Should You “Bucket” Your Retirement Portfolio?

Dan Westin, CFP®, and CEO of QA shares his thoughts on what variables are important to consider when considering your investment plans in light of retirement.

After three plus decades in the work force the transition into retirement can be a little daunting, no matter how much you may be looking forward to it. Thinking through your new schedule, activities, and opportunities to maximize the impact and enjoyment of your next chapter requires some reflection.

In similar fashion, we at QA feel strongly that proper portfolio positioning for retirement income and legacy requires strategic assessment when moving out of the portfolio accumulation phase that coincides with your career.

Part of optimal portfolio positioning involves assessing the purposes and timeline(s) of your various assets. For example, retirement does not mean your portfolio should immediately move to a defensive or preservation focus. Other factors come into play, as you may have rental income, board income and/or other forms of firm benefits or capital coming back to you, allowing  portfolio assets to be invested for additional growth for years to come.

Of course, many are planning out how to efficiently and effectively access their nest egg for consistent income shortly after their employment paychecks stop.

A seasoned and effective approach we use at QA we call Income Stage Planning. Through detailed cashflow planning we identify any shortfalls in cashflow over time and help you determine what income or funding is needed across the future stages of your retirement, near-term, mid-term and long-term. We then allocate what we believe is the appropriate amount of your nest egg, including an evaluation of tax impact and efficiency, to three investment “buckets” which stage the risk through a time-segmented portfolio construction process. This approach focuses more stable and income-oriented assets over the near-term and allocates more growth-oriented investments toward the mid and longer-term, according to their respective time horizons).

Withdrawals from Bucket 1: Conservative provide time for the balanced investments in Bucket 2: Moderate and Bucket 3: Growth the potential to grow without withdrawals. Then, over time, the greater potential  returns achieved in Bucket 3 are used to replenish Bucket 2,  and Bucket 2 to replenish Bucket 1.  Hence, a structured and managed process to provide your “portfolio paycheck” (as reflected in diagram above).

Retirement is an exciting but unique chapter of life and we’re here to help you make the most of it.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner™, CFP® (with plaque design) and CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

QA’s investment strategies and model portfolios, like most investment strategies, involve the risk of loss of principal that clients should be prepared to bear. In all cases, investment returns and principal value will fluctuate and are subject to market volatility, so that a client’s investment, when sold, may be worth more or less than the original cost. Various types of investments involve different kinds of risk, and there is no assurance that any investment strategy or model portfolio will be profitable. There is no guarantee that QA’s approach to investing, its proprietary quantitative research and investment strategies and model portfolios will be successful or that the opinions expressed by QA will prove to be true. Asset allocation does not ensure a profit or protect against a loss.

Past performance of QA’s investment strategies and model portfolios is not a guarantee of future performance results. You should not assume that future performance results will be profitable or equal to past performance. Some of QA’s investment strategies and model portfolios have a limited performance history. The use of QA’s investment strategies or model portfolios may be appropriate for certain investors as part of their overall investment strategy. However, the use of investment strategies or model portfolios is not a substitute for personalized investment advice and investors should consult with their advisors before implementing any investment strategy or model portfolio. No investment strategy or model portfolio ensures a profit or protects against a loss.

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