A Moderate Retirement Portfolio in 3 Buckets
This portfolio is geared toward retirees with a 20-year time horizon and moderate risk tolerance.
The going has gotten tough for retiree finances during the past decade and a half, with extreme stock market volatility, low bond yields, and pensions under fire. Whereas the previous generation of retirees may have been able to easily generate a livable income with a combination of bond and dividend payments, doing so today is a heavier lift. The S&P 500 currently yields about 2%, and high-quality intermediate-term bonds pay less than that. That means income-minded retirees need to either have a lot of wealth, such that today's low income payout on a 60% stock/40% bond portfolio is enough to live on, or venture into higher-risk parts of the stock and bond markets to amp up their income streams.
That challenging environment probably explains why the Bucket concept for retirement-portfolio planning has gained so much traction during the past several years. Pioneered by financial-planning guru Harold Evensky, the Bucket approach is simply a total-return portfolio combined with a cash component to meet near-term living expenses. The long-term portion of the portfolio includes income-producing securities, but its main goal is to maximize long-term total return. Proceeds from the long-term portfolio--whether from income, rebalancing, or both--are periodically plowed into Bucket 1 to meet living expenses.
Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.