Retiring in one year (March 2026) means you’re close enough to shift focus toward stability while still planning for a long retirement. Here’s the best strategy, assuming a typical 20-30 year horizon, balancing income, growth, and safety:
Recommended Strategy: Modified Bucket Approach
Why? It protects you from market dips right as you retire (sequence-of-returns risk) and sets you up for the long haul. Here’s how to structure it:
- Bucket 1: Short-Term (Years 1-5, Cash or Near-Cash)
- Amount: Cover 5 years of expenses not met by pensions/Social Security (e.g., $50k/year = $250k).
- Invest in: High-yield savings (4-5% in 2025?), CDs, or short-term Treasuries (1-2 year maturities).
- Why: Ensures you don’t sell investments in a downturn early in retirement. With one year to go, start building this now—shift cash gradually.
- Bucket 2: Mid-Term (Years 6-10, Bonds)
- Amount: Another 5 years of expenses (e.g., $250k).
- Invest in: A bond ladder (e.g., 5-10 year Treasuries or high-quality corporates) or a total bond fund yielding ~4-5% in 2025.
- Why: Provides income as Bucket 1 depletes and hedges against rising rates (reinvest maturing bonds later).
- Bucket 3: Long-Term (Year 11+, Growth)
- Amount: The rest of your portfolio (e.g., 50%+ of total assets).
- Invest in: 60/40 mix (60% stocks like an S&P 500 ETF, 40% bonds) or even 70/30 if you’re growth-oriented.
- Why: Fights inflation over decades. Stocks can grow at 7-9% annually long-term, while bonds buffer volatility.
Why Not Just 60/40?
A straight 60/40 portfolio is simpler and fine for growth, but if markets tank in 2026-2027 (your first retirement years), you’d be forced to sell low, risking depletion. The bucket approach gives you a 5-10 year runway to let stocks recover.
Steps to Take Now (1 Year Out)
- Estimate expenses: Nail down your annual spending need (e.g., $60k/year after Social Security).
- Size your portfolio: If you’ve got $1M, allocate ~$250k to Bucket 1, $250k to Bucket 2, $500k to Bucket 3.
- Transition: Over the next 12 months, move from your current allocation (likely growth-heavy) to this structure. Sell some stocks/bonds gradually to fund Bucket 1, avoiding a big tax hit.
- Check rates: In March 2025, lock in decent yields on CDs or bonds for Bucket 1 before rates potentially shift.
Example
- Portfolio: $1M, need $50k/year, Social Security covers $20k.
- Bucket 1: $150k (3 years of $30k gap) in CDs at 4.5%.
- Bucket 2: $150k in a 5-10 year bond ladder at 4-5%.
- Bucket 3: $700k in 60/40, growing for later.
Final Tips
- Tax accounts: Use cash from taxable accounts for Bucket 1, keep tax-deferred (IRA) for Buckets 2/3 to delay withdrawals.
- Flexibility: If markets soar in 2025, lock in gains for Bucket 1. If they dip, hold off and lean on cash.
- Revisit: Adjust yearly—refill Bucket 1 from Bucket 2, Bucket 2 from Bucket 3.
How much are you retiring with, and what’s your expected spending? That’ll fine-tune this further.
