“We examined a whole host of flexible or dynamic strategies,” she said. “The guardrail does stand out as one that we really like that does help preserve a retiree’s quality of life while also giving them the opportunity or permission to spend as much as they can throughout the whole drawdown cycle.”
Another option is bucketing, which the Carson Group has used. This is a retirement strategy in which assets are divided into three categories—or buckets. The first is for short-term expenses and includes more conservative investment vehicles such as short-term bonds, savings accounts and certificates of deposit.
The second is an intermediate bucket, which uses longer-term bonds and real estate investments. The final one is a longer-term bucket. It contains riskier investment vehicles such as stocks, cryptocurrency, private equity funds and hedge funds.
“We do use bucketing a lot,” Hopkins said, “in the sense that we like to time-segment things out, which I do think gives people a bit more permission to spend earlier in retirement when they’re going to get more enjoyment out of it.”
Bucketing is a popular strategy among advisors like Harold Evensky. Benz said she has spoken on the matter with the well-known founder of the Coral Gables, Fla.-based Evensky & Katz/Foldes Wealth Management.
To provide ongoing liquidity, Evensky told Benz he includes a cash bucket with a total return portfolio. This way his clients can continue to support their lifestyle regardless of hiccups in the market.
“All the things that constituted quality of life for his clients was preserved by having that cash bucket alongside the total return portfolio,” Benz said.
Even if advisors shy away from the bucketing strategy in practice, Benz said it is an ideal teaching tool to demonstrate topics like asset allocation.
One other area that has been on the minds of retirees, though it’s been neglected, is the subject of cash, Hopkins said. He said advisors need to get smarter about how they deal with it as an investment. Investors and advisors can no longer be content sitting on cash with their custodian, since they could be giving up 1% to 3% in returns.
“When we’re thinking about a world where inflation feels higher, withdrawal rates might be coming down, if we’re holding one to two years of cash in a very ineffective way, we’re giving up a lot of yield there,” he said.