The Three Bucket Retirement Strategy

 Jane Bryant Quinn, the personal finance expert and author of "Making the Most of Your Money NOW" and AARP money columnist, has an interesting take on the traditional methods of retirement planning.

Traditionally the four percent rule is used to fund a retirement. The four percent rule is the amount of funds one can annually withdraw from a retirement fund to provide a steady income stream. Also to be considered is the ratio of stocks to bonds in a retirement portfolio; experts have traditionally recommended to allocate more money to bonds than stocks as one progresses through retirement.

However the traditional retirement strategies are being reconsidered due to the recent recession, unstable recovery, retirement fund liquidations, people working longer and people living longer. Social Security Administration (SSA) estimates the average lifespan of American women at 86 years, men 84 years.

Are your retirement monies sufficient to fund a twenty or thirty year retirement? The days of a five percent return on a CD are not only gone, but their reappearance seems unattainable with the current economy. Funds need some growth to hedge the increased number of years and low interest rates. Ms. Quinn has reconsidered the traditional retirement strategies and finds the Three Bucket Strategy has merit.

A thumbnail of the Three Bucket Strategy where funds for retirement are allocated into three buckets:

Bucket One

Funds for current year expenses which are not covered by income such as pensions, social security or part time jobs.

Bucket Two

Short and intermediate term bonds with the dividends reinvested. Each year funds from bucket two are used to replenish your cash flow and bucket one.

Bucket Three

Thirty percent of total remaining funds to invest in mutual funds and stocks. Funds earmarked "do not touch" for 10-15 years.

It seems a strategy worth considering and perhaps integrating into a retirement plan.

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