Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
If you are a retiree and think it is prudent to have 1-5 year piece of your investments in a rather safe place for annual or emergency needs, how are you positioning this money? Suggestions or opinions appreciated.
My unconventional Bucket #1 in retirement would utilize target date funds.
Bucket #1 would arrive in 5 year increments using target date funds that are spread out over retirement. If I were retiring in 2020...Bucket #1 would be renamed (Bucket 2020 using a 2020 target date fund)) and would be funded with 5 years of retirement spending (any growth could be looked at as additional discretionary spending) to be spent between (2020 -2025).
A second Bucket #1 (Bucket 2025) would be funded with a 2025 target date fund and would have 7 years (2018-2025) to "grow". It would be funded to anticipate expenses during those 5 years (2025-2030). The third bucket #1 (Bucket 2030) target date fund would have 12 years to grow...and so on.
This approach glides a portion of your portfolio from growth to income...from stocks to bonds...in a professionally diversified and professionally managed way. I might add it's affordable and easy to understand. Anyone from you to your wife can stay the course.
Six target dated funds would cover your retirement for 30 -35 years of retirement "bucket #1" needs.
The rest of your available portfolio can be dedicated to long term growth and the occasional re-balancing with your buckets.
I also see Bucket #1 being paired with an additional 1-3 years of spending in the event markets fall into an extended bear. The would very very liquid and very safe.
Not sure how one would deal with the possibility of a "lost decade" (extended under performance of the market), especially during the spend down of assets in retirement.
If you are a retiree and think it is prudent to have 1-5 year piece of your investments in a rather safe place for annual or emergency needs, how are you positioning this money? Suggestions or opinions appreciated.
Bobpa...my bucket#1 is currently allocated to a series of bonds who's goal is to achieve a modest 2-3% return with reduced drama. These include: ZEOIX, SSTHX, PIFZX, SUBFX, and then a handful of muni's in the taxable account. I've got about 4 years of spending dollars in these funds.
Being short duration, the impact of recent and future rate increases should be minimized. However, with CD's now hitting 2% for a 1 year CD, I'm going to be shifting at least a portion of these bucket#1 holdings into a CD ladder at Schwab. The bond market is getting a bit frothy for my taste.
My unconventional Bucket #1 in retirement would utilize target date funds.
Bucket #1 would arrive in 5 year increments using target date funds that are spread out over retirement. If I were retiring in 2020...Bucket #1 would be (Bucket 2020) and would be funded with 5 years of retirement spending (any growth could be looked at as additonal discretionary spending) to be spent between 2020 -2025.
A second Bucket #1 (Bucket 2025) would be funded with a 2025 target date fund and would have 7 years (2018-2025) to "grow". It would be funded to anticipate expenses during those 5 years (2025-2030). The third bucket #1 (Bucket 2030) target date fund would have 12 years to grow...and so on.
This approach glides a portion of your portfolio from growth to income...from stocks to bonds...in a professionally diversified and professionally managed way. I might add it's affordable and easy to understand. Anyone from you to your wife can stay the course.
Six target dated funds would cover your retirement for 30 -35 years of retirement "bucket #1" needs.
The rest of your available portfolio can be dedicated to long term growth and the occasional re-balancing with your buckets.
I also see Bucket #1 being paired with an additional 1-3 years of spending in the event markets fall into an extended bear. The would very very liquid and very safe.
Not sure how one would deal with the possibility of a "lost decade" (extended under performance of the market), especially during the spend down of assets in retirement.
Any thoughts?
Interesting. I thought the whole point of target date funds was that they were a one stop shop...
Interesting. I thought the whole point of target date funds was that they were a one stop shop...
Tweaking a little growth (staying ahead of inflation) was my thought here as well as simplicity.
I kinda think a single target date retirement fund works well for new investors (a 30 year old owning a 2060 fund...cool), but I like the idea of re-casting this single target fund 5 years before retirement into (6) target date funds to serve as "5 year spending buckets". I also would fund a 1-3 year safe spending bucket (separate from these other buckets). Finally any additional savings would be place into long term growth investments.
Inflation has a funny way of kicking a retirees bony butt. That 5 cent candy bar is now a buck...that 25 cent draught beer is now $5 bucks.
I don't think bee's "bucket #1" fits my definition at all. I always considered or read that the "safe" #1 bucket contains $$$ you do not want any or very little, chance of losing principle. It is the safe bucket you draw living expenses from.
My bucket 1 (~4 years expected withdrawals) will be a MM fed by a CD ladder. Only 1 more bucket for me, bucket 2 is just a fairly stable 60:40 mix that will feed bucket 1 if the economy is not in recession. The purpose of bucket 1 is so that you don't have to draw from the growth bucket in down years. In good times it will get fed to keep that 4 year cushion.
Just my 2 cents and I am not retired yet. Some time this year. More than 2 buckets just confuses me I guess.
Me too. Bucket 1 is cash plus bond funds (PDI, PTY, PONDX, FRIFX) that have been pretty steady but on paper, and eventually probably in reality, are more volatile than bucket 1 typically should be. 4-5y worth. Taxable, alas. (Bucket 2 is equity funds, Roth.)
“Interesting. I thought the whole point of target date funds was that they were a one stop shop...”
That was the original concept. In theory. And it seems as if many target date funds came into existence around 2006 when (some) employers began (legally) automatically enrolling employees in 401Ks. They do make a convenient default option. But it’s my understanding that most investors who own target date funds also invest in other non-target date funds. So these funds are not really living up to their name.
