Distributing Funds After Retirement

Comments posted to “Using the Bucket Approach With Your Retirement Portfolio,” by Christine Benz, in the October 2013 AAII Journal.

I would like a clearer or more detailed explanation of how to use the buckets.  Apparently living expenses are taken from bucket 1, but when should bucket 1 be replenished if one is reinvesting all dividends and interest?  Should it be after one year, and should bucket 1 always have two years’ worth of living expenses?  If so, should bucket 2 always have seven years’ worth of living expenses?  I’m not sure if the article is advising retirees to spend down bucket 1 and then shift assets from bucket 2 to bucket 1, while shifting assets from bucket 3 to bucket 2.  Or is it saying to do this yearly when rebalancing?

—Stephen Thomas from Florida

Christine Benz responds:

Investors have quite a bit of latitude to design a bucket strategy that fits with whatever investment program they’re already using. Income-oriented investors might have their income and dividend distributions sent right into their bucket 1 (cash account); if additional funds are needed to re-fill bucket 1 once it’s empty, they can use rebalancing proceeds from buckets 2 or 3. If someone is using a strategic buy, hold and rebalance program, they could reinvest income, dividends and capital gains distributions, then refill bucket 1 using rebalancing proceeds from whatever has appreciated most. An investor doesn’t have to be mechanistic about moving assets from bucket 3 to 2 and 2 to 1. Instead, the overarching principle is to refill bucket 1 while keeping the longer-term assets more or less in line with the target asset allocation.

Social Security Questions

Comment posted to “Social Security Basics,” by William Reichenstein and William Meyer, in the October 2013 AAII Journal.

I look forward to the next articles in this series since I’ve often found William Reichenstein’s articles informative.  I hope he addresses the time value of money in his recommendations on strategy for timing benefits. 

In many other articles, this is ignored and the recommendation is to delay since the dollar amount one will receive per month is higher.  But when I’ve done the calculations of present value of an income stream starting at age 62 versus a higher income stream starting at age 66 versus a still higher income stream starting at age 70, I haven’t found much difference in present value, which makes me think the government actuaries knew what they were doing.  Of course it will depend on the longevity and discount rates one assumes, and trying to factor in future cost of living adjustments to benefits will complicate it further.

—C. Arnold from Texas

Comment posted to “Social Security Strategies for Singles,” by William Reichenstein and William Meyer, in the November 2013 AAII Journal.

Since no one knows the date of his or her death, how is this helpful? I saw where you brought up the question, but I couldn’t find your answer. To me a better question is: How much will Social Security affect the quality of your life? If you can retire and collect a pension and Social Security at 62, why not do so and enjoy the money while you can? If you have no pension, then put off collecting as long as you can.

—Stephen Levine from California

Best Apps for Stock and Portfolio Monitoring

Comment posted to “‘The Top Financial Apps,” by Wayne A. Thorp, CFA, in the November 2013 AAII Journal.

The last time I tried the CNBC app for the iPhone, it only supported a list of 20 securities in “My Stocks.” The iPad version of the app supports a larger number. For me, the iPhone app is worthless for that reason.

I find the Bloomberg app more useful for overall monitoring of stocks and my portfolio. I don’t believe it has real-time quotes, though it has a lot of other features. It’s also nice that it syncs across the Web, iPhone, iPad, etc., so when you make a change in one place it is reflected on the other devices. You do have to create a free account on www.bloomberg.com.

— Kevin Lewis from California