Retirement Income Planning and the Bucket Strategy

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When you get ready to leave the workplace, retirement income planning will help you make the jump from your career to retirement.

While working, you’re financially dependent on your paycheck to provide income to pay expenses, go on vacations, and invest for your future.

The goal of retirement income planning is to move from financial dependence to financial independence by turning your assets into an income stream. Most commonly, this income is created through a combination of Social Security, pensions, annuities, real estate, and investments that you have meticulously accrued during your career.

Using Three Buckets to Create Your Retirement Plan

During your working years, your primary goal with your investments is to accumulate and grow your money.

As you prepare to retire and move from paycheck income to retirement income, a new type of investment process is needed. This process not only considers how you invest your assets during retirement but also how you turn these assets into regular cash flow.

We suggest using a three-bucket retirement planning technique as you plan for retirement, and then all the way through your retirement years. The three-bucket strategy starts by separating your investment assets in three different buckets according to the time you’ll most likely need them: short-term, mid-term, and long-term.  

This retirement income planning and investment process can have many of the following benefits:

  • Protection against market volatility – Assets that are needed for immediate cash flow needs are invested most conservatively, likely protecting them from volatile markets, news, and turmoil.
  • Accurately predicting cash flow needs – One of the primary concerns of retirees is running out of money. The bucket approach attempts to balance the risk of withdrawing too much now and then running out of money later against living off too little money and having an undesirable lifestyle.
  • Creating plan flexibility – Once you implement an income plan, it is best to review it every six months with a financial professional. Income and investment adjustments can then be made based on personal circumstances and market performance. Ongoing adjustments ensure that your income plan adapts to your specific needs.
  • Reduce the risk of investing too aggressively – As families retire, some take too much risk in the years right before and throughout retirement. The bucket strategy allows investors to still allocate growth money during retirement, but also protect immediate or short-term income money. This can allow families to pass the “pillow test”, meaning they can sleep at night in volatile or fearful markets.
  • Reduce the risk of investing too conservatively – Some investors move much or even all of their assets to extremely conservative investments when they retire. While this may preserve assets, investors give up the opportunity to grow those assets. Using the Rule of 72, we know that assets that grow at 7% will double in about ten years. Assets investment at 0% or 1% will essentially experience very little growth after a decade. Retirees that implement the bucket strategy can balance a conservative and growth approach to investing and income planning.
  • Advanced tax strategies – While most Americans are willing to pay their fair share of taxes, few are willing to make extra “donations” to the government tax cause. The three-bucket strategy allows for tax planning that may reduce retirement taxes.
  • Greater confidence during retirement – Confidence is essential to sticking with an income plan long-term. We’ve used the three-bucket plan now for more than three decades and have seen it work in up and down markets, both early and late in the retirement years.
bucket strategy retirement planning

How the Bucket Strategy Fits into Income Planning

The short-term bucket is used for income that is needed in the next one to three years to fill your income gap. This is your most conservative investment bucket and is protected from market turmoil. By pulling income from the short-term bucket, income isn’t pulled from assets that have suffered losses during down markets.

The mid-term bucket is for money that isn’t for immediate needs. The usual timeframe for this is money needed within four to six years. The investments in this bucket are not as conservative as bucket one and not as growth-minded as bucket three. Once bucket one money is depleted, money from bucket two is moved to bucket one. Simultaneously, money can be moved from bucket three to refill bucket two.

The long-term bucket is designated for income that isn’t needed for more than seven years. The investments in this bucket can participate to a greater extent in market gains. When bucket two is depleted, new money can be transferred from this bucket. In years when markets have experienced gains, money can also be used for larger purchases such as vacations, new cars, fun, and gifts.


The three-bucket investment planning process is one of the essential components of retirement income planning, which can help you transition from working to retirement income. This process is needed as income planning during retirement is vastly different than living off of income from a paycheck during your career. There are many potential benefits to using the three-bucket planning process, including principal protection, tax minimization, investment optimization, and flexibility. By investing and income planning using three different timelines (short-term, mid-term, and long-term), families can have greater financial confidence all throughout their retirement years.

Our team at Advanced Retirement Strategies specializes in helping diligent savers in Utah with $250,000 or more of investment and retirement assets (not counting your primary residence) create and implement income plans to help them prepare for and then transition into retirement. We would love the opportunity to assist you. Just go to the get started page and set up a free 15-minute quick consult so we can get to know if our expertise matches your needs.

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