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Investing Specialists

How Pre-Retirees Can Transition to a Bucket Strategy

New portfolio bucketers need to take their own portfolio spending, tax situations, and risk appetites into account.

My model "bucket" portfolios are designed to help investors visualize how a bucket strategy would work with actual holdings; my bucket portfolio "stress tests" are meant to model the logistics of extracting cash flow from a bucketed portfolio. (This article delves into the basic idea behind bucketing.)

But the percentage allocations in my model portfolios won’t make sense for every retiree. At least some customization is crucial. Because bucketing revolves around setting aside your near-term cash in something pretty liquid, your own portfolio withdrawal amounts are the big determinant of how much to put in each bucket. A retiree with a higher spending rate will necessarily have more in safe securities than one who’s taking extremely modest withdrawals.

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