A retirement bucket strategy divides assets into separate accounts for immediate cash flow needs, short-term savings and long-term planning.
This type of income strategy may help mitigate market risks and the stress of relying on accumulated wealth for retirement.
Diversifying and prioritizing different income streams and investments can help stabilize your cash flow while protecting money in accounts earmarked for future goals.
After decades of working and accumulating wealth, it can feel strange to have to rely on that money to fund your retirement. According to a 2023 Gallup poll, 66% of Americans worry about not having enough money for retirement—the biggest financial stressor.
That’s why a smart cash flow strategy for your post-working years is key. A popular option is the retirement bucket strategy, a withdrawal method that prioritizes spending based on where you are in retirement. One of the benefits of this kind of strategy is that it can help mitigate the risks of market downturns.
The retirement bucket strategy involves dividing your assets into separate buckets that will fund your lifestyle at different points in retirement. How these buckets are defined vary from person to person but will generally encompass three asset accounts:
With the retirement bucket strategy, you can better weather market downturns since your money is spread across multiple investment accounts with varying degrees of risk and liquidity.
Having a framework for understanding and prioritizing spending in retirement can help mitigate some of the psychological stress that you may feel once you leave the workforce and a regular paycheck behind.
The number of buckets, what they’re called and the period each covers can be tailored to fit your needs, but some of the most common segments include:
An effective plan for cash flow in retirement uses and prioritizes multiple income streams and investments. This portfolio diversification enables you to meet near-term income needs, maintain adequate cash reserves for emergencies and resist early withdrawals from retirement accounts.
Here’s the order in which you might want to implement these income streams to fund retirement:
Throughout your career, you’ve worked hard to save and accumulate a retirement nest egg. To make a lifetime of saving work for you in retirement, it’s important to put a plan in place to generate income that will allow you to live the lifestyle you want, while also safeguarding against the unpredictability of the market, changing tax laws and longer life expectancies. Implementing a retirement bucket strategy is one way to do just that.
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