Diversify Investment
Three-bucket strategy approach builds on the core principles of diversification, asset allocation, and risk management, tailoring the method specifically for retirement income planning. The goal is to strike a balance between liquidity, stability, and growth over the course of retirement while ensuring that you have access to funds when you need them, protection against market volatility, and long-term portfolio longevity.
Three-bucket strategy isn’t about market timing or trying to predict which assets will outperform. Rather it’s about disciplined asset allocation and structured withdrawals. Rebalancing annually or as needed by moving gains from buckets two and three into bucket one to replenish spending reserves. This method supports a systematic withdrawal plan, helps avoid emotional reactions to market turbulence, and increases the likelihood that your retirement savings will last.
The three-bucket strategy is designed to provide consistent income, manage risk, and ensure long-term sustainability of retirement assets. By aligning each bucket with a specific time horizon and purpose, you build a flexible, resilient plan that adapts to both your financial needs and market conditions.
First Bucket: Short-Term Reserves (0–3 years)
Allocation: ~10%–20% of total portfolio
The first bucket is the most conservative, holding cash or very short-term investments like money market funds or short-term bonds. This bucket covers immediate living expenses for the next 1–3 years, ensuring you don’t have to sell riskier investments during a market downturn. This bucket acts as your financial safety net. It gives you immediate access to cash for daily needs, prevents you from having to sell investments during market downturns, and provides emotional peace of mind during periods of volatility.
Second Bucket: Intermediate-Term Income (3–10 years)
Allocation: ~30%–40% of total portfolio
The second bucket contains moderately conservative investments. It’s designed to replenish the first bucket and cover expenses in the 3–10 year range, offering more growth potential with manageable risk. It focuses on income-generating investments with moderate risk, such as intermediate-term bond funds, dividend-paying stocks, and conservative balanced funds. These assets provide a reliable source of income while also replenishing the first bucket over time. This portion of your portfolio should be resilient enough to weather short-term market swings while generating enough growth to maintain your lifestyle over the mid-term horizon.
Third Bucket: Long-Term Growth (10+ years)
Allocation: ~40%–60% of total portfolio
The third bucket is the long-term growth bucket, filled with higher-risk, higher-reward investments like stocks, real estate, or other growth-oriented assets. This bucket is meant to grow over 10 or more years and combat inflation. By using this layered approach, you create a stable income stream in the short term, manage risk in the medium term, and allow for long-term growth which ultimately protecting your portfolio from market volatility while meeting both present and future financial needs.