Skip to main content

Franklin - Local Town Pages

Your Money, Your Independence At or Near Retirement? Time to Say Bucket!.

Glenn Brown

Those at or near retirement face many decisions. 

Transitioning from a paycheck that builds savings to taking distributions from a lifetime of investing is a top challenge.  

Retirees view risks differently, including market volatility, sequence of returns, interest rates, inflation, health, and longevity to outlive money. Still, the greatest risk is behavioral as gone are the days of throwing new money at poor planning and decision making.

Some retirees completely change strategies. Others attempt to align investments to high yields (and unintended risks) to meet income needs. Many overcompensate to a feel-good cash amount.  

While noble, these “retirement strategies” lack in spending expectations, aspirational goals, variables, and opportunity costs. When market, economic or political turmoil depresses portfolios, fear drives many to react irrationally. This leaves them without a strategy and no new money to throw at poor planning and decision making.

How to approach a sustainable retirement income strategy? 

The Bucket Strategy. In its simplest form, it’s a retirement income strategy based on segmenting assets to when they’re being spent. This creates a cash cushion to cover income gaps early in retirement years, while maximizing remaining assets over longer periods. 

Time horizons and number of buckets are flexible, to start I propose 3 buckets. 

Bucket #1 needed in 1-3 years is cash, money market and CDs in a taxable account. Liquidity, safety, and low taxation to access funds are key.   

Bucket #2 needed in 4-6 years is a mix of investment grade bonds, low-volatility stocks and hard assets diversified across ETFs (exchange-traded funds) in taxable accounts and traditional IRAs. 

Bucket #3 needed in 7+ years is a mix of diversified growth investments and if applicable, real estate, concentrated stock, and legacy investments across taxable, traditional and Roth IRAs. Given Roth IRA’s tax-free benefits, these are the last funds to access.

As time moves forward, buckets are replenished in a tax efficient manner by either selling, transferring, and/or distributing (i.e. RMDs) assets from Bucket #3 to #2 and Bucket #2 to #1.

Easy? Let’s discuss critical prerequisites. 

Know your income gap. “We spend $8K a month, so we need $96K income a year.” No, spending doesn’t equal income needs. Say a spouse receives $20K in social security and other gets $35K starting next year. So Year 1 income gap is $76K ($96K - $20K) while Year 2 is $41K. 

All work and no play… What of your aspirational goals in retirement? Don’t wait until 75 to start, instead spend ahead and under control by planning a block of years and $ amount. For example, “From ages 62-72, add $20K extra per year for more travel.” 

What of future liabilities? A mortgage ending? New vehicles needed? A remodel or home repair? Moving to reduce costs and taxes? Assisted living? Gifting to help adult kids?

Build your cash flow analysis. By factoring income sources, assets, growth rates, planned distributions, living expenses, one-off expenses, liabilities, inflation, and taxes, we see positive or negative cash flows this year and in future years. 

Negative cash flow, a.k.a. your income gap, varies each year. 


2024  -$52K

2025  -$44K 

2026  -$65K

2027  -$34K

2028  -$21K

2029  -$24K

Bucket #1 is $161K, #2 has $79K and #3 is remaining assets seeking long-term growth. 

Come June 2024, review and confirm your spending rate, rerun cash flow with updated values, then raise 50% of 2027 (~$17K) from Bucket #2 to #1. In most tax efficient manner, move 50% of 2029 (~$12K) from Bucket #3 to #2. 

Rinse/Repeat every 6 months for ongoing 2.5 to 3 years of cash to cover income gaps. This reduces fear and large withdrawals, provides lifestyle confidence, and participates in long-term investment growth over market cycles. 

More to consider than space allows, so speak with your Certified Financial Planner.  

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Glenn Brown is a Holliston resident and owner of PlanDynamic, LLC, Glenn is a fee-only Certified Financial Planner™ helping motivated people take control of their planning and investing, so they can balance kids, aging parents, and financial independence.

Sponsored articles are submitted by our advertisers. The advertiser is solely responsible for the content of this article.