Why retirees "Bucket" their money

When markets get volatile, we often say to clients, “Your plan was prepared for times like these.”

 You may be asking: “What does that even mean?”

 As a financial advisor, my goal isn’t to predict what will happen. My job is to help prepare clients for what could happen.

 Because when it comes to investing in the stock market, downturns are part of the deal. They’re uncomfortable, unpredictable, and unavoidable. But they’re also the price of admission for long-term growth. 

So rather than avoiding the market drops, we aim to avoid becoming forced sellers when it does.

That’s where “The Buckets” come into play.

At its core, the “Bucket Approach” is about intentionally compartmentalizing money based on when you’ll need it.

For a retired couple, this might mean keeping several years of planned retirement income/portfolio withdrawals set aside in conservative and more stable investments.

In years when portfolio values are appreciating, a retiree can draw from a percentage of the earnings, selling shares of the growth-oriented investments to fill their bank accounts and live their lives.  In these years, they may take the trips, live comfortably, give generously, and often see their overall nest egg continuing to get bigger.

In years when the growth-oriented investments are down (dropping temporarily but sharply in value), the planned portfolio withdrawals don’t have to stop. Bills still get paid.  Life still gets lived.  Trips still get taken. Withdrawals just instead come from the bucket of stable investments, giving the growth investments time to recover.

When the overall portfolio withdrawal rate is sustainable and the buckets are used effectively, a retiree can feel prepared in both rewarding and challenging markets. 

Buckets give us flexibility, time, and options, which tend to be psychologically and mathematically powerful during periods of uncertainty.

Plan ahead. Establish buckets. Give yourself options.

Because the key to thoughtful financial planning isn’t about speculating on investments and markets—it’s about avoiding the need to.

 If you’d like to learn more about how “The Buckets” work and whether they make sense for your situation, feel free to reach out.