The bucket strategy is a type of mental accounting that lets you visualize your holdings in a way that might make more sense to you. Start by organizing your buckets according to tax efficiency: tax-deferred savings, tax-free growth and taxable savings. That will help you see if you’re saving in the right places for the next three years until you retire. The goal is to have a diversity of income streams, so you can choose where to pull money from in order to minimize your tax burden.

When you start to spend the money, you can shift to thinking about time-frame buckets — one for the short term that is mostly cash, one for the medium term that is more conservative and one for the longer term that is more aggressive. That’s when you’d want to adjust your investments to make them work for you. You wouldn’t want individual stocks in the short-term bucket and cash in the long-term bucket, for instance.

I’d suggest wiping that expected inheritance off your list. You never know what might happen, and it’s not something you can count on. If a sizable inheritance should come your way eventually, you can adjust your plans accordingly, without counting your chickens before they hatch.

Tax-deferred bucket

Group all of your tax-deferred retirement accounts into one bucket: the 457(b), the 403(b) and the employer-sponsored plan, all of which currently amounts to about $943,000. You have another two and a half years before you can touch that money without penalty, but your wife can already start drawing from her savings if she needs to. That being said, when you do start to tap that money, you’ll have to pay tax on it as ordinary income.

You will also have to start taking money out of these accounts when you are 73, under current required minimum distribution rules. By the time you reach that age in 16 years, those savings could be worth more than $2.5 million, assuming an average growth rate of 7%. You could keep adding to that bucket over the next few years or start to spend it down early, but that depends on you.

Tax-free bucket

Your Roth IRAs are for the bucket of tax-free growth. Those accounts are worth $260,000 now, and however much they grow, it will never affect your taxes, because you pay the tax on Roth contributions up front. You can take out the money that you put in at any time, but you have to wait until you’re 59½ to take out the growth without penalty.

That makes this bucket good if you need a cash infusion in the next few years, but otherwise, you might want to spend from this bucket last, because the growth is tax-free. If you leave that money alone, it could be worth $1.2 million by the time you are 80.

You didn’t mention heirs, but Roth accounts are also the most advantageous to leave behind when you die, because your beneficiaries do not have to pay tax on the balances for 10 years.

Taxable bucket

With your holdings in brokerage accounts and cash, it does not seem likely that you’ll need to touch that Roth money early. The goal is to have enough cash on hand to cover your expenses from the time you retire until Social Security kicks in, followed in short order by RMDs. For anything you need after that, you can choose which account works best.

If you retire at 60, that leaves roughly 10 years in which you’ll need to cover $70,000 in annual expenses.

This is when good financial-planning software comes into play, because it lets you run exact numbers and put in all these variables and time frames. But just by looking at the buckets, you can do a little back-of-the-envelope analysis and see that the $1.25 million you have now would certainly cover your projected expenses — in fact, you’d mostly be skimming off the top, meaning your accounts might actually grow over that period, even at a moderate 7% return.

Retirement spending projections are not an exact science, however. Maybe $70,000 a year is actually kind of low for you, especially if you are not taking into account future healthcare costs or other emergencies. Or perhaps once you retire, you will decide to spend a little more freely at first, while you are healthy and can enjoy it.

And when the time comes to hang up your spurs, you may decide that’s not what you want to do. Some kind of work could still be in your future, but it will be driven by your passion, not your bank balance.

You can also join the Retirement conversation in our .

Most Read from MarketWatch

• ‘My mom still has his original will’: A few months before he died, my father went online and made a secret will, cutting off my mother. Can he do this?

• ‘He has never paid rent or utilities:’ Do I have the legal and moral authority to charge my brother rent to live in our family home?

• ‘I’m overwhelmed’: I inherited $185,000. With the Fed lowering rates, should I park it in 5% CDs or high-yield savings accounts? 

• Why Super Micro’s legal woes could be deeper than they appear

• ‘He always managed to play golf’: My husband of 14 years never worked and now we’re divorcing. He wants half of my $1 million home. What can I do?

More Fix My Portfolio