Retirement Income Strategy: Create Buckets

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Retirement Income Strategy: Create Buckets

One of the most popular strategies for retirement income planning is to formulate a bucket approach. A bucket approach, also sometimes called a “time segmentation strategy,” establishes different “buckets” or accounts for different spending in different time periods.Money you need in the short term would be held in cash. Money you need a long time from now could be invested in higher risk, higher return opportunities.For example,

• Near Term Monetary Needs: Two to five years of income would be in cash or cash equivalents.
• Mid Term Income: Your second bucket might have a more mixed investment allocation in things like bonds and CDs or mutual funds. These types of investments can provide some growth.
• Long Term: Bucket three can be more heavily invested in funds and stocks as the retiree won’t have to touch that bucket for at least 10 years.

“We recommend the “bucket approach,” says Kathleen Fish, founder of Fish and Associates, a financial services firm based in Memphis, Tennessee. “There, we look at all income sources and put our clients’ investments into buckets representing different risk levels.”Fish continues, “This strategy helps to keep people invested, because they can see their required income is set aside and is not impacted by the fluctuations in the stock market.”