Isn’t a 60/40 retirement portfolio balanced? A portfolio containing approximately 60% stocks and 40% bonds is diversified across growth and defensive assets, but asset allocation alone does not create a complete retirement-income strategy.
A 60/40 portfolio is not necessarily static because it can be rebalanced as markets, spending needs, and risk tolerance change. However, it may not clearly separate money needed for immediate expenses from investments intended to grow over the coming decades.
If the market declines and you must sell investments to pay your bills, you could be forced to sell stocks or bonds at depressed prices. Taking withdrawals during an early downturn may leave fewer assets available to participate in a future recovery. This is known as sequence-of-returns risk.
A three-bucket retirement strategy is one way to organize savings according to when the money will be needed:
- Bucket one: Cash and highly liquid, lower-risk assets for near-term retirement income and unexpected expenses.
- Bucket two: More moderate investments intended to support expenses during the next phase of retirement.
- Bucket three: Long-term growth investments designed to support later retirement and help offset inflation.
The exact investments and time periods assigned to each bucket should reflect your expenses, guaranteed income, withdrawal rate, tax situation, risk tolerance, and life expectancy. The bucket strategy is not automatically better than a properly managed 60/40 total-return portfolio, and it does not eliminate investment risk.
The goal is to coordinate your asset allocation with your withdrawal timeline.
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