Retiring in Uncertain Times? Try the Bucket Strategy!

For retirement savers who want to help make sure their money lasts as long as they do, this very basic planning method is an oldie but a goodie.

An illustration shows a large rock precariously balanced atop a small one, looming over a person standing underneath.
(Image credit: Getty Images)

I've often heard an old saying that states, "Today is what it is because yesterday is what it was, so tomorrow will be what we make of today." I believe this statement sums up retirement in the truest sense.

Whether it is 30 years away or five, retirement is coming. How you prepare today makes all the difference tomorrow.

According to the CDC, the average life expectancy for men is 75. Women, on the other hand, can anticipate making it to the age of 80. Meanwhile, the Social Security Administration allows retirees to claim benefits at 62 but doesn’t recognize full retirement until age 67 for those born in 1960 and later. Regardless of your retirement age, making your money last through retirement is essential. So what can you do to ensure that happens?

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

With inflation on the rise, the thought of imminent retirement can be a scary thing. Of course, if you still have 15 to 20 years until retirement, this may not affect you as much. However, for those of you planning to retire in the next five to 10 years, you're probably wondering how you can protect what you have saved from inflation and market volatility. Fortunately, there's a strategy that could help make your nest egg outlive you as you enter retirement.

It's called the bucket strategy. It divides the allocation of money into three different holding areas, or "buckets" – immediate, intermediate and long-term. Let's look at how to utilize each of these buckets.

1. The Immediate Bucket

The Immediate Bucket is where you'll place the money you need access to now. Ideally, you want to hold enough cash aside in this account to cover your expenses for about two years. For example, let's say you need $50,000 per year to provide for your needs. That means you would take $100,000 out of your portfolio to cover your immediate needs.

You could hold this money in a couple of different accounts, like a high-yield savings account or a money market account. We are not worried about earning a high interest rate or return in this bucket, as the money is merely for safekeeping. However, you need quick access to the money, as you need it, to cover your living expenses during those first years.

2. The Intermediate Bucket

With the second bucket, you're looking a little further into the future. The Intermediate Bucket is primarily designed to cover your expenses for years two through 10 of your retirement. Because of this, you do want the funds in this bucket to grow enough to carry you through those years. However, you don't want to invest this money in something with a high risk or volatility. Instead, you want to keep it in a low-to-moderate risk category that offers a reasonable return on your money. That way, from years two through 10, you should have the income you'll need to live on.

Typically, people invest these intermediate funds in something like bonds or CDs. Some are even investing this portion of their savings in preferred stock or real estate. However, this is absolutely an area I'd involve an investment professional. They will be able to help discern the best plan for your unique situation.

3. The Long-Term Bucket

Finally, we've reached the Long-Term Bucket. With this bucket, you want to see as much growth as possible. If you follow the plan, you won't be touching these funds for at least a decade (thanks to your Intermediate Bucket, which has you covered during those years). Therefore, the funds you've allocated to this bucket have one goal — to outpace inflation.

You will want to invest this money more aggressively because you're trying to make your nest egg outlast you. This is where stocks, real estate investment trusts, annuities, etc., will come into play. They naturally provide the most growth potential, and that is exactly what you want when you aren't touching this money.

Once again, you should work closely with your financial adviser on this strategy. They should be able to provide you with the guidance to make the bucket strategy fit within your goals.

Why This Strategy is Vital

This strategy isn't a guarantee in any way. Anytime you're investing, risk is involved. However, it could soften the blow if a crash were to happen. Diversifying your portfolio assets helps protect you from having to sell a long-term investment in the short term, taking a loss. That's the last thing you want to happen as you're entering retirement. You want to have money, not lose it.

Similarly, this can provide a safety net of sorts. If the market drops, you'll have the money you need for your living expenses safely tucked away for the next 24 months. In the same way, you're covered for the next 10 years, while your other investments have time to recover. As a result, equity positions that may take you on a roller coaster ride won't cause you to panic and jump out of the market, locking you into long-term losses. Making your life's savings last a lifetime is possible when adequately allocated.

If you're approaching retirement and you're concerned about how today's market might impact your retirement savings, consult your financial adviser. You may find the bucket strategy is a viable option, or they might even have a better plan for your situation. Either way, being proactive in uncertain times can help ensure you're still on the best path to meet your retirement goals.


Certified Financial Planner Board of Standards Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Justin Goodbread, CFP®, CEPA, CVGA
President, WealthSource Partners

Justin A. Goodbread is a CERTIFIED FINANCIAL PLANNER™ practitioner and an adviser with WealthSource® Knoxville. After years of working in a large firm, he ventured out on his own in 2009, starting Heritage Investors, and eventually joining WealthSource® Partners LLC in 2022. As a serial small-business owner, Goodbread has bought and sold multiple businesses. He uses this experience, along with his continuing education, to help business owners grow and sell what is often their largest asset.