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Understanding the Retirement Bucket Strategy

Retirement is a significant milestone in one’s life, which requires careful planning and foresight to ensure a comfortable and stress-free transition. One effective way to plan for retirement is by adopting the Retirement Bucket Strategy. This investment approach segregates your sources of income into three buckets: immediate (short-term), intermediate, and long-term.

Each of these buckets has a defined purpose based on when the money is needed, enabling you to better optimize your investments and minimize financial risk. Here are the fundamentals of the Retirement Bucket Strategy and how to implement it for a secure and prosperous retirement.

The Three-Bucket Approach

The Immediate (Short-term) Bucket. The primary purpose of the immediate bucket is to provide liquidity and cover your daily expenses and emergency needs during the initial years of retirement. This bucket should hold assets that can be easily converted into cash, such as savings accounts, money market funds, or short-term certificates of deposit (CDs).

Typically, this bucket should cover around two to five years of living expenses. By having a cash reserve, you can avoid the need to sell long-term investments during market downturns, preserving your portfolio’s growth potential.

The Intermediate Bucket. The intermediate bucket is designed to provide income and growth for the next five to fifteen years of your retirement. This bucket should be composed of more conservative investments, such as bonds or dividend-paying stocks, which offer a balance of income and potential capital appreciation.

The assets in this bucket should be less volatile than those in the long-term bucket but provide higher returns than the short-term bucket. This strategy allows you to maintain a comfortable lifestyle while keeping up with inflation and preserving your wealth.

The Long-term Bucket. The long-term bucket is meant to generate growth and income for the later years of your retirement, generally fifteen years or more from the start. This bucket should hold more aggressive investments, such as stocks, mutual funds, or exchange-traded funds (ETFs), which have higher growth potential but also come with increased volatility.

By allocating a portion of your portfolio to these growth-oriented investments, you can counteract the effects of inflation and ensure that your retirement savings last throughout your lifetime.

Implementing the Bucket Strategy

To effectively implement the Retirement Bucket Strategy, follow these steps:

Determine your annual expenses: Calculate your estimated annual expenses during retirement, including housing, healthcare, food, insurance, and leisure activities. This will help you understand how much money you need to allocate to each bucket.

Allocate your assets: Based on your estimated expenses, allocate your assets across the three buckets. Aim for a well-diversified portfolio that aligns with your risk tolerance and financial goals.

Rebalance your buckets: As you progress through retirement, it’s crucial to periodically rebalance your buckets. Move funds from the long-term bucket to the intermediate bucket, and from the intermediate bucket to the immediate bucket as needed. This ensures that your asset allocation remains aligned with your time horizon and changing financial needs.

Adjust for inflation: Regularly review your expenses and adjust your buckets to account for inflation. This will help you maintain your purchasing power and ensure that you can continue to live comfortably throughout retirement.

Your Financial Advisor

The Retirement Bucket Strategy is a practical and effective approach to managing your retirement finances. By segregating your sources of income into immediate, intermediate, and long-term buckets, you can optimize your investments, minimize financial risk, and ensure a secure and comfortable retirement.

As with any investment strategy, it’s essential to consult with a financial advisor to ensure that your unique financial goals and risk tolerance are taken into account.

Being proactive in retirement is one of the many ways to help set yourself up for success now and into the future.

Our team understands the importance of partnering with families to be a financial ally. One who is able to help you put all the pieces of your financial puzzle together from where you’re at right now to beyond and into your legacy.

If you’ve found yourself losing sleep over your approaching retirement, there’s still hope. 

We work with affluent clients who are about five years or less from retirement. We’ve developed and refined an approach that helps our clients put all the pieces of the financial puzzle together to ensure they are prepared. We call it The PEAK FORMula™.

We’re happy to talk you through your concerns, answer any questions, and give you peace of mind when it comes to what’s next on your retirement journey. You can reply back to this email, or you can give our office a call.