From 'buckets' to 'paychecks,' advisors explain portfolio tacks

Retirement portfolio strategies come in all shapes and sizes. They can be "lumpy," have buckets or look like a paycheck. Presenting the information in a client-friendly format can be a challenge for financial advisors. Here's a look at some of the more common strategies advisors employ, and how select financial planners explain them to clients.

"Buckets." "The 'buckets' approach takes a time-line approach to investing, in concert with the normal asset-allocation/diversification process already familiar to investors," said Ellen R. Siegel, a certified financial planner and president of Ellen R. Siegel & Associates.

Each bucket has a different time horizon, hold strategy and growth-rate expectation.

Bucket No. 1 holds cash, cash equivalents and very short-term instruments for approximately two to five years, depending on the client's needs, other assets and risk tolerance.

"The idea is not to let this bucket be at risk of market volatility," Siegel said. "It will fund the monthly living expenses or upcoming lump-sum needs (college, new car, down payment, etc.) on an ongoing basis." These funds might be held, for example, in annuities.

Read MoreGoals-based investing a means to an end

Bucket No. 2 holds fixed-income assets such as bonds, income-producing real estate investment trusts, blue chips and absolute return funds, according to Siegel, with a time horizon of five to seven years. Income can be reinvested or transferred to bucket No. 1. An intermediate growth rate, such as 4 percent, is assigned.

Bucket No. 3 holds equities and long-term assets, with the aim of achieving a higher growth rate, such as 6 percent. This bucket is managed for growth and harvested for replenishing the other two buckets.

The 4 percent rule. Yes or no? One well-known rule of thumb for retirement funds draw-down has been the so-called 4 percent rule, which suggests a linear annual withdrawal rate of 4 percent. It has some disadvantages.

For one thing, the concept can be a bit confusing to clients.

"I bear in mind the 4 percent rule, but don't use that in conversation most of the time," said Siegel. "Clients think I mean a 4 percent return, and we get sidetracked."

Some advisors use the 4 percent rule as a beginning point.

"We use a safe withdrawal-rate calculation that starts at 4 percent and is customized for every retiree," said Elizabeth Revenko, a CFP and senior financial planner with Mosaic Financial Partners.

For her part, Michele Clark, founder of Clark Hourly Financial Planning and Investment Management, said "the 4 percent rule does not work in a protracted low fixed-income-rate environment."

"Also, the original research was based on a 30-year time frame, and people are living longer and/or retiring earlier and need their portfolio to last longer," she added.

Clark sees two problems with the 4 percent rule. "It encourages people to take too much out each year, and it assumes people take the same amount out of their portfolio each year to spend, also called 'smooth consumption,'" she said.

"Lumpy" approach. Clark said that in her experience, people spend a portion of their portfolio "smoothly," such as for living expenses, but also in "clumps," for one-time expenses such as a vacation, new car, wedding or home-improvement project. This is also called "lumpy" consumption.

Read MoreMost Americans stressed over money

"When I create the cash-flow reports that show the income and expenses throughout retirement, those 'lumpy expenses' can be more than the basic living expenses some years, depending on what they are planning on doing," she said.

Instead of a projection sheet of "smooth" withdrawals, Clark provides a detailed chart that shows the funding for clients' "lumpy expenses" for every given year, along with the resulting end-of-year portfolio balance.

"Clients don't care about percentages," she said. "They just want to have their questions answered."

"Paychecks." Some advisors simplify this concept even further for clients.

"Retirees can feel more secure and in control when they continue getting a 'paycheck,'" said Revenko of Mosaic Financial Partners. "Only now, it's from their own resources."

Read MoreNever too late or early to plan retirement

She provides clients with a streamlined annual cash-flow statement that basically shows clients' annual earnings, expenses (recurring, taxes, health-related and other), portfolio withdrawals (the "paycheck") and resulting portfolio balance.

The composition of the "paycheck" stabilizes around age 71, Revenko said, at which point required minimum distributions have begun and Social Security strategies are in place.

"This approach allows people to feel more in charge of their own spending and less like they need to come to their advisor to ask for money," she said.

—By Deborah Nason, special to CNBC.com