An Example of 3-Bucket Retirement Income System
Assume you have a $500K portfolio and an annual need for $20K (in addition to social security and pension payments). While the specific allocation will depend on your special circumstances and your risk tolerance level, below is an example for you to consider -
Bucket 1. Cash
Amount: $20K or 1-year's income gap needs
Allocation: money market, jumbo bank CD
Average yield: around 1-2%
Bucket 2. Conservative Income
Amount: $230K
Allocation:
- Vanguard Core Bond Admiral (VCOBX)
- Vanguard Short-term Investment Grade Bond (VFSTX)
- Dodge & Cox Global Bond
- iShares GNMA Bond ETF (GNMA)
- iShares US Preferred Stock ETF (PFF)
- Schwab Treasury Inflation Protected Securities Index Fund (SWRSX)
- Vanguard High-Yield Corporate Bond (VWEHX)
Bucket 3. Long Term Growth
Amount: $250K
Allocation:
- Vanguard Total Stock Market Index Admiral (VTSAX)
- Schwab International Index (SWISX)
- Fidelity Convertible Securities (FCVSX)
- Vanguard Equity-Income (VEIPX)