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Investment Allocation Question
Posted on 9/15/26 at 11:32 am
Posted on 9/15/26 at 11:32 am
I'm about 6 years from retirement, and I'm almost fully invested in equities currently. I realize that the run can't last forever, and I want to retire with a 75/25 portfolio. Should I simply rebalance my portfolio each year, adding a 5% increase to my safe assets? Or change it to a 75/25 allocation now? Am I just overthinking this?
Posted on 9/15/26 at 2:05 pm to FortunateSon
LINK
I Just Retired, Where Do I Start?
I recommend a retirement Bucket portfolio if you’re just starting out. First, figure out your anticipated income needs for a given year, then subtract certain sources of income like Social Security and a pension. What’s left over is the amount of cash flow that the portfolio will need to supply each year in retirement.
Then fill your three Buckets like this:
Bucket 1: Six months to two years of living expenses—not covered by Social Security—housed in cash instruments.
Bucket 2: Another eight to 10 years of living expenses housed in bonds.
Bucket 3: The remainder of the portfolio, invested in stocks and a high-risk bond fund.
I Just Retired, Where Do I Start?
I recommend a retirement Bucket portfolio if you’re just starting out. First, figure out your anticipated income needs for a given year, then subtract certain sources of income like Social Security and a pension. What’s left over is the amount of cash flow that the portfolio will need to supply each year in retirement.
Then fill your three Buckets like this:
Bucket 1: Six months to two years of living expenses—not covered by Social Security—housed in cash instruments.
Bucket 2: Another eight to 10 years of living expenses housed in bonds.
Bucket 3: The remainder of the portfolio, invested in stocks and a high-risk bond fund.
This post was edited on 9/15/26 at 2:10 pm
Posted on 9/15/26 at 2:51 pm to FortunateSon
Gradual rebalancing each year avoids trying to time the market all at once. Shifting piece by piece makes retirement planning feel much less stressful.
Posted on 9/15/26 at 3:58 pm to CharlesUFarley
quote:
LINK
I Just Retired, Where Do I Start?
I recommend a retirement Bucket portfolio if you’re just starting out. First, figure out your anticipated income needs for a given year, then subtract certain sources of income like Social Security and a pension. What’s left over is the amount of cash flow that the portfolio will need to supply each year in retirement.
Then fill your three Buckets like this:
Bucket 1: Six months to two years of living expenses—not covered by Social Security—housed in cash instruments.
Bucket 2: Another eight to 10 years of living expenses housed in bonds.
Bucket 3: The remainder of the portfolio, invested in stocks and a high-risk bond fund.
My main question was how to shift from an accumulation phase to a bucket setup.
But I appreciate your response. I think I will use more of a rebalancing approach rather than a bucket strategy. I realize they do roughly the same thing, but in my opinion, the bucket strategy doesn't incentivize one to buy low and sell high like a rebalancing plan. Maybe I'm wrong, but I have a few years to decide.
Posted on 9/15/26 at 6:47 pm to FortunateSon
I project my spending for the next several years and then decide how much I want in cash. Right now, that is two years in cash, two more years in floating rate. I am 61, I retired at 56 but went back to work last year. I have a payout from an ESOP from a former employer that is coming over in cash over the next two years. I will up the buckets, probably adding some bonds, but I don't think I'll have ten years in non-equity holdings, so my allocation may end up closer to 70/30% or even greater equity, simply because in my path right now I don't expect to spend much out of my portfolio for the next several years, I make enough working not to need that, though I will spend some of it, maybe on a classic car, if I want to. The exact number of your allocation isn't as important as understanding the different risk types of the assets and planning around it.
I would put some equity assets in bucket 2 and bucket 3. I think funds like SCHD could contribute to both. I still have 24+ years on a mortgage at 2.625%. I am in no hurry to pay it off unless hurricane coverage gets so ridiculous that I drop it. I may segregate some of the ESOP payout to explicitly fund the mortgage payments, in my mind that would be about 20% cash, 40% SCHD, and 40% diversified equity. Take distributions as cash every year and pay the mortgage, then reinvest the rest. Don't touch the cash bucket normally, but save it for a downturn when you don't want to touch your equity holdings. All that is in one of my rollovers.
I would also suggest that you go ahead and bite the bullet and put two years expenses into a short term cash bucket. Yeah, you're sacrificing growth in most years and markets, but if a sudden change hits you, you won't be painted into a corner. Two years is a lot of time to figure things out or weather storms. Then, as things move along, expand that opportunistically. I used capital gains distributions from my active funds and it worked out just fine.
I would put some equity assets in bucket 2 and bucket 3. I think funds like SCHD could contribute to both. I still have 24+ years on a mortgage at 2.625%. I am in no hurry to pay it off unless hurricane coverage gets so ridiculous that I drop it. I may segregate some of the ESOP payout to explicitly fund the mortgage payments, in my mind that would be about 20% cash, 40% SCHD, and 40% diversified equity. Take distributions as cash every year and pay the mortgage, then reinvest the rest. Don't touch the cash bucket normally, but save it for a downturn when you don't want to touch your equity holdings. All that is in one of my rollovers.
I would also suggest that you go ahead and bite the bullet and put two years expenses into a short term cash bucket. Yeah, you're sacrificing growth in most years and markets, but if a sudden change hits you, you won't be painted into a corner. Two years is a lot of time to figure things out or weather storms. Then, as things move along, expand that opportunistically. I used capital gains distributions from my active funds and it worked out just fine.
This post was edited on 9/15/26 at 6:55 pm
Posted on 9/15/26 at 6:48 pm to FortunateSon
How would a 20-30%+ market decline affect your retirement goal? If you need the stability and can't afford to risk a big decline that doesnt recoverbefore retirement date, it would make sense to reallocate now instead of gradually.
(Assuming you're rebalancing in a retirment account not in taxable brokerage)
(Assuming you're rebalancing in a retirment account not in taxable brokerage)
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