Broker Check

The Three Bucket Approach

| March 19, 2019
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Here's the situation:

  • A couple in their 60's retires with a portfolio of $2,000,000.
  • They need $60,000 per year to supplement social security to cover living expenses.
  • They're seeking a strategy that can help them live off of their portfolio.

The Three Bucket Approach is a powerful strategy that sets aside 3-5 years of spending needs (i.e. $60,000 x 5 = $300,000) in a conservative, short-term account comprised of bonds. Each year, $60,000 is transferred to the retiree's checking account to cover living expenses. The rest of the portfolio ($1,700,000) is invested in a more aggressive, long-term account comprised primarily of stocks

 

 

This helps retirees more effectively manage cash flow in retirement.

If the stock market faces a significant decline or encounters volatility as it does from time-to-time, a retiree who needs money is not forced to sell their stock positions at low prices; they have 3-5 years of funds in the short-term account to draw from. This buys time, and when the market eventually recovers, the short-term account is replenished from the long-term account. And the wheels keep turning.

The psychological benefits to a strategy like this cannot be overstated. It helps retirees keep their cool knowing that short-term market declines should not affect their day-to-day lives.

If you or someone you know could benefit from a strategy like this, let us know how we can help.

 

 

 

This is a hypothetical example and is not representative of any specific situation. Your results will vary. This does not reflect the deduction of fees and charges inherent to investing.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

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