Retirement income using a Bear Bucket – Whiteboard Wealth #8
For investors in the “decumulation” or spending phase of life, retirement income is the primary focus. Retirees spending their investment portfolio down have a completely different set of investment goals and objectives to consider from those who are saving and investing towards retirement.
Generating Retirement Income
Ultimately one of the biggest benefits of being an accumulator of assets is the ability to rebalance your investment portfolio. This means bringing your asset allocation in line with it’s original intended target. If your target asset allocation is 60% stocks and 40% bonds you should keep it that way. If stocks drop substantially and your 60% allocation is now 40%, you need to sell some bonds and buy stocks cheap!
When a bear market hits and your stock investments are down you don’t have the luxury of rebalancing from bonds to stocks. This is because you’re selling bonds to generate retirement income! Ideally you’d like to be buying stocks while they’re cheap relative to other asset classes in your investment portfolio.
A “Bear Bucket” (as I call it) should provide a “safety net” for your retirement income. It’s a nice safe conservative chunk of money (savings, money markets, short term bonds, etc.). That chunk is set aside to fund your retirement income needs when the stock market is bearish. As the market drops into bear territory you can pull income from the bear bucket. This allows you to rebalance into stocks as you should be.
A Bear Bucket should also provide a retiree a bit of bear market confidence! The fact is when the markets are bad it’s easy to be frustrated or anxious. Sometimes you even feel like there’s something different you should be doing (which isn’t the case). Knowing that you’ve got a nice save conservative chunk of income set aside should allow you to sleep a lot better at night!
Watch Whiteboard Wealth #8 for a simple explanation of retirement income and bear buckets.