A Sample Retirement Portfolio Using the Bucket Approach

This aggressively positioned sample portfolio illustrates how the increasingly popular "bucket" strategy works

Christine Benz 13 September, 2012 | 1:43PM
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Here's your assignment: Gather up all of your retirement accounts and shape them into a portfolio that will supply you with the income you'll need during your retirement years. Oh, and one other tiny to-do: You'll also need to make sure you never run out of money, even though you don't know exactly how long you'll need it.

In the past, one simple and elegant solution to the above problem was to buy an immediate annuity that would pay you a stream of income for the rest of your life. But many investors don't like the loss of control that accompanies annuities. A more temporal problem is that today's ultra-low interest rates mean that payouts from annuities are lousy right now.

One other intuitively appealing idea is to sink your portfolio into income-producing investments such as bonds and dividend-paying stocks and live off whatever yield they generate. That way you might never have to tap your principal at all. The big drawback, however, is that you're buffeted around by whatever the interest-rate gods serve up. When yields are up, you're living high off the hog; when they're miserly, as they have been for the better part of a decade, you have the unappetizing choice of scaling your spending way back or venturing into riskier income-producing securities to get the yield you need.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Aegon High Yield Bond GBP A Acc  
BlackRock Cash A Inc100.61 GBP0.00
BNY Mellon Global Income GBP Inc235.95 GBP0.25Rating
Fidelity Global Infl-Link Bd A-Dis-GBP H1.33 GBP0.15Rating
Fidelity Index UK A-Acc1.23 GBP0.57Rating
Fidelity Strategic Bond33.55 GBP-0.12Rating
Invesco Distribution UK Acc141.77 GBP0.20Rating
Invesco UK Eq High Inc UK Acc726.11 GBP0.23Rating
M&G Optimal Income GBP A Acc231.76 GBP-0.04Rating

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.