Understanding the Bucket Strategy

For people in their 50s, prudent financial planning for retirement becomes increasingly important. It is a time when financial decisions can significantly impact the quality of retirement. A ‘Bucket Strategy” approach to retirement planning segregates your investments into three buckets according to when the money will be used: immediate, intermediate, and long-term. We delve into the intricacies and benefits of this approach and offer insights on how it can be tailored to provide financial security during retirement.

Understanding the Bucket Strategy

The Bucket Strategy is a holistic approach to managing retirement assets. It emphasizes segmenting funds into distinct “buckets” based on their purpose and time horizon. Each bucket serves a specific function and is designed to address various financial needs throughout retirement. By implementing this strategy, you’ll have access to cash in the short term; your intermediate bucket investments should keep pace with inflation, and long-term bucket investments are allocated to grow your nest egg more than inflation, allowing you to refill your immediate and intermediate buckets.

Short-Term Bucket

  • Purpose: Cover immediate expenses and emergencies
  • Allocation: Consists of liquid assets, such as cash and short-term investments
  • Time Horizon: 1-3 years

Mid-Term Bucket

  • Purpose: Support medium-term goals and expenditures
  • Allocation: Comprises a balanced mix of conservative investments and fixed-income securities
  • Time Horizon: 4-10 years

Long-Term Bucket

  • Purpose: Ensure sustained income for long-term retirement needs
  • Allocation: Predominantly invested in growth-oriented assets like stocks
  • Time Horizon: 10+ years


Benefits of the Bucket Strategy

Risk Mitigation: By strategically dividing assets based on time horizon and purpose, the Bucket Strategy helps mitigate market volatility risks. Short-term needs are covered by the first bucket, reducing the necessity to liquidate long-term investments during market downturns.

Cash Flow Management: The approach facilitates efficient cash flow management, ensuring that retirees have the liquidity to meet short-term expenses while allowing long-term investments to grow undisturbed.

Adaptability: Life is unpredictable, and financial needs can change. The Bucket Strategy provides a flexible framework that can be adjusted to accommodate evolving circumstances, for situations like unexpected medical expenses or a desire to pursue a passion project in retirement.

Psychological Comfort: Knowing that the short-term bucket covers immediate expenses provides retirees with peace of mind, reducing anxiety about market fluctuations and enabling them to enjoy their retirement years confidently.

Implementation Strategies

Begin by evaluating your anticipated expenses in retirement and distinguishing between essential and discretionary spending. This analysis will help determine the appropriate allocation for each bucket. As you prepare for and enter retirement, the amounts in your investment buckets can be adjusted to accommodate withdrawals to pay living expenses. The Bucket Strategy allows you to categorize which assets you plan to liquidate while being flexible enough to work within your time horizon.

This strategy is built upon utilizing a distinct asset allocation plan for each of your buckets, reducing vulnerability to individual market fluctuations and promoting stability in your retirement investments. Diversification through broadly diversified portfolios that spread your investments across multiple asset classes is key to minimizing risk.

Work with a financial advisor to develop a customized investment strategy for each bucket. Consider your risk tolerance, time horizon, and overall financial goals when deciding on the mix of assets for each segment. Periodically review your buckets and make adjustments based on changes in your financial situation, market conditions, and retirement goals. This ongoing evaluation ensures that your strategy remains aligned with your evolving needs. 

Your Bucket Strategy: The Northern Way

At Northern Way, our GPS Retirement Method empowers clients to approach retirement with ease and assurance. We oversee five crucial areas to ensure your future stability: income and tax planning, investment planning, healthcare planning, and legacy planning. Each area plays a role in designing and implementing a personalized Bucket Strategy for you. More specifically, our GPS considers the following:

Income and Tax Planning: Determine how much you’ll need to maintain your lifestyle. Keep more of what you earned.

Investment Solutions: Understand how you feel about risk. Reduce fees and optimize returns. Envision and test your financial roadmap.

Healthcare Planning: When weighing your options, understanding the drivers and avoiding coverage gaps are important.

Legacy Planning: Determine how you want to pass on your assets, values, and beliefs to your loved ones and future generations.

Final Thoughts

Your retirement years should be filled with peace of mind, free from financial worries. Successful retirement planning requires a well-balanced approach. Utilizing a Bucket Strategy and adhering to the foundations of our GPS Retirement Method allows us to harness the power of passive investing, where we create diversified portfolios designed to mirror the broader market’s performance. By avoiding frequent and potentially costly trading, we help our clients benefit from long-term market trends and reduce unnecessary risks. Are you interested in finding out more about a personalized Bucket Strategy? Don’t leave your retirement to chance. Let us help you navigate the complex world of retirement planning with our proven investment philosophy. Contact us; we’re here to help.



Share Our post

Get Our Latest Financial Insights Straight to Your Inbox

A reliable path to a successful retirement. It’s the Northern Way.

Follow Us On Social