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.

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