This is a problem that has many possible solutions.

“The return on an investment portfolio is a combination of income (interest or dividends) and capital gain (the increase in the value of the investments over time).

“The disadvantage of income-producing investments is that you’re taxed on the income, and in general they offer little or no capital gain and a low return.

“Growth investments offer capital gain and higher returns over the long term. However, the disadvantage of these is volatility. Plus, to get cash you may have to sell investments at a time when their value is down.”

She says running down investment capital is another issue.

“Maybe you want to leave a sizeable inheritance, or maybe that’s not important to you.

“Many people are wary of running down capital in the early stages in case they need large sums later.”

There is a way to plan your investments so that your needs are met at each stage of retirement, she says.

Split your savings

The Three Bucket Approach to portfolio planning for your retirement could be a simple solution.

1. Divide your expected retirement into three periods; the first five years, the next 10 years beyond that, and your final years.

2. Estimate how much retirement capital you’ll have at the start, and how much you want to have left at the end, in today’s dollars.

3. Next, decide much you want to use up in each of the three periods. These are your three buckets of money.

Bucket 1: Plan to invest the first bucket (for the first five years) in term deposits or bonds and to use up both the income and capital over that period.

Bucket 2: The second bucket can be invested in a combination of income and growth assets, which will be converted to income assets only when the first bucket is used up.

Bucket 3: The third bucket, including final capital, will remain untouched for around 15 years and can be invested in growth assets.

First published 24 September, 2018

Story by Liz Koh

Liz Koh is an Authorised Financial Adviser and author. The advice given here is general and does not constitute specific advice to any person. Before relying on it, we recommend you speak with a financial adviser. A disclosure statement can be obtained free of charge by calling 0800 273 847.

JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions. This story reflects the views of the contributor only. Content comes from sources that JUNO considers accurate, but we do not guarantee that the content is accurate.