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<item> <title>Creating a Resilient Investment Strategy for Retirement</title> <link>https://freefincal.com/creating-a-resilient-investment-strategy-for-retirement/</link> <pubDate>Sun, 29 Mar 2026 00:30:04 +0000</pubDate> <dc:creator><![CDATA[M. Pattabiraman]]></dc:creator> <guid isPermaLink="false">https://freefincal.com/?p=246239</guid> <description><![CDATA[We discuss how to create a resilient investment strategy for retirement. This requires the following: (1)...]]></description> <content:encoded><![CDATA[<figure><img src="https://freefincal.com/wp-content/uploads/2022/05/Screenshot-of-the-annuity-ladder-calculator-module-from-the-freefincal-robo-advisory-template.jpg" class="type:primaryImage" /></figure><p>We discuss how to create a resilient investment strategy for retirement. This requires the following: (1) A large cash buffer for emergencies, (2) A guaranteed income source that handles partial expenses for the entire duration of retirement (also known as an income floor) or guaranteed income that increases at a rate close to inflation for the first 10-15 years of retirement. (3) investment in buckets of varying risk to handle inflation and other exigencies in retirement.</p> <p>This can be achieved by combining a retirement bucket strategy with income flooring. The goal is to reduce the management risks associated with a bucket strategy.</p> <p><strong>Bucket Strategy: </strong> The retirement corpus is typically divided into three parts (buckets). A low-risk bucket with little or no equity. A medium-risk bucket with a small equity exposure and a high-risk bucket with equity as the dominant constituent.</p> <p>Inflation-indexed income is withdrawn each year from the low-risk bucket. The goal is to ensure that there are enough funds in the low-risk bucket at any point in time to cover expenses (incl. inflation) for the next five years or seven years or as the retiree (or advisor) desires.</p> <p>To ensure this, the funds in the medium-risk and high-risk must be actively managed (with switches at least once a year). If the high-risk bucket increases due to a bull run, some funds should be switched to low- or medium-risk buckets. Those interested can see how this works with this free tool: <a href="https://freefincal.com/the-retirement-bucket-strategy-simulator/">The Retirement ‘Bucket Strategy’ Simulator</a>.</p> <p>Naturally, managing a bucket strategy is anything but easy. Even financial advisors in India do not have much experience with it. So when we designed our <a href="https://freefincal.com/robo-advisory-software/">robo advisor tool</a>, our primary considerations were two-fold:</p> <ul> <li>Minimize the sequence of returns risk as much as possible. This risk is associated with substantial negative returns from equity and extended sideways markets, particularly in the early stages of retirement.</li> <li> Reduce the active management associated with buckets as much as possible.</li> </ul> <p>Therefore, we combined the features of an income ladder and a bucket strategy and then further optimised it with additional features. Let us discuss this with an example.</p> <p>The robo tool divides the retirement corpus into five buckets. That is, the retirement corpus will be divided into five parts. This is only one of many ways to construct a bucket strategy. The following assumes 45 years in retirement.</p> <ul> <li>An emergency bucket to handle unexpected expenses. Example: 5%</li> <li><strong>Note: the overall equity allocation from the entire corpus is only 35% after retirement in this example.</strong></li> <li>Income bucket that provides guaranteed income for the first 15 years of retirement. <strong>This minimises the sequence of returns risk to a great extent.</strong> During this time, investments are made in the following three buckets.</li> <li>Corpus from a low-risk bucket that provides retirement income from year 16 to year 26. To provide this income, the low-risk bucket will have an asset allocation of 50% equity and 50% debt during the investment period (years 1 to 15 of retirement). This corpus weighs about 25%.</li> <li>Corpus from a medium-risk bucket will provide retirement income from year 27 to year 35. To provide this income, this bucket shall have an asset allocation of 70% equity and 30% debt during the investment period (year 1 to year 27). This corpus weighs about 15%.</li> <li>Corpus from a high-risk bucket will provide retirement income from year 36 to year 45. To provide this income, this bucket shall have an asset allocation of 100% equity during the investment period (year 1 to year 36). This corpus weighs about 9-10%.</li> <li>After 15 years, the low-risk bucket can be turned into 100% debt and provide income for about 11 years. After that, the other buckets can also be progressively used. One can always customize this usage after retirement.</li> <li>Please note that bucket allocations will change as per the user inputs and are auto-determined by the robo tool. Please do not blindly copy these numbers.</li> </ul> <p>Here, too, rebalancing among buckets and occasional profit booking is essential. However, unlike a regular bucket strategy where everything is fluid, each bucket is designed to progressively “mature” at different times in the future (like an income ladder) to account for future income. So, in principle, one can manage the buckets without any “active” (market-dependent) management and opt for annual rebalancing.</p> <p>A bucket strategy can be optimised further by combining it with income flooring or an annuity ladder. These two features mentioned below are now part of our robo-advisor tool.