What Is the Three Bucket Retirement Strategy?

My mom used to say you should never put all your eggs in one basket.

When I was younger, I remember thinking, why are we carrying around baskets of eggs in the first place?

Eventually I understood the point.

And it is a pretty good lesson for retirement planning.

I generally do not believe someone should have all of their retirement money sitting in the bank.

I also do not believe all of it belongs in stocks, bonds, and mutual funds.

And I do not believe all of it belongs in insurance products.

Different dollars should have different jobs.

That is the basic idea behind what we call the three bucket approach.

What Are the Three Buckets in Retirement?

The three buckets are designed around three different purposes.

One is liquidity.

One is income.

One is long term growth.

Instead of asking one pool of money to do everything, you assign different portions of your retirement savings to different jobs.

That can make a big difference when markets become volatile.

Bucket One: Liquid Money

The first bucket is your liquid money.

This is money you can access relatively easily.

You might keep it in checking, savings, money market accounts, or other appropriate liquid vehicles.

Why is this bucket important?

Because retirement still comes with surprises.

The roof may need work.

The car may need replacing.

You may want to take a vacation.

You might decide to help a child or grandchild.

An unexpected healthcare expense may come up.

Having accessible cash means you do not necessarily have to sell a long term investment every time life throws something at you.

I am a big believer in having enough liquid money to help you sleep well at night.

The key is balance.

If you keep too much in cash for too long, that money may not grow enough to help offset inflation.

So liquidity should provide comfort without preventing the rest of the plan from working.

Bucket Two: Retirement Income

The second bucket is designed for income.

This is incredibly important because retirement changes how most people are paid.

For decades, you may have received a paycheck every couple of weeks.

Then retirement arrives, and suddenly you have to create your own paycheck.

But the bills do not stop.

You still have groceries.

Utilities.

Property taxes.

Insurance.

Travel.

Home projects.

And hopefully some money available for enjoying retirement.

The purpose of an income bucket is to help create a dependable source of retirement income so your lifestyle is not completely tied to what the stock market did this month.

That can provide a great deal of confidence.

Bucket Three: Long Term Growth

The third bucket is designed for growth.

This is money we ideally do not need for several years.

If I know I do not need to touch a portion of my portfolio for five years or more, that money has time to do what it is intended to do.

Grow.

That matters because retirement could last 20, 25, or 30 years.

Inflation does not stop when you retire.

Healthcare costs may increase.

The price of groceries, insurance, travel, and home repairs will likely change over time.

So most retirees still need some opportunity for long term growth.

Why Can the Three Bucket Strategy Reduce Retirement Anxiety?

This is where the pieces start working together.

Imagine the market has a terrible week.

If all of your money is invested and you need to sell some of those investments next month to pay your bills, that decline could feel very threatening.

Now imagine a different situation.

Your regular income needs are already addressed through your income bucket.

You have liquid cash available for near term needs.

Your growth money is intended for several years down the road.

Suddenly, today's market decline may feel very different.

You still pay attention.

But you may not feel like your lifestyle is immediately at risk.

That is one of the reasons I like giving money a purpose.

How Do the Retirement Buckets Work Together?

These buckets are not meant to sit there independently forever.

They work together.

Over time, you may use some of the money in your liquid bucket.

Eventually, that bucket may need to be replenished.

Meanwhile, your growth bucket has hopefully had time to grow.

At an appropriate time, part of that growth may be used to replenish liquidity while your income strategy continues to do its job.

There is a constant balancing process.

The point is not simply to own three different accounts.

The point is to create an intentional structure.

Build a Retirement Plan That Can Handle Different Economies

I often say we should hope for the best and plan for the worst.

I want a retirement strategy that can work when markets are strong.

But I also want a strategy that has a plan for periods when markets struggle.

We cannot predict every recession.

We cannot predict every interest rate change.

We cannot predict every political or economic headline.

What we can do is build a plan in which different parts of your money have distinct responsibilities.

When income, liquidity, and growth are working together, you may find that you are spending a lot less time worrying about today's market and a lot more time enjoying retirement.

If you are wondering whether your retirement savings are structured around clear purposes for income, liquidity, and long term growth, our team at Legacy Retirement Group is happy to talk it through with you. You can reach us at 614 336 7660 or visit LegacyRetirementGroup.com.