These model portfolios are geared toward retired investors who are drawing upon their tax-deferred accounts to meet a portion of their living expenses. Bucket 1 of each portfolio is to provide money for cash needs for a year or two, so we’re not taking any risks with it; investors can use some combination of certificates of deposit, high-yield savings accounts, or money market mutual funds for this portion of the portfolio. Bucket 2 covers another eight years’ worth of cash flow needs. It’s designed to deliver slightly more income than Bucket 1, as well as a dash of inflation protection; thus, it consists mainly of high-quality short- and intermediate-term bonds. Bucket 3 is the growth engine of each of the portfolios, geared toward years 11 and beyond of retirement. Due to an anchor position in Vanguard Dividend Appreciation VDADX, which focuses on companies with a history of growing their dividends, the portfolio has a high-quality tilt that’s appropriate for a retirement portfolio.
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