Implementing a bucket system? There will need to be some rules

Your system for Bucket portfolio maintenance will have an impact on your portfolio's asset allocation and performance.

Christine Benz 21 September, 2018 | 5:00PM

On paper, the Bucket strategy seems so simple and elegant: Set up the buckets and then spend your way through a long and happy retirement. Done and done, right?

Uh, not quite. Keeping a Bucket strategy up and running requires some maintenance. Without a set of guidelines about how you’ll manage your bucket portfolio on an ongoing basis, it can quickly run off the rails. Your cash bucket might not get replenished--or grow too large. Your portfolio could tilt toward a perilous weighting in stocks, or it could end up holding more safe securities than you intended, exposing you to shortfall risk.

To maintain a Bucket portfolio and extract cash flow from it, you’ll need to make some decisions about how you'll do it. Once you've formulated some guidelines, you then append them to your broader retirement policy statement.

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About Author

Christine Benz

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

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