Tax-Sheltered Retirement-Bucket Portfolios for Fidelity Investors
These Fidelity-only examples aim to support spending needs while maintaining long-term growth allocation.
Many investors would prefer to deal with as few investment providers as possible, and that’s a pretty good approach as we age.
In recognition of that, I’ve created fund-family-specific model portfolios. These portfolios—geared toward retirees with varying time horizons/life expectancies—are best for investors in tax-deferred accounts such as IRAs. They’re designed for retirees who are actively drawing their cash flow needs from their portfolios and consist exclusively of Fidelity funds.
About the Portfolios
These portfolios employ a Bucket strategy, pioneered by financial-planning guru Harold Evensky. The central premise is that the retiree holds a cash bucket (Bucket 1) alongside his or her long-term assets, both stocks and bonds. If the long-term components of the portfolio, especially stocks, hit a rough patch, the cash bucket ensures that the retiree has enough liquid assets to use for living expenses. Bucket 2 covers another eight years’ worth of cash flow needs. It’s designed to deliver slightly more income than Bucket 1, as well as a dash of inflation protection and capital appreciation; thus, it mainly comprises high-quality short- and intermediate-term bonds. Bucket 3 is the growth engine of each of the portfolios, geared toward years 11 and beyond of retirement.
The portfolios are designed to be strategic—that is, they’re meant to be bought, held, and rebalanced—rather than tactical. I’ll make changes only when there’s a meaningful negative development in one of our holdings, or if another investment that I like better becomes available. In short, I expect to make very few changes to these portfolios over time, because many retirees don’t want to have to make frequent trades in their portfolios, either.
How to Use These Portfolio Examples
The goal of the portfolios isn’t to outperform every other retirement portfolio or strategy ever devised. Rather, the objective is to illustrate sound portfolio construction and cash flow-generation principles. Nor do retirees need to completely upend their portfolios to implement a similar bucket strategy. Assuming they have solid core building blocks—both stock and bond holdings—they have most of the raw ingredients needed for a Bucket portfolio.
Investors should take care to customize their portfolios to suit their own situations—risk tolerance and capacity, of course, but also planned spending. An investor’s own cash bucket, and in turn the allocations to the other two buckets, will depend on his or her portfolio spending rate. If an investor is using a lower starting withdrawal rate—say, 3% in the first years of retirement—Bucket 1 would accordingly be smaller (6% versus 8% in my Aggressive portfolio).
Aggressive Tax-Sheltered Retirement-Bucket Portfolio for Fidelity Investors
Anticipated Time Horizon in Retirement: 25-plus years
Risk Tolerance/Capacity: High
Target Stock/Bond/Cash Mix: 60/32/8
Bucket 1: Years 1-2
- 8%: Cash
Bucket 2: Years 3-10
- 8%: Fidelity Short-Term Bond FSHBX
- 7%: Fidelity Inflation-Protected Bond Index FIPDX
- 10%: Fidelity Total Bond FTBFX
- 7%: Fidelity Strategic Income FADMX
Bucket 3: Years 11 and Beyond
Moderate Tax-Sheltered Retirement-Bucket Portfolio for Fidelity Investors
Anticipated Time Horizon in Retirement: 15-25 years
Risk Tolerance/Capacity: Moderate
Target Stock/Bond/Cash Mix: 50/40/10
Bucket 1: Years 1-2
- 10%: Cash
Bucket 2: Years 3-10
- 10%: Fidelity Short-Term Bond FSHBX
- 10%: Fidelity Inflation-Protected Bond Index FIPDX
- 12%: Fidelity Total Bond FTBFX
- 8%: Fidelity Strategic Income FADMX
Bucket 3: Years 11 and Beyond
Conservative Tax-Sheltered Retirement-Bucket Portfolio for Fidelity Investors
Anticipated Time Horizon in Retirement: Fewer than 15 years
Risk Tolerance/Capacity: Low
Target Stock/Bond/Cash Mix: 40/48/12
Bucket 1: Years 1-2
- 12%: Cash
Bucket 2: Years 3-10
- 10%: Fidelity Short-Term Bond FSHBX
- 10%: Fidelity Inflation-Protected Bond Index FIPDX
- 20%: Fidelity Total Bond FTBFX
- 8%: Fidelity Strategic Income FADMX
Bucket 3: Years 11 and Beyond
Editor’s Note: A version of this report was previously published on April 29, 2025.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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