Retirement isn’t a single event—it’s a journey that unfolds over time, with evolving needs, goals, and market conditions. That’s where bucketing, a time-segmented investment strategy, becomes invaluable.
By dividing your assets into distinct “buckets” based on time horizon and purpose, you can align investments, withdrawals, and risk in a way that brings clarity, confidence, and control.
Last week, we explored two retirees, Bob and Alice, who had identical investor profiles, but opposite market returns. Bob ran into a retirement risk, called the sequence of returns risk, and found himself with an empty investment account after only 13 years.
As promised, this week’s article on how to develop stable income streams for retirement follows up on their story and will discuss ways to prevent finding yourself in that same predicament.
We have a lot to cover today, including why bucketing matters, how it works, practical examples of bucketing, and tips for successful outcomes. Let’s get started.
Why Bucketing Matters
Our family just returned from a trip to Greece, and it reminded me how essential it is to have a plan. We wouldn’t have dared explore a new country without an itinerary or GPS—it would’ve meant aimless wandering.
Retirement works the same way.
Without a well-defined strategy and tools to guide you, you risk drifting financially.
A bucketing approach offers several key benefits:
- Mitigates sequence risk early in retirement
- Aligns investments with time horizons for both growth and safety
- Simplifies cash flow planning and reduces anxiety
- Builds flexibility to adapt as your needs evolve
By structuring your portfolio into three core buckets—Income Now, Income Next, and Income Later—you create a clear financial roadmap that balances liquidity, stability, and growth.
How Bucketing Works
At its core, bucketing assigns different portions of your portfolio to specific timeframes and financial goals:
- Income Now – Short-Term Bucket (0–5 years)
- Objective: Provide immediate income
- Instruments: Cash, money markets, and short-term bonds
- Benefit: Protects your income from market volatility when you need it most
- Income Next – Medium-Term Bucket (6–10 years)
- Objective: Preserve and grow purchasing power with moderate risk
- Instruments: Investment grade bonds and a balanced allocation
- Benefit: Offers higher return potential than cash with manageable volatility
- Income Later – Long-Term Bucket (10+ years)
- Objective: Support future income goals and guard against inflation
- Instruments: Equities and growth-oriented allocation
- Benefit: Harnesses long-term market growth potential
- Income Now (Years 1–5): $240,000 in conservative investments to meet immediate needs
- Income Next (Years 6–10): $230,000 in a moderately conservative portfolio for mid-term income
- Income Later (Years 11+): $530,000 in a moderately aggressive portfolio for long-term growth
- Be realistic about spending: Underestimating expenses can leave your buckets short.
- Stay disciplined: Avoid tapping long-term assets for short-term needs unless absolutely necessary.
- Factor in taxes: Understand the tax implications when moving money between buckets.
- Build in flexibility: Account for potential surprises like healthcare expenses or market dips.
- Consult a professional: A financial advisor can help tailor the strategy to your needs, including optimal bucket sizing, investment selection, and replenishment rules.
Each bucket is initially funded based on your retirement savings and periodically replenished from the growth of the longer-term buckets as your needs evolve.
Practical Example: The Three-Bucket Model
Let’s revisit Bob and Alice from last week’s article. They’re retiring with $1 million and want to implement the bucketing strategy:
Years 1–5: Bob and Alice draw $50,000 annually from Income Now Bucket, ensuring market downturns don’t disrupt their lifestyle.
Year 6: As the Income Now Bucket nears depletion, funds from Income Next Bucket are transferred to replenish it. Meanwhile, the Income Later Bucket continues to grow, preparing to support income starting in Year 11.
Ongoing: They review their plan annually, rebalance as needed, and make sure their short-term income needs remain covered—offering both peace of mind and the potential for growth.
5 Tips for Bucketing Success
When it comes to bucketing, there are things you can do that can help foster successful outcomes. Here are five tips for mindsets and strategies for success.
Your Next Steps
Bucketing isn’t a one-time fix—it’s a dynamic strategy that evolves alongside your life and the markets. If you’re curious how a customized time-segmented approach can help you retire with confidence, we’re here to help.
Contact us to schedule a complimentary review of your income plan and discover the peace of mind that comes from having the right assets in the right buckets.
