Reliability of Income, the New ROI.

The 2008-2009 market crash and resulting bear market have been absolutely brutal to new retirees and soon to be retirees alike. For those in my age set (about 30 years out from retirement) it serves as a poignant lesson of what can go wrong.

To Mary Beth Franklin, editor of Kiplinger’s magazine, it also suggests a new way to view near retirement and post-retirement investing. It puts emphasis on what she calls “Reliability of Income”. Mary Beth suggests that retirees divide their assets into 3 buckets:

Bucket 1:

25% in laddered CDs or short-term, immediate payout annuities. This will generate safe income for the 1st 5 years.

Bucket 2:

50% in bonds and broad based stock market index funds or ETF’s for intermediate goals. A portion of this money moves into bucket 1 in 5 years.

Bucket 3:

25% invested in stocks, commodities and real estate for long term growth. A portion of this money will move into bucket 2 every 5 years.

By rebalancing every 5 years, this method ensures that you are shielded from crashes like the one we just experienced, because you still have that 25% to live on for the next 5 years that is unharmed. By the time you need that money in buckets 2 and 3, the market will have rebounded at least somewhat.


Related Posts
  • A Tale of 4 High Income Bond Funds. Bonds have gotten a lot of attention over the past year and it's easy to see why when you look at this chart. What you're looking at is a relatively smooth ride up until the world collapsed in October of 2008. The investorspeak for that smooth ride is "low volatility",......
  • Mutual Fund Monday - Tips For Mutual Fund Investment. With thousands of mutual funds to choose from, picking the "right one" can be a daunting task. Most investors know not to fall for a short term hot streak - one or two years isn't a long enough track record to show superior skill of the management team over sheer......
  • What Lost Decade? Much has been made of the so-called "lost decade" of investing during the period of 2000-2010. But what does the "lost decade" mean? Is it true and does it even matter? The idea behind the lost decade is that investors either made no money or lost money over that period......
  • 3 Tips to Make Your 401(k) Work for You. Morningstar has a terrific article (available to free members) titled Three Tips to Make Your 401(k) Work for You and I love it! Here's a brief sample of why: It's surprising there aren't many calls in the press to ditch the automobile. After all, think of all the dumb things......
  • Are Target Date Funds good, bad or just plain ugly? Target date funds have been in the news quite a lot over the past few years, though the nature of the news seems to have gone from great to bad over that time. Consider that when target date funds were first introduced they were heralded as the pinnacle in the......

Related Websites
  • Personal Retirement Plan Investment Options Good financial management consists of two different distinct facets, the first of which is learning how to make the best use out of your limited earned income in order to best meet your current expenses, and the second of which has to do with learning how to implement strategies that......
  • Reliance Power: An Indian IPO I'm currently on a short trip to India. For the past 2-3 years, India's economy has been booming. There is construction everywhere and they're building new malls and apartment complexes like crazy. Even though I've been living in the US for the past decade, before that I spent 12 years......
  • Setting up a Roth IRA - 4 Easy Steps (part 1) I haven't really talked about my investments yet because I am focused on debt reduction right now...that will hopefully change soon.  Notwithstanding my situation, my younger brother had asked me to set up his "retirement account(s)."  He would go crazy if he knew I was writing what I did for him......
  • Should You Now Own Gold for Retirement? Gold as a retirement investment? If you ask ten people, you may hear ten different answers. Gold has one thing going for it: it's an investment that will do well when the world is in crisis. Almost any kind of global calamity or economic bad news will trigger a spike......
  • Why Invest? Do you have some money socked away, or are you planning to sock some money away for the purpose of investing? Are you wondering why investing would be a smart idea and how you can best benefit from the act of investing? Simply put, you are going to want to......

Leave a Reply

 

 

 

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>