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The power of three: It is inherently ingrained in your mindset to categorize income and assets into three major buckets: current income, current assets and assets dedicated to future income. At the same time, research shows this mindset is synonymous to the order in which you might prioritize these buckets – beginning with current income and ending with savings for future income needs. This mentality can explain why utilizing investment vehicles such as annuities are often lower on the totem pole, as they are meant for securing future income – And, why other options with less of a future guarantee, but more benefit now, can seem superior.

Ultimately, the “bucketing” manner in which you might account for income and assets, as well as the hierarchy it develops, can cause you to save more money for retirement than you actually need. While simply saving enough for future and current income might seem sufficient, studies show having liquid assets on hand in a bucket of their own correlates directly with overall life satisfaction and happiness, regardless of financial need.

Keeping cash for opportunities: That being said, Kitces suggests a slightly revised hierarchy of retirement income needs, in which that extra cash can be utilized. The buckets include: Current income, current assets, illiquid future income (pension, Social Security and annuitized income – all dedicated to fund your future lifestyle), followed by liquid future income (investment/retirement accounts – dedicated to hope for a better future).

Above all, look inward: Ask yourself if you are limiting your lifestyle to and through retirement due to unrealistic or irrational fears and needs.