A Retirement Strategy for Nervous Investors

LOMBARD, Ill. (TheStreet) -- Investors nearing retirement live in constant fear of another market collapse, despite last year's rally. To calm your nerves, consider the rock-solid portfolio strategy developed by Norbert Mindel, author of Wealth Management in the New Economy (Wiley, John & Sons 2010).

As a financial adviser in Lombard, Ill., Mindel's aim is to generate reliable income for retirement while soothing clients. All too often investors panic at market bottoms and dump stocks at the worst time, he says. That happened last year, when many investors shifted to cash and missed the market's rebound.

Mindel recommends that retirees divide their assets among three buckets. The first bucket holds cash for living expenses, and the other buckets are for long-term investments. Say the retiree has $2 million and wants to spend 4% annually, or $80,000. The first bucket would have $240,000 invested in money market funds and certificates of deposit, enough cash to cover three years of living expenses.

When the first bucket begins to run low, the cash can be replenished from the second bucket. That bucket would hold $500,000, with 80% in investment-grade bonds and the rest in diversified stock funds. The third bucket would have about $1 million, with 60% in stocks and the rest in bonds.

Say the stocks in the third bucket drop more than 40% as they did during the recent downturn. The retiree would still have enough assets in the first two buckets to last 10 years.

"The goal is to create a situation where the retiree doesn't have to worry about what stocks will do this year or a few years down the road," Mindel says.