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.


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?

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.
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.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

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.
-
Dow Retreats From a Record High: Stock Market Today
Quietly rising since April, Home Depot stock was conspicuously constructive Tuesday as high-profile tech names dragged equity indexes down.
-
My car is 10 years old. Should I drop down to minimum coverage on my car insurance?
Reducing your car insurance to minimum coverage could save you thousands on premiums. But when is it worth the risk?
-
Don't Be a Sucker: The Truth About Guarantor and Cosigner Agreements
There are significant financial and relationship risks involved if you agree to be a cosigner or guarantor. Make sure you perform your due diligence, and know exactly what you're getting into, before agreeing to such a commitment.
-
The Hidden Risk Lurking in Most Retirement Plans: Human Behavior
What's one of the differences between a good financial adviser and a great one? The ability to use behavioral coaching to guide clients away from emotional decision-making and toward retirement success.
-
Addressing Your Clients' Emotional Side: Communication Techniques for Financial Advisers
Rather than focusing only on financial plans, you can better serve your clients — and grow your business — by learning what to say and do when a client gets anxious or emotional.
-
Seven Hidden Downsides of Dividend Investing, From a Financial Adviser
Dividend investing could be draining your wealth with unexpected costs and limited growth potential. Here are some downsides, along with smarter strategies to take control of your retirement income.
-
How to Position Your Business for a Lucrative Exit Despite Private Equity's Slowdown
As private equity firms seek strongly performing companies, crafting a narrative about your business' high-quality assets and future opportunities can make a lucrative sale possible.
-
Don't Regret Buying a Home: An Expert Guide to Navigating Today's Tough Housing Market
Whether you're a first-time buyer, want to upsize/downsize or move closer to work or family, it's critical to stay within your budget and have an emergency fund.
-
1031 Exchanges Aren't Just for Big Real Estate Deals: An Expert's Playbook for Regular Property Owners
One of the biggest mistakes property owners make is not realizing they're eligible for tax deferral through a Section 1031 like-kind exchange.
-
Timing Your Retirement: A Financial Professional's Guide on When to Say When
First, ask yourself what kind of retirement you want: big and splashy or simple and sweet. Then you can run the numbers to help choose just the right moment.