I’ve never heard a single poster at MFO (or Fund Alarm for that matter) report that they have all their retirement assets in one of these target date funds. That may be because folks who go for target funds just aren’t as active in following their investments as the type who post here. But it still seems odd that no one, to my knowledge, has ever reported being 100% in one of these things.
I like @bee’s detailed plan. But, I prefer to let it all ride in a mixed conservatively positioned portfolio while drawing off a few percent a year. I understand many have issues with such an approach. For the time being it works for me.
@hank."I’ve never heard a single poster at MFO (or Fund Alarm for that matter) report that they have all their retirement assets in one of these target date funds." Agree, all your eggs in one basket doesn't work for me. Derf
@davidrmoran, what do you mean by that? My 4 year bucket #1, MM and CDs, would remain tax deferred if that was what you referred to.
My nearterm bucket, bonds and cash, is in rollover IRAs, and a brokerage account (with big losses in it, so no prob there); and when I take money from the former it is all taxable. (Same with the latter if I ever ever have capital gains again before I die, which looks unlikely.) Oh, and also a checking-savings account, of course.
Not positive I am getting your query; sorry. Distracted with averting my eyes from the EWarren insulting.
Agree, all your eggs in one basket doesn't work for me.
A Target date fund is as diversified a portfolio as you can get, likely more diversified than yours or mine. Not one basket at all. They are actually like holding 25 or so baskets (funds) with plenty of eggs (stocks or bonds) in each of those baskets. I do think your analogy is a misconception most people share though.
If you are a retiree and think it is prudent to have 1-5 year piece of your investments in a rather safe place for annual or emergency needs, how are you positioning this money? Suggestions or opinions appreciated.
I think a CD ladder is a good choice now. I've got a bunch sitting in MM but might switch it over to CDs. I'm still about three years from actual retirement.
Comments
Bucket #1 would arrive in 5 year increments using target date funds that are spread out over retirement. If I were retiring in 2020...Bucket #1 would be renamed (Bucket 2020 using a 2020 target date fund)) and would be funded with 5 years of retirement spending (any growth could be looked at as additional discretionary spending) to be spent between (2020 -2025).
A second Bucket #1 (Bucket 2025) would be funded with a 2025 target date fund and would have 7 years (2018-2025) to "grow". It would be funded to anticipate expenses during those 5 years (2025-2030). The third bucket #1 (Bucket 2030) target date fund would have 12 years to grow...and so on.
This approach glides a portion of your portfolio from growth to income...from stocks to bonds...in a professionally diversified and professionally managed way. I might add it's affordable and easy to understand. Anyone from you to your wife can stay the course.
Six target dated funds would cover your retirement for 30 -35 years of retirement "bucket #1" needs.
The rest of your available portfolio can be dedicated to long term growth and the occasional re-balancing with your buckets.
I also see Bucket #1 being paired with an additional 1-3 years of spending in the event markets fall into an extended bear. The would very very liquid and very safe.
Not sure how one would deal with the possibility of a "lost decade" (extended under performance of the market), especially during the spend down of assets in retirement.
Any thoughts?
Being short duration, the impact of recent and future rate increases should be minimized. However, with CD's now hitting 2% for a 1 year CD, I'm going to be shifting at least a portion of these bucket#1 holdings into a CD ladder at Schwab. The bond market is getting a bit frothy for my taste.
https://thefinancebuff.com/treasury-bills-cd-money-market.html
I kinda think a single target date retirement fund works well for new investors (a 30 year old owning a 2060 fund...cool), but I like the idea of re-casting this single target fund 5 years before retirement into (6) target date funds to serve as "5 year spending buckets". I also would fund a 1-3 year safe spending bucket (separate from these other buckets). Finally any additional savings would be place into long term growth investments.
Inflation has a funny way of kicking a retirees bony butt. That 5 cent candy bar is now a buck...that 25 cent draught beer is now $5 bucks.
Seems to make sense to me.
Regards,
Ted
1yr. 2.03%
3yr. 2.37%
5yr. 2.60%
My bucket 1 (~4 years expected withdrawals) will be a MM fed by a CD ladder. Only 1 more bucket for me, bucket 2 is just a fairly stable 60:40 mix that will feed bucket 1 if the economy is not in recession. The purpose of bucket 1 is so that you don't have to draw from the growth bucket in down years. In good times it will get fed to keep that 4 year cushion.
Just my 2 cents and I am not retired yet. Some time this year. More than 2 buckets just confuses me I guess.
Me too. Bucket 1 is cash plus bond funds (PDI, PTY, PONDX, FRIFX) that have been pretty steady but on paper, and eventually probably in reality, are more volatile than bucket 1 typically should be. 4-5y worth. Taxable, alas. (Bucket 2 is equity funds, Roth.)
That was the original concept. In theory. And it seems as if many target date funds came into existence around 2006 when (some) employers began (legally) automatically enrolling employees in 401Ks. They do make a convenient default option. But it’s my understanding that most investors who own target date funds also invest in other non-target date funds. So these funds are not really living up to their name.
I’ve never heard a single poster at MFO (or Fund Alarm for that matter) report that they have all their retirement assets in one of these target date funds. That may be because folks who go for target funds just aren’t as active in following their investments as the type who post here. But it still seems odd that no one, to my knowledge, has ever reported being 100% in one of these things.
I like @bee’s detailed plan. But, I prefer to let it all ride in a mixed conservatively positioned portfolio while drawing off a few percent a year. I understand many have issues with such an approach. For the time being it works for me.
Agree, all your eggs in one basket doesn't work for me.
Derf
Not positive I am getting your query; sorry. Distracted with averting my eyes from the EWarren insulting.