Bucket Strategy
A retirement income approach dividing savings into time-based segments for near-term, medium-term, and long-term needs.
What is Bucket Strategy?
The bucket strategy (also called the time-segmentation strategy) is a retirement income planning approach that divides savings into separate 'buckets' based on the time horizon of each expenditure need. The classic three-bucket model uses: Bucket 1 — cash and cash equivalents covering 1–2 years of living expenses for immediate income needs; Bucket 2 — bonds and conservative investments covering years 3–10, generating income to refill Bucket 1 as it depletes; Bucket 3 — growth investments (equities, real estate) for long-term needs beyond 10 years. The strategy addresses sequence-of-returns risk by ensuring near-term spending needs are met from stable assets, allowing long-term buckets to recover from market downturns without forced selling.
Example
A retiree with $1.5 million in savings structures three buckets: $100,000 in a high-yield savings account (Bucket 1 — two years of $50,000 annual spending), $400,000 in a bond ladder (Bucket 2 — years 3–10), and $1,000,000 in a diversified equity index fund (Bucket 3 — beyond 10 years). When the stock market falls 30%, the retiree draws from Bucket 1 and waits for Bucket 3 to recover before refilling — avoiding the permanent losses of selling equities at depressed prices.
Source: Investopedia — Bucket Strategy