Tax-Sheltered Retirement-Bucket Portfolios for Vanguard Investors
Designed for retirees in tax-sheltered accounts, these portfolios blend index and active funds.
This article mentions funds that have an issuer-initiated rating and/or track a Morningstar Index. For full disclosure information, please refer to the specific funds, which are demarcated with a * symbol, listed below.
Creating in-retirement model portfolios consisting exclusively of Vanguard funds isn’t a heavy lift. Because the firm’s funds have ultralow costs and its lineup is widely diversified, the firm is a natural one-stop shop for many investors.
These model portfolios are designed for Vanguard investors who are actively drawing upon their portfolios for living expenses. They’re geared toward tax-sheltered accounts like IRAs, which means that they’re not managed for tax efficiency on an ongoing basis.
About the Portfolios
These model portfolios all use the Bucket approach to help retirees achieve a variety of aims with their retirement portfolios: protect their capital to support near-term spending needs, generate income, and grow enough to at least outrun inflation.
Bucket 1 of each portfolio is to provide cash needs (anticipated portfolio withdrawals) for the next year or two, so we’re not taking any risks with it; investors can use some combination of certificates of deposit, high-yield savings accounts, or money market mutual funds for this portion of the portfolio. 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; thus, it consists mainly of 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 consist exclusively of funds that rate as Morningstar Medalists, meaning our analysts think they’re likely to outperform their peers over a full market cycle. While Vanguard is best known for its index funds and exchange-traded funds, these portfolios feature a healthy dose of actively managed funds. However, index enthusiasts could easily mirror the portfolio’s asset-class exposures using all index funds or ETFs. I’ll make changes to the holdings only if their fundamentals change or they no longer rate as medalists.
How to Use These Portfolio Examples
Note that the goal of these portfolios isn’t to generate the best returns of any retirement portfolio on record, but rather to help retirees and pre-retirees visualize what a long-term, strategic total-return portfolio would look like. Thus, a newly retired investor could follow the basic Bucket concept without completely upending existing favorite holdings.
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 their 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 Vanguard 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%: Vanguard Short-Term Bond Index VBIRX
- 7%: Vanguard Short-Term Inflation-Protected Securities Index VTAPX
- 10%: Vanguard Total Bond Market Index VBTLX
- 7%: Vanguard Wellesley Income VWIAX
Bucket 3: Years 11 and Beyond
- 25%: Vanguard Dividend Appreciation Index VDADX
- 15%: Vanguard Total Stock Market Index
VTSAX
- 20%: Vanguard FTSE All-World ex-US Index VFWAX
Moderate Tax-Sheltered Retirement-Bucket Portfolio for Vanguard 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%: Vanguard Short-Term Bond Index VBIRX
- 10%: Vanguard Short-Term Inflation-Protected Securities Index VTAPX
- 12%: Vanguard Total Bond Market Index VBTLX
- 8%: Vanguard Wellesley Income VWIAX
Bucket 3: Years 11 and Beyond
- 25%: Vanguard Dividend Appreciation Index VDADX
- 10%: Vanguard Total Stock Market Index
VTSAX
- 15%: Vanguard FTSE All-World ex-US Index VFWAX
Conservative Tax-Sheltered Retirement-Bucket Portfolio for Vanguard 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%: Vanguard Short-Term Bond Index VBIRX
- 10%: Vanguard Short-Term Inflation-Protected Securities Index VTAPX
- 15%: Vanguard Total Bond Market Index VBTLX
- 8%: Vanguard Wellesley Income VWIAX
- 5%: Vanguard High-Yield Corporate VWEAX
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 own shares in one or more securities mentioned in this article. Find out about Morningstar’s editorial policies.
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