Bucket sys­tem to pro­tect su­per

Money Magazine Australia - - CONTENTS -

Rice Warner gives the ex­am­ple of a mem­ber who re­tires at 65 with $500,000 and al­lo­cates a year’s draw­downs to cash, then 50% in a bal­anced port­fo­lio to cover the next 10 years and 50% in high growth for the pe­riod there­after. Then there is a mar­ket crash.

The cor­rec­tion results in a -15% re­turn on the high-growth as­sets and -10% on the bal­anced port­fo­lio.

The funds re­cover back to the base af­ter three years.

Af­ter the re­cov­ery the cash port­fo­lio earns 2.5%pa, the bal­anced port­fo­lio earns 6%pa and high growth earns 8%pa.

As the graph shows, the sim­ple bucket strat­egy of stick­ing to growth out­per­forms in­vest­ing higher pro­por­tions of the port­fo­lio in cash, as well as crys­tallis­ing losses at the bot­tom of the mar­ket. This strat­egy sees the re­tiree through to 90.

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