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Morningstar outlines bucket strategy using ETF portfolios for retirees
The approach splits retirement assets into a cash bucket, a bonds-focused mid-term bucket, and a long-term stock bucket to fund withdrawals as the cash need declines.
Morningstar’s personal finance team has shared three example retirement “bucket strategy” portfolios that use exchange-traded funds in tax-deferred accounts, organized around when retirees need cash and how long retirement is expected to last, according to Yahoo Finance.
The framework divides assets into three buckets, with the first holding cash, cash equivalents and other liquid assets for the early years of retirement, a second bucket focused mainly on bonds for the medium term, and a third bucket of stocks intended to drive long-term growth.
As the cash bucket is depleted, medium-term holdings are sold to refill it, and long-term assets are liquidated to top off the bonds portion, with the model portfolios varying by risk level and retirement horizon.
In Morningstar’s write-up, Christine Benz said the bucket approach is not designed to maximize investment returns, and is instead intended to help real retirees reliably source needed cash flows regardless of conditions affecting their longer-term holdings.