Is a Retirement Bucket Strategy Right for You?

A bucketing strategy can help you visualize how you’ll spend money in retirement. Ideally, this approach enables you to avoid selling stocks when they’re down, which might improve your chances of success.

Whether you use a 3-bucket strategy, two buckets, or any other method, the idea is to hold cash that can help you weather market crashes. The rest of your money gets invested for growth or income.

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With a 2-bucket approach, you simply have a cash reserve and an investment portfolio. Cash might cover one to three years (or any other period) of withdrawals. But if markets are rising, it might make sense to just spend from the investment portfolio and take profits off the table. Meanwhile, you keep that cash for more difficult times.

A 3-bucket retirement strategy adds an income bucket. The holdings might have moderate risk, and the idea is to have “less volatile” assets that can extend your safety cushion.

At some point, you need to manage your buckets. Shifting assets from one to the other can raise questions, and this strategy might prove to be more complicated than necessary. With two buckets, it’s pretty straightforward, but things get complicated as you add more.

It’s also important to remember that bucketing can mean you have a substantial amount in cash. That’s not necessarily a bad thing, especially when markets fall. But over long periods, that cash could lose purchasing power due to inflation.

Still, it’s nice to know how this strategy works. Whether you use it or not, you should get some ideas on how to manage your retirement withdrawals. Remember that the main goal is to reduce the chances of running out of money in retirement.

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More on this topic:
Morningstar’s Christine Benz talks bucketing: https://www.youtube.com/watch?v=sLA-gOakAoA
More from Morningstar: https://www.morningstar.com/articles/840177/the-bucket-approach-to-building-a-retirement-portfolio
Read the article here: https://www.approachfp.com/retirement-bucket-strategy/

CHAPTERS:
00:00 A Potential Solution to Challenges
01:40 Time Segmentation
02:34 Two-Bucket Strategy
03:11 Be Flexible (But Plan Ahead)
05:12 Three-Bucket Example
06:35 Bucket Management Over Time
09:44 How to Set Up Your Buckets
10:44 Challenges of Bucketing
11:46 Alternatives to a Bucket Strategy

Justin Pritchard, CFP® is a fee-only fiduciary advisor who can work with clients in Colorado and most other states.

IMPORTANT:
You can run out of money with this or any other strategy. It's impossible to cover everything you need to know in a video like this. The only thing that's certain is that you need more information than this. Always consult with a CPA before making decisions or filing a tax return. This is general information and entertainment, and is not created with any knowledge of your circumstances. As a result, you need to speak with your own tax, legal, and financial professional who is familiar with your details. This video is not a substitute for individualized, personal advice. Please verify with your plan administrator when employer plans are involved. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Investments are not bank guaranteed and may lose money. Opinions expressed are as of the date of the recording and are subject to change. “Likes” should not be considered a positive reflection of the investment advisory services offered by Approach Financial, Inc. The Comments section contains opinions that are not the opinions of Approach Financial, Inc., and you should view all comments with skepticism. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.