Retirement buckets vs asset allocation
Hi Terry, I'd like your opinion on which approach to managing ones retirement nest egg is better: creating buckets of money with safer holdings (e.g. money market, short term bonds) for near term distributions and riskier holdings (stock funds) for distributions in later years (e.g. bucket 1 is for years 1-5, bucket 2 is for years 6-10 and bucket 3 is for years 11+) and refilling buckets 1 and 2 each year versus keeping a balanced portfolio (e.g. 60% bonds and 40% stocks) that is rebalanced periodically or whenever allocation is 5% or more out of balance. I think either approach assumes you have enough in retirement savings to hold something other than chicken money in order to help you keep pace with inflation.
Terry Says
I think I posted a response to this debate a year ago on my blog, and it generated a lot of discussion. We will only know the answer to which is the better strategy in the long run! The real question is whether you have the self-discipline to stick to either strategy when the market soars, or collapses! In reality, they are both a form of asset allocation with different rules. What feels best to you?
