FAQs About Retirement Portfolio “Buckets”

Morningstar's Christine Benz tackles how to manage those buckets and what to put in them

Christine Benz 17 January, 2013 | 5:00PM

Investing prior to retirement is a walk in the park compared with investing in the so-called decumulation phase. In the accumulation phase, the tried-and-true mantras of saving early and often and maintaining a diversified portfolio will get you 95% of the way there (and maybe even further).

But managing your portfolio in retirement requires you to sort through many more complex variables, including whether you've saved enough to retire, how much you can safely withdraw without running out of money, and what your in-retirement asset allocation should look like. Add in the current headwinds of low bond yields and worries about future volatility in bonds, and it's no wonder so many retirees are worried about their futures.

The bucket strategy I've been writing about during the past few years creates a simple framework for addressing at least some of these challenges. At its most basic, the bucket approach as envisioned by financial-planning guru Harold Evensky includes two major buckets--one holding liquid assets for living expenses and the other holding longer-term assets such as stocks and bonds. By carving out an adequate pool of liquid reserves for living expenses, the thinking goes, a retired investor can readily ride out the volatility inherent in his or her long-term assets.

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About Author

Christine Benz

Christine Benz  is director of personal finance at Morningstar and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances.

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