I Don’t Want to Outlive My Money

published 6 May 2010

Ted Jones intended to retire two years ago. But after the markets tanked, he decided to keep working to defer tapping his investments. Jones, 63, a former Army major who lives in Lorton, Va., retired from military life in 1992 but has stayed on with the Army as a civilian.

Now Jones is getting ready to retire again. To maintain the lifestyle that he and his wife, Chong, 64, are used to, he figures they need to draw 4% of their investments annually. He also hopes to be able to leave something to the couple’s two sons and four grandchildren.

The Joneses should take a “bucket” approach to assembling an investing plan. This portfolio stashes two years of expenses in a cash bucket, invests the next eight years’ worth of expenses in bonds, and puts the rest in stocks. Retirees need stocks to keep up with inflation. But if they run into another bear market, the Joneses know that they won’t be tapping their stock bucket for another decade. This portfolio would have lost 32% over the bear market but gained 65% from the bottom.

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Elizabeth Leary (née Ody) first joined Kiplinger in 2006 as a reporter, and has held various positions on staff and as a contributor in the years since. Her writing has also appeared in Barron's, BloombergBusinessweek, The Washington Post and other outlets.