Retirement planning: What is the 3 bucket strategy? MintGenie explains

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You worked hard during your working years to create a retirement corpus. Now, it is time to deploy the retirement corpus smartly so that you can enjoy the golden years without any financial worries. In this article, we will understand what the 3-bucket strategy for retirement is and how to go about it.

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The 3-bucket strategy involves appropriating your retirement corpus into three separate investment buckets to cater to your cash flow needs during different periods of the retirement years. Each bucket is based on a specific time horizon and serves a specific purpose. The strategy ensures you keep getting regular cash flows for your monthly expenses while your corpus remains invested in the three buckets.

The bucket strategy was suggested first in the 1980s by Harold Evensky, a US financial advisor. The three buckets include the following:

The liquidity bucket focuses on your cash flow needs in the immediate and short-term, spanning the next 2 to 3 years. It includes your emergency fund, regular monthly expenses, healthcare expenses, etc. The focus here is on liquidity and not on returns. The liquidity bucket is also known as the short-term bucket.

The liquidity bucket money may be maintained in a savings account, a debt fund like a liquid fund, short-term fixed deposits and bonds, etc. If you are getting any monthly pension or other regular income, you may include it in this bucket. The regular income may include dividend from equities and mutual funds, rent from real estate, interest from fixed-income instruments, distributions from REITs and InvITs, etc.

Also Read: How to plan your retirement corpus and charity fund?

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