How 3 Buckets Could Help Your Retirement Income Planning

How 3 Buckets Could Help Your Retirement Income Planning

The bucket strategy has become more popular in recent years for creating a stream of income in retirement. Is it right for your retirement income planning?

This strategy divides your assets among multiple portfolios, or buckets, approximately one to three years before retirement. Each bucket has a different time horizon, asset allocation, objectives, and risks attached to it. The main idea is to more effectively manage these major risks to your retirement income:

Longevity risk: You could outlive your savings.

Inflation risk: Your expenses could outgrow your savings.

Market risk: You could experience a down market.

Most likely, your three buckets would be set up based on the approximate cash inflows and outflows you need to support your lifestyle in your retirement.


Bucket 1

The goal: Address short-term needs like immediate income and cash for essential expenses and emergencies.

Investments may include: Short-term bond funds, cash, money market funds, and CDs


Bucket 2

The goal: Allow for riskier holdings that can address intermediate needs, with more time to wait out market swings.

Investments may include: Bond funds, laddered bond portfolios, dividend-paying stocks, and deferred annuities


Bucket 3

The goal: Further your estate planning objectives and help alleviate timing risk, inflation risk, and liquidity risk.

Investments may include: Equities, deferred annuities, real estate, alternative investments, and individual bonds and bond funds

These buckets can be managed in a couple of ways:

Use up each bucket in order. You would withdraw income and principal from the first bucket in the years assigned to it. Then, you’d move on to the second bucket, do the same thing, and then go on to the third.

Continually refill the first bucket with money from the other two so that it exists during your entire retirement.


As you approach your retirement years, understanding how to continue living your desired lifestyle after you stop working will become increasingly important. Linking asset buckets to specific time horizons and income goals, and investing them in the appropriate vehicles, is just one strategy for managing your retirement income.


These models are for illustrative use only. You should meet with an advisor to discuss your personal risk tolerance and suitable recommendations. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors. Investment strategies do not assure a profit or protect against loss in declining markets. No program can guarantee that any objective or goal will be achieved.

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