Retiring soon? A three-bucket strategy may be just the ticket for your bucket list.
Subscribe to enjoy similar stories. Retirees or those close to retirement face the challenge of managing their savings throughout their lifetime. At this stage they no longer have the luxury of building up their savings and instead need to withdraw from their corpus.
They cannot afford substantial erosion of their corpus as it must cover their expenses. On the other hand, keeping a large portion of their savings in cash or cash equivalents may limit its longevity. Here, a well-thought-out bucket strategy—segmenting retirement savings into multiple buckets designed for specific time periods and risk levels—can provide growth potential and stability during retirement.
In the bucket strategy, retirees' assets are divided into three main buckets: short-term, medium-term and long-term. Each bucket has its own purpose, time horizon, and risk level. This is the most conservative bucket, covering immediate and unforeseen expenses in the first two to three years of retirement.
Assets in this bucket are kept in cash or cash equivalents, such as savings accounts, money market funds or short-term bonds. These low-risk investments provide high liquidity, ensuring that retirees have quick access to funds when needed. The second bucket covers medium-term expenses and carries a slightly higher level of risk.
It usually includes bonds, bond funds or balanced funds. While these investments are less liquid than cash, they are relatively safe and can offer higher returns than short-term assets, helping retirees keep up with inflation. The goal of this bucket is to provide income once the first bucket is depleted and, if possible, to help replenish it.
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