A Year-End Bucket To-Do List for Your Retirement Portfolio

One of the best parts of employing a Bucket approach to retirement portfolio management is that you don’t have to be terribly hands-on. A thorough, once-a-year checkup is all you really need to keep your buckets up and running.

Year-end is an ideal time for that type of maintenance, in that you can tackle a lot of smaller portfolio-management jobs all in one go: rebalancing, filling up your cash bucket, charitable giving, and tax-loss (or tax-gain) harvesting, for example.

Bucket maintenance in 2025 may actually be enjoyable this year. Not only are investors’ total portfolio balances likely up thanks to a strong stock market, but so are yields still decent on the safer investments in Buckets 1 and 2. If you’re employing a Bucket strategy, here are the key items to have on your docket as 2025 winds down.

Step 1: Check This Year’s Spending Rate

When you’re accumulating assets for retirement, your savings rate is one of the best measures of whether your plan is on track. But when you transition into drawdown mode, your spending rate—how much of your portfolio you’re spending annually—is the make-or-break number.

Thus, the first step in any retiree’s annual checkup—whether you’re using a Bucket strategy or some other approach—is to assess how much of your portfolio you’ve spent this year. To help gauge your spending rate, total up all of your portfolio withdrawals for 2025, then divide that number by your portfolio balance, ideally from the beginning of this year. Does it pass the sniff test as a safe withdrawal rate? Our 2024 research on withdrawal rates includes safe withdrawal rates for various asset allocations and time horizons, as well as a discussion of how varying your withdrawals based on market performance and other factors can boost starting withdrawal percentages.

A headline from last year’s research was that 3.7% is a safe starting withdrawal percentage, but it’s built on fairly conservative assumptions, including an inflexible approach to retirement spending. People who are well into retirement and have shorter time horizons than the 30 years we use as our “base case” can reasonably spend at a higher rate. In addition, if you’re willing to be flexible with withdrawals based on how your portfolio has performed, that helps elevate starting and lifetime withdrawal amounts. By the same token, being able to get by on less if the early retirement years happen to coincide with a bear market can help ensure that enough of your portfolio is in place to recover when the market eventually does.

Step 2: Assess Cash Needs for the Year(s) Ahead

The next step is to forecast your cash flow needs for 2026. In addition to the funds you need for your routine living expenses, are you expecting to make any out-of-the-ordinary outlays next year, such as a new car, major trip(s), or home repair/upgrade? How do you expect inflation to affect your expenses?

Armed with an all-in budget for the year ahead, you can then look at how much of your total outlays will be met through non-portfolio-income sources—Social Security, a pension, a fixed annuity, and so forth. Subtract those income sources from your total planned spending to arrive at your planned portfolio withdrawal and check its sustainability.

Document your 2026 portfolio spending needs; we’ll come back to that number in a moment. If your Bucket strategy entails holding two years’ worth of portfolio withdrawals in cash—and I think that’s advisable because it can provide a bit of a buffer in weak markets—forecast your cash flow needs for both 2026 and 2027.

Step 3: Size Up Bucket 1

Once you’ve arrived at your cash needs for the year(s) ahead, compare that with your current liquid reserves on hand. If you’ve been steering dividends and bond income back into your cash bucket over the past year (part of a “hybrid” strategy for Bucket maintenance) or you have cash left over for any other reason, you’ve probably filled up your cash bucket partially. The good news about the current environment is that bond and cash yields are finally up to more meaningful levels of 4% or more. Subtract current cash reserves from the cash needs you arrived at in Step 2; the amount left over is the additional amount you’ll need to extract from your portfolio from rebalancing.

Step 4: Assess Long-Term Asset Allocation

Next, take a look at your long-term portfolio using Morningstar’s X-Ray functionality, which depicts your actual asset-class exposures based on the composition of your holdings. Take note of your portfolio’s current allocation relative to your asset-allocation target as laid out in your investment policy statement.

Step 5: Source Cash for Bucket 1

Identifying overweight positions in your portfolio will point you toward those areas that you can trim if you need to top up your Bucket 1/cash holdings, as discussed above. For most investors, as 2025 winds down, US equities may beckon for pruning. But comparing the portfolio’s current asset allocation with your targets will help determine where to go to refill your cash bucket.

Specifically which holdings you sell to raise cash will depend on what sequence of portfolio withdrawals you’re using for your accounts. This is a good spot to get help from a tax professional.

Step 6: Identify Additional Rebalancing Needs

Pulling your cash needs from asset classes that are higher than your target allocations may be sufficient to restore your baseline asset-class exposures back to your targets. But additional rebalancing may be in order. For investors who haven’t adjusted their portfolios’ asset-class exposures for a long time, for example, non-US stock holdings may still be quite underweight, even factoring in 2025’s rally.

You may also be able to identify candidates for tax-loss selling in your taxable accounts.

Step 7: Tie In Charitable Giving

Last but not least, if you’re charitably inclined, it may make sense to tie in charitable gifts with the steps outlined above. For example, you might want to direct a portion of your rebalancing proceeds to charity via a qualified charitable distribution, assuming you’re at least 70.5 years old. The amount of the QCD reduces taxable income and also reduces the amount of your IRA that will be subject to required minimum distributions in the years ahead.