If you’ve successfully saved enough for retirement, congratulations! However, having a solid financial foundation is just part of the equation. Once you retire, managing your assets becomes crucial. You’ll need to balance risk, meet your living expenses, and make sure your portfolio grows in the long term. One of the most effective strategies to achieve these goals is the “bucketing” method, which organizes your assets into separate “buckets” based on when you’ll need them.

Navigating Market Risks in Retirement

While market fluctuations are inevitable, the challenges they present are more pronounced in retirement. When you’re still working, you have time to ride out downturns and recover from losses. But for retirees, drawing funds from a portfolio during a market decline can be detrimental. This is because selling investments at a loss can shrink your asset base, making it harder to recover and secure future growth. A bucketing strategy can help you avoid these pitfalls.

How Bucketing Can Protect Your Retirement

The bucketing strategy—also known as time segmentation—helps mitigate the risks of market volatility by separating your retirement assets into short-term, mid-term, and long-term buckets, each with distinct purposes. This structure is designed to ensure safe withdrawals and steady growth over time.

Short-Term Bucket

The short-term bucket is designed for immediate needs and emergencies. This bucket should hold enough stable, liquid assets to cover at least three years of living expenses. Assets in this bucket might include cash, high-yield savings accounts, or low-risk investments like short-term CDs or Treasury bills. The goal is to have readily accessible funds that won’t be impacted by market fluctuations, ensuring that you can cover your living expenses regardless of what’s happening in the stock market.

Mid-Term Bucket

The mid-term bucket covers the period between your immediate needs and long-term growth. It typically contains assets that aren’t needed right away but are still relatively low-risk. These might include government bonds, corporate bonds, income-generating stocks, or short-to-intermediate-term bond funds. The mid-term bucket is meant to balance stability with modest growth, providing a buffer for your short-term needs while still aiming for some appreciation in value.

Long-Term Bucket

The long-term bucket is intended for assets that you won’t need to access for several years. These might include growth-focused investments like stocks, mutual funds, ETFs, or real estate investment trusts (REITs). This bucket serves the purpose of long-term growth and is designed to outpace inflation, helping your portfolio last throughout retirement. The assets in this bucket can take on more risk, as they have time to recover from market downturns.

Peace of Mind Through Diversification

By keeping riskier assets in the long-term bucket, you allow these investments the time they need to recover from any market dips. Meanwhile, the short- and mid-term buckets will ensure you have the necessary funds to meet your expenses without the pressure to sell long-term investments prematurely. This separation gives you the confidence to ride out market volatility without jeopardizing your financial stability.

Refilling Your Buckets

As you begin to spend from your short-term bucket, it will eventually need to be replenished. One approach is to use income generated from bonds or dividend-paying stocks in the mid-term bucket. These funds can help refill the short-term bucket, and then the mid-term bucket can be rebalanced using assets from the long-term bucket. This process might not always work perfectly, but regularly selling portions of the long-term bucket as it appreciates can help ensure that the short-term bucket remains adequately funded.

Regular Monitoring is Essential

The bucketing strategy isn’t a “set it and forget it” approach. Even after your buckets are established, they must be regularly reviewed and rebalanced. This ensures each bucket continues to align with your goals and risk tolerance. Market changes can cause some assets to grow faster than others, leading to an imbalance in your portfolio. By rebalancing, you maintain the correct asset allocation and ensure that your funds are working as efficiently as possible to meet your needs.

How Your Wealth Advisor Can Assist

Planning for a successful retirement requires careful thought and strategy. A bucketing approach offers a practical way to manage your retirement assets and ensure they are structured to meet both short-term and long-term goals. Your wealth advisor can help you design a retirement strategy that utilizes this bucketing method, allowing you to enjoy your retirement years with peace of mind and financial security.