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Edy

Strategy Question

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Greetings. I have read of a strategy that sounds reasonable to me and I was wondering about the thoughts of others on the strategy.

 

It seems a given that in the retirement years, folks would like to reduce stress and not worry about whether they will have money each month. They would prefer to not worry about the markets ups and downs, recessions, etc., so they can live out their years with relatively little financial stress.

 

If the above is true, then this strategy seems to make some sense. Take the wad a person has saved in 403b/IRA/401k etc. and divide it into three pots. One will be a stock type of pot diversified with many funds-large, small, foreign, domestic, growth, value, etc. that would help beat inflation over the 30 years or so of retirement. Another pot would be "consevative" with a broad mix of bonds/cash/CDs etc. The third pot would also be a "conservative" type and be lifetime fixed annuity type that provides a monthly check regardless of recession, market dips, etc.

 

The percentages are according to the person's preference for stability, growth to hedge inflation, etc. This could be 40% stock, 30% bond, 30% annuity. Or, it could be 50% stock, 30% bond, and 20% annuity, etc.

 

It seems a reasonable strategy to me particularly given that in those years, we want to minimize financial stress and "enjoy" life. This strategy seems appropriate for those with pensions such as teacher as well as those with only a 401k/403b type account. Of course, expenses of all three pots need to be kept to a minimum.

 

Any thoughts?

Thanks, Edy

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Hi Edy,

Sounds like your just returned from one of those free lunch or dinner investment presentations. What you are talking about is called the Bucket strategy and it seems fine to me. Here is what Morningstar says about it: click here

and our beloved Bogleheads has information: click here

Steve

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Hi Steve. Actually I read about although I don't recall the authors calling it the bucket strategy. I do attend those free lunch presentations when I get the invitations mainly as part of self education process in learning about my own retirement planning. So you think the strategy sounds reasonably sound? BTW, I have about 9 years to go until retirement, so I am still saving and still pondering my strategy when I go.

Thanks, Edy

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Hi Steve. Actually I read about although I don't recall the authors calling it the bucket strategy. I do attend those free lunch presentations when I get the invitations mainly as part of self education process in learning about my own retirement planning. So you think the strategy sounds reasonably sound? BTW, I have about 9 years to go until retirement, so I am still saving and still pondering my strategy when I go.

Thanks, Edy

 

 

Edy,

I like those seminars too, always something to learn and the food is great!

There are many articles, online calculators, research reports (Trinity Study updated) and books on the distribution stage. They all attempt to answer this one question: how can I safely drawdown my retirement nest egg without running out of money OR leaving too much? One point that is generally agreed is to keep your distributions from your principle 4% or under. The bucket strategy is fine. I don't personally use it at the moment because I am only taking interest payment from one fund, Total Bond Market index in my after tax money. I do use a part of it, since most of my money is in different bond funds with my rollover IRAs, I do not reinvest the interest of those bonds because bond prices are high, so I am taking those interest payments and putting them in a money market fund, keeping it tax deferred for distribution later and pay taxes or to rebalance into equities. The bucket strategy is to have money ready for distribution in the short-term is the part I use.

 

With nine years to go for your retirement, pay off all debts. The worse thing to have when you do retire is a mortgage payment. I can't tell you how nice it feels to have no debts when you retire and purchase your big ticket items, RV etc. before you retire.

Steve

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