</p> <p><strong>(1) Using income flooring:</strong> Here, we buy an annuity (pension) for an amount equal to the expenses in the first year of retirement. Then, the expenses in the latter years are handled using the method detailed above. More details are here: <a href="https://freefincal.com/how-to-beat-inflation-after-retirement-along-with-guaranteed-pension/">How to beat inflation after retirement with a guaranteed pension</a>. This further reduces the management of the retirement buckets.</p> <figure id="attachment_74540" aria-describedby="caption-attachment-74540" class="wp-caption alignnone"><a href="https://freefincal.com/wp-content/uploads/2022/04/Retirement-planning-with-income-flooring-illustration.jpg"><img fetchpriority="high" decoding="async" class="lazyloaded wp-image-74540 size-full" title="Retirement planning with income flooring illustration" src="https://freefincal.com/wp-content/uploads/2022/04/Retirement-planning-with-income-flooring-illustration.jpg" sizes="(max-width: 1280px) 100vw, 1280px" srcset="https://freefincal.com/wp-content/uploads/2022/04/Retirement-planning-with-income-flooring-illustration.jpg 1280w, https://freefincal.com/wp-content/uploads/2022/04/Retirement-planning-with-income-flooring-illustration-300x192.jpg 300w, https://freefincal.com/wp-content/uploads/2022/04/Retirement-planning-with-income-flooring-illustration-644x413.jpg 644w, https://freefincal.com/wp-content/uploads/2022/04/Retirement-planning-with-income-flooring-illustration-768x493.jpg 768w" alt="Retirement planning with income flooring illustration" width="1280" height="821" data-src="https://freefincal.com/wp-content/uploads/2022/04/Retirement-planning-with-income-flooring-illustration.jpg" data-srcset="https://freefincal.com/wp-content/uploads/2022/04/Retirement-planning-with-income-flooring-illustration.jpg 1280w, https://freefincal.com/wp-content/uploads/2022/04/Retirement-planning-with-income-flooring-illustration-300x192.jpg 300w, https://freefincal.com/wp-content/uploads/2022/04/Retirement-planning-with-income-flooring-illustration-644x413.jpg 644w, https://freefincal.com/wp-content/uploads/2022/04/Retirement-planning-with-income-flooring-illustration-768x493.jpg 768w" data-sizes="(max-width: 1280px) 100vw, 1280px" /></a><figcaption id="caption-attachment-74540" class="wp-caption-text">Retirement planning with income flooring illustration</figcaption></figure> <p><strong>(2) Using annuity laddering: </strong>We considered a single annuity in the above example. We can buy additional annuities (say, every decade) and further reduce the management of retirement buckets. This is also a form of income laddering and exploits the higher interest rate on pensions as the retiree ages. Details: <a href="https://freefincal.com/annuity-ladder-calculator/">Use this annuity ladder calculator to plan retirement with multiple pension streams</a>.</p> <figure id="attachment_76447" aria-describedby="caption-attachment-76447" class="wp-caption alignnone"><a href="https://freefincal.com/wp-content/uploads/2022/05/Screenshot-of-the-annuity-ladder-calculator-module-from-the-freefincal-robo-advisory-template.jpg"><img decoding="async" class="lazyloaded wp-image-76447 size-full" title="Screenshot of the annuity ladder calculator module from the freefincal robo advisory template" src="https://freefincal.com/wp-content/uploads/2022/05/Screenshot-of-the-annuity-ladder-calculator-module-from-the-freefincal-robo-advisory-template.jpg" sizes="(max-width: 1465px) 100vw, 1465px" srcset="https://freefincal.com/wp-content/uploads/2022/05/Screenshot-of-the-annuity-ladder-calculator-module-from-the-freefincal-robo-advisory-template.jpg 1465w, https://freefincal.com/wp-content/uploads/2022/05/Screenshot-of-the-annuity-ladder-calculator-module-from-the-freefincal-robo-advisory-template-300x180.jpg 300w, https://freefincal.com/wp-content/uploads/2022/05/Screenshot-of-the-annuity-ladder-calculator-module-from-the-freefincal-robo-advisory-template-644x386.jpg 644w, https://freefincal.com/wp-content/uploads/2022/05/Screenshot-of-the-annuity-ladder-calculator-module-from-the-freefincal-robo-advisory-template-768x461.jpg 768w" alt="Screenshot of the annuity ladder calculator module from the freefincal robo advisory template" width="1465" height="879" data-src="https://freefincal.com/wp-content/uploads/2022/05/Screenshot-of-the-annuity-ladder-calculator-module-from-the-freefincal-robo-advisory-template.jpg" data-srcset="https://freefincal.com/wp-content/uploads/2022/05/Screenshot-of-the-annuity-ladder-calculator-module-from-the-freefincal-robo-advisory-template.jpg 1465w, https://freefincal.com/wp-content/uploads/2022/05/Screenshot-of-the-annuity-ladder-calculator-module-from-the-freefincal-robo-advisory-template-300x180.jpg 300w, https://freefincal.com/wp-content/uploads/2022/05/Screenshot-of-the-annuity-ladder-calculator-module-from-the-freefincal-robo-advisory-template-644x386.jpg 644w, https://freefincal.com/wp-content/uploads/2022/05/Screenshot-of-the-annuity-ladder-calculator-module-from-the-freefincal-robo-advisory-template-768x461.jpg 768w" data-sizes="(max-width: 1465px) 100vw, 1465px" /></a><figcaption id="caption-attachment-76447" class="wp-caption-text">Screenshot of the annuity ladder calculator module from the freefincal robo advisory template</figcaption></figure> <p>Thus, using features such as an income ladder and annuity ladders, we can eliminate management risks associated with a plain bucket strategy.</p> <p>The post <a href="https://freefincal.com/creating-a-resilient-investment-strategy-for-retirement/">Creating a Resilient Investment Strategy for Retirement</a> appeared first on <a href="https://freefincal.com">freefincal</a>.</p> ]]></content:encoded> <post-id xmlns="com-wordpress:feed-additions:1">246239</post-id> </item>
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