One way to approach retirement investing is to opt for investments in three buckets, says Christine Benz, director of personal finance for Morningstar.
The buckets consist of:
• Cash and possibly short-term bonds;
• bonds and possibly a bit of stock exposure;
The goal of the first bucket is liquidity and preservation of principal, Benz writes on Morningstar.com
. Appropriate investments include cash and possibly a high-quality short-term bond fund. "This bucket holds your living expenses for the next year or two of retirement," she says.
The goals of the second bucket are income, purchasing-power preservation and some growth, Benz says. Appropriate investments include high-quality bonds and bond funds and balanced or allocation funds. "I've earmarked bucket two for years three through 10 of retirement," she writes.
The goals of the third bucket are growth and income, she says. Appropriate investments include stocks, both domestic and foreign; specialized bond funds, such as high yield and emerging markets; and high-volatility inflation protection, such as commodities and real estate.
Meanwhile, Social Security experts Andrew Biggs and Sylvester Schieber say reports of the inadequacy of retirement savings, which have recently dominated the news media, are inaccurate.
Biggs is a resident scholar at the American Enterprise Institute, and Schieber is an independent pension consultant.
"These statistics are vast overstatements, generated by methods that range from flawed to bogus," they write in The Wall Street Journal
"America's retirement incomes are 53 percent above the OECD average, second highest in the world," Biggs and Schiber note.
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