Mastering Portfolio Balance for a Prosperous Retirement

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Is your portfolio going to tank your retirement, or will it see you through a multi-decade retirement of rising cost of living, market ups and downs, and maybe even leave room for legacy goals? If you properly balance about 2 to 3 years of portfolio income needs towards liquid investments, 3 to 4 years of income needs in more stable income-producing investments, and the rest towards growth, you’re likely to accomplish the latter. Hi, I’m Hunter Brockway, founder of Boca Retirement Strategies, here to help set you up for a successful retirement while spending more and saving on taxes.

In today’s video, we’re going to talk about portfolio construction. The first rule or thought that goes into portfolio construction should be: What are your liquidity needs? How much cash and how frequently do you need it? If you have $100,000 of expenses or liquidity needs in the next 2 years, it would not be ideal to have that $100,000 invested in a risky or volatile investment. Said differently, you need to allocate that income need to a liquid or stable investment holding. This liquidity need comes from bills and living expenses but can also come from a plan to buy, say, an RV in the near future. Your money needs to be invested according to your needs.

You may have heard of an old adage like a 60/40 portfolio that says when you retire at age 60, 60% of your portfolio should be in stocks and 40% of your portfolio should be in bonds. Not a bad starting point, but I think you can do better. If you’ve been listening to some of the talking heads, they’re starting to suggest the need for a 70/30 portfolio, and some have said 80/20 due to inflation and lower returns than previous years. But the talking heads don’t know your portfolio size, your income needs, your legacy goals, or anything about your specific situation. Others simply say, “I have $40,000 of income needs. I’ll purchase an annuity or TR product that pays me $40,000 per year.” Pretty clear, cut and dry, without diving deeper into annuities because we’ve talked about them in another video.

The first point I’ll make is the average retiree will see the cost of living increase about 2 and a half times across their retired life. So unless that fixed-income product has a way of accounting for inflation, you’ll be short on cash flow. At Boca Retirement, we simplify portfolio construction to be viewed as buckets. You have your cash bucket, which covers your immediate income needs from your portfolio, less Social Security, pension, etc. Inside of that bucket will be actual cash or money market funds, things of that nature where the value of your assets is stable both to the downside and the upside because you want to avoid needing to sell something at a loss in order to generate cash for income needs. Another reason for keeping cash in your portfolio is the ability to purchase quality companies when—not if—they go on sale. In other words, when big quality companies’ stock prices shrink due to market downturns, but we know, like, and trust that company will return to normal values, we can purchase shares of said company at a discount and appreciate the anticipated following rise in stock price.

The next bucket is the income bucket. This bucket holds about 3 to 4 years of income needs in dividend-paying equities and bond-type investments. Investments that may rise in value more than your cash bucket but are designed to be less volatile than something like small-cap equities. As these investments pay you, the cash gets cycled into your cash bucket, and if these investments rise in value to a point which they overweight our goals, we can sell portions to supplement our cash bucket. So, between the cash bucket and the income buckets, that covers about 5 years of income needs. We finally call this your war chest. How long could you withdraw retirement income before the need to sell equities during a steep market decline? Because it’s not if the markets will drop, but it is both when and how much they will drop and how many times they will drop during your retirement. During the ’08 market crash, it was just over 5 years from peak to trough to peak again.

The third and last bucket is the growth bucket. This is the rest of your portfolio. This bucket is intended to hold the more volatile equities, but again, because of our war chest, we aren’t as concerned when the equity markets are down. On the contrary, as I’ve said, we may have the ability to purchase quality companies at a discount, and if these companies then rise in value at a later date, we can capture the appreciated investment and replenish our income or our cash buckets, depending upon our needs and balances. Before moving on, I told you we like to view the bucket size as years of income. It is important to first evaluate the income you will receive from Social Security any pensions, annuities, part-time work, things like that. Then your portfolio income should make up the difference in income needs. We’ve done other videos on how to withdraw your retirement portfolio. You can check out with the link below or on our channel.

Take action, review your portfolio construction today, and at a regularly scheduled period, ensure your portfolio can generate income needs today, throughout 2 and a half times rising living costs and any additional goals. I’m Hunter Brockway, founder of Boca Retirement Strategies. If you would like to learn more about how we help our clients, you can book a no-cost, no-obligation call on our website at or email us at Enjoy your successful retirement, and thank you for watching.